<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended JUNE 30, 1998
Commission File Number 0-10673
REAL ESTATE ASSOCIATES LIMITED III
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-3547611
9090 WILSHIRE BLVD., SUITE 201
BEVERLY HILLS, CALIF. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE> 2
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, June 30, 1998 and December 31, 1997.......................................1
Statements of Operations,
Six and Three Months Ended June 30, 1998 and 1997 ................................2
Statement of Partners' Equity (Deficiency),
Six Months Ended June 30, 1998 ...................................................3
Statements of Cash Flows,
Six Months Ended June 30, 1998 and 1997 ..........................................4
Notes to Financial Statements ............................................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................14
Item 6. Exhibits and Reports on Form 8-K.......................................................14
Signatures .......................................................................................15
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998
(Unaudited) 1997
------------ ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 1,377,421 $ 1,249,422
CASH AND CASH EQUIVALENTS (Note 1) 10,764,152 10,575,810
OTHER ASSETS 225,181 135,000
------------ ------------
TOTAL ASSETS $ 12,366,754 $ 11,960,232
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Notes payable (Notes 3 and 6) $ 1,510,000 $ 1,510,000
Interest payable (Notes 3 and 6) 394,540 414,277
Accounts payable 246,688 110,193
------------ ------------
2,151,228 2,034,470
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
PARTNERS' EQUITY (DEFICIENCY):
General partners (96,820) (99,718)
Limited partners 10,312,346 10,025,480
------------ ------------
10,215,526 9,925,762
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
EQUITY $ 12,366,754 $ 11,960,232
============ ============
</TABLE>
The accompanying notes are integral part of these financial statements.
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST AND OTHER INCOME $ 250,180 $ 125,341 $ 225,819 $ 115,875
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Legal and accounting 61,160 37,481 65,824 34,729
Management fees - general partner (Note 4) 227,400 113,700 227,400 113,710
Interest (Note 3) 75,500 37,750 75,500 37,750
Administrative (Notes 2 and 4) 373,542 164,464 43,941 24,132
------------- ------------- ------------- -------------
Total operating expenses 737,602 353,395 412,665 210,321
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (487,422) (228,054) (186,846) (94,446)
DISTRIBUTIONS FROM LIMITED PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 649,186 608,728 952,912 871,871
EQUITY IN INCOME OF LIMITED PARTNERSHIPS AND
AMORTIZATION OF ACQUISITION COSTS (Note 2) 128,000 64,000 128,000 64,000
------------- ------------- ------------- -------------
NET INCOME $ 289,764 $ 444,674 $ 894,066 $ 841,425
============= ============= ============= =============
NET INCOME PER LIMITED PARTNERSHIP INTEREST (Note 1) $ 25 $ 5 $ 78 $ 73
============= ============= ============= =============
</TABLE>
The accompanying notes are integral part of these financial statements.
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 11,456
===========
EQUITY (DEFICIENCY),
January 1, 1998 $ (99,718) $10,025,480 $ 9,925,762
Net income for the six months
ended June 30, 1998 2,898 286,866 289,764
----------- ----------- -----------
EQUITY (DEFICIENCY),
June 30, 1998 $ (96,820) $10,312,346 $10,215,526
=========== =========== ===========
</TABLE>
The accompanying notes are integral part of these financial statements.
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 289,764 $ 894,066
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of limited partnerships and
amortization of acquisition costs (128,000) (128,000)
Increase in other assets (90,181) --
Increase in interest and other payables 116,759 (927)
------------ ------------
Net cash provided by operating activities 188,342 765,139
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distribution from limited partnership
recognized as a return of investment -- 120,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 188,342 885,139
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,575,810 9,734,531
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,764,152 $ 10,619,670
============ ============
</TABLE>
The accompanying notes are integral part of these financial statements.
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
audited financial statements; accordingly, the financial statements
included herein should be reviewed in conjunction with the financial
statements and related notes thereto contained in the Real Estate
Associates Limited III (the "Partnership") annual report for the year
ended December 31, 1997. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The
results of operations for the interim period presented are not
necessarily indicative of the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position
as of June 30, 1998 and the results of operations for the six and three
months then ended and changes in cash flows for the six months then
ended.
The general partners have a 1 percent interest in profits and losses of
the Partnership. The limited partners have the remaining 99 percent
interest which is allocated in proportion to their respective individual
investments. National Partnership Investments Corp. (NAPICO) is the
corporate general partner of the Partnership. NAPICO is a wholly owned
subsidiary of Casden Investment Corporation, which is wholly owned by
Alan I. Casden.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investment in limited partnerships is accounted for on the equity
method. Acquisition, selection and other costs related to the
acquisition of the projects are capitalized as part of the investment
account, and are being amortized on a straight line basis over the
estimated lives of the underlying assets, which is generally 30 years.
NET INCOME PER LIMITED PARTNERSHIP INTEREST
Net income per limited partnership interest was computed by dividing the
limited partners' share of net income by the number of limited
partnership interests outstanding during the year. The number of limited
partnership interests was 11,456 for the periods presented.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit with an original maturity of three months or less. The
Partnership has its cash and cash equivalents on deposit primarily with
two high credit quality institutions. Such cash and cash equivalents are
in excess of the FDIC insurance limit.
INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements since such taxes, if any, are the liability of the
individual partners.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership reviews long-lived assets to determine if there has been
any permanent impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
If the sum of the expected future cash flows is less than the carrying
amount of the assets, the Partnership recognizes an impairment loss.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership holds limited partnership interests in 26 limited
partnerships. In addition, the Partnership holds a general partner
interest in REA. NAPICO is also a general partner in REA. REA, in turn,
holds limited partner interests in six additional limited partnerships.
In total, therefore, the Partnership holds interest, either directly or
indirectly including through REA, 32 partnerships which own residential
rental projects consisting of 3,062 apartment units. The mortgage loans
of these projects are insured by the United States Department of Housing
and Urban Development ("HUD") or state governmental agencies.
The Partnership, as a limited partner, is entitled to between 75 percent
and 99 percent of the profits and losses of the limited partnerships it
has invested in directly. The Partnership is also entitled to 99.9
percent of the profits and losses of REA. REA holds a 99 percent
interest in each of the limited partnerships in which it has invested.
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Equity in losses of limited partnerships is recognized in the financial
statements until the limited partnership investment account is reduced
to a zero balance. Losses incurred after the limited partnership
investment account is reduced to zero are not recognized.
Distributions from limited partnerships are recognized as a reduction of
capital until the investment balance has been reduced to zero.
Subsequent distributions received are recognized as income.
The following is a summary of the investment in limited partnerships for
the six months ended June 30, 1998:
<TABLE>
<S> <C>
Balance, beginning of period $ 1,249,421
Amortization of acquisitions costs (27,000)
Equity in income of limited partnerships 155,000
-----------
Balance, end of period $ 1,377,421
===========
</TABLE>
The following are unaudited combined estimated statements of operations
for the six and three months ended June 30, 1998 and 1997 for the
limited partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1998 June 30, 1998 June 30,1997 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Rental and other $ 11,586,000 $ 5,793,000 $ 11,194,000 $ 5,597,000
------------- ------------- ------------- -------------
EXPENSES
Depreciation 1,836,000 918,000 1,878,000 939,000
Interest 3,464,000 1,732,000 3,514,000 1,757,000
Operating 6,026,000 3,013,000 6,218,000 3,109,000
------------- ------------- ------------- -------------
11,326,000 5,663,000 11,610,000 5,805,000
------------- ------------- ------------- -------------
NET (LOSS) INCOME $ 260,000 $ 130,000 $ (416,000) $ (208,000)
============= ============= ============= =============
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Under recently adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("HAP Contracts") on their
existing terms. In connection with renewals of the HAP Contracts under
such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above
market rentals, which was generally the case under existing HAP
Contracts. As a result, existing HAP Contracts that are renewed in the
future on projects insured by the Federal Housing Administration of HUD
("FHA") will not provide sufficient cash flow to permit owners of
properties to meet the debt service requirements of these existing
FHA-insured mortgages. In order to address the reduction in payments
under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which
was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject to HAP
Contracts that have been renewed under the new policy. The restructured
loans will be held by the current lender or another lender. Under
MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the
annual debt service on such loan. There can be no assurance that the
Partnership will be permitted to restructure its mortgage indebtedness
pursuant to the new HUD rules implementing MAHRAA or that the
Partnership would choose to restructure such mortgage indebtedness if it
were eligible to participate in the MAHRAA program. It should be noted
that there are uncertainties as to the economic impact on the
Partnership of the combination of the reduced payments under the HAP
Contracts and the restructuring of the existing FHA-insured mortgage
loans under MAHRAA. Accordingly, the General Partners are unable to
predict with certainty their impact on the Partnership's future cash
flow.
As a result of the foregoing, the Partnership is undergoing an extensive
review of the properties in which the limited partnerships have invested
that are subject to HUD mortgages and which may be sold to the REIT as
set forth below. The Partnership has incurred expenses in connection
with this review by various third party professionals, including
accounting, legal, valuation, structural review and engineering costs,
which amounted to approximately $469,000 through June 30, 1998,
including approximately $328,000 for the six months ended June 30, 1998,
which are included in general and administrative expenses.
A real estate investment trust ("REIT") organized by affiliates of
NAPICO has advised the Partnership that it intends to make a proposal to
purchase from the Partnership certain of the limited partnership
interests held for investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for
cash, which it plans to raise in connection with a private placement of
its equity securities. The purchase is subject to, among other things,
(i) consummation of such private placement by the REIT; (ii) the
purchase of the general partnership interests in the local limited
partnerships by the REIT; (iii) the approval of HUD and certain state
housing finance agencies; (iv) the consent of the limited partners to
the sale of the local limited partnership interests held for investment
by REAL III; and (v) the consummation of a minimum number of purchase
transactions with other NAPICO affiliated partnerships. As of June 30,
1998, the REIT had completed buy-out negotiations with a majority of the
general partners of the local limited partnerships.
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
A consent solicitation statement will be sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together
with certain amendments to the Partnership Agreement and other
disclosures of various conflicts of interest in connection with the
proposed transaction.
NOTE 3 - NOTES PAYABLES
Certain of the Partnership's investments involved purchases of
partnership interests from partners who subsequently withdrew from the
operating partnerships. The Partnership is obligated on non-recourse
notes payable of $1,510,000, bearing interest at 10 percent, to the
sellers of the partnership interests. These notes are payable by the
Partnership through REA, and have principal maturity dates in June 2020
and March 2024 or upon the sale or refinancing of the underlying
partnership properties. These notes and the related interest are
collateralized by REA's investment in the respective limited
partnerships and are payable only out of cash distributions from the
investee partnerships, as defined in the notes. Unpaid interest is due
at maturity of the notes.
NOTE 4 - MANAGEMENT FEE AND EXPENSES DUE TO GENERAL PARTNER
Under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to NAPICO for an annual
management fee approximately equal to .4 percent of the invested assets.
Invested assets are defined as the costs of acquiring project interests,
including the proportionate amount of the mortgage loans related to the
Partnership's interests in the capital accounts of the respective
partnership. The management fee incurred for the six months ended June
30, 1998 and 1997 was approximately $227,400.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was approximately $17,615 and $16,441 for
the six months ended June 30, 1998 and 1997, respectively, and is
included in administrative expenses.
NOTE 5 - CONTINGENCIES
The corporate general partner of the Partnership is involved in various
lawsuits arising from transactions in the ordinary course of business.
In the opinion of management and the corporate general partner, the
claims will not result in any material liability to the Partnership.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that
no significant actions are required to be taken by the Partnership to
address the issue and that the impact of the Year 2000 computer systems
issue will not materially affect the Partnership's future operating
results or financial condition.
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, when it is practicable to
estimate that value. The notes payable are collateralized by the
Partnership's investments in the investee limited partnerships and are
payable only out of cash distributions from the investee partnerships.
The operations generated by the investee limited partnerships are
subject to various government rules, regulations and restrictions which
make it impracticable to estimate the fair value of the notes payable
and related accrued interest. The carrying amount of other assets and
liabilities reported on the balance sheets that require such disclosure
approximates fair value due to their short-term maturity.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds include interest income
earned from investing available cash and distributions from limited
partnerships in which the Partnership has invested. It is not expected
that any of the local limited partnerships in which the Partnership has
invested will generate cash flow sufficient to provide for distributions
to the Partnership's limited partners in any material amount.
RESULTS OF OPERATIONS
Partnership revenues consist primarily of interest income earned on
certificates of deposit and other temporary investment of funds not
required for investment in local partnerships.
Operating expenses consist primarily of recurring general and
administrative expenses and professional fees for services rendered to
the Partnership. In addition, an annual Partnership management fee in an
amount equal to .4 percent of investment assets is payable to the
corporate general partner.
The Partnership accounts for its investments in the local limited
partnerships on the equity method, thereby adjusting its investment
balance by its proportionate share of the income or loss of the local
limited partnerships. Losses incurred after the limited partnership
investment account is reduced to zero are not recognized in accordance
with the equity accounting method.
Distributions received from limited partnerships are recognized as
return of capital until the investment balance has been reduced to zero
or to a negative amount equal to future capital contributions required.
Subsequent distributions received are recognized as income. Overall
distributions from limited partnerships continue to be favorable. This
primarily is due, to improved operating results at several of the
properties.
Except for certificates of deposit and money market funds, the
Partnership's investments are entirely interests in other limited
partnerships owning government assisted projects. Funds temporarily not
required for such investments in projects are invested in certificate of
deposit and money market funds which provide substantial amounts of
interest as reflected in the statement of operations. These investments
are converted to cash to meet obligations as they arise. The Partnership
intends to continue investing available funds in this manner.
The Partnership is obligated on non-recourse notes payable of $1,510,000
which bear interest at 10 percent per annum and have principal
maturities ranging from June 2020 to March 2024. The notes and related
interest are payable from cash flow generated from operations of the
related rental properties as defined in the notes. These obligations are
collateralized by the Partnership's investments in the limited
partnerships. Unpaid interest is due at maturity of the notes. Because
no payments have been made on these notes, interest expense has remained
constant for each of the three years.
11
<PAGE> 14
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Under recently adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("HAP Contracts") on their
existing terms. In connection with renewals of the HAP Contracts under
such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above
market rentals, which was generally the case under existing HAP
Contracts. As a result, existing HAP Contracts that are renewed in the
future on projects insured by the Federal Housing Administration of HUD
("FHA") will not provide sufficient cash flow to permit owners of
properties to meet the debt service requirements of these existing
FHA-insured mortgages. In order to address the reduction in payments
under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which
was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject to HAP
Contracts that have been renewed under the new policy. The restructured
loans will be held by the current lender or another lender. Under
MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the
annual debt service on such loan. There can be no assurance that the
Partnership will be permitted to restructure its mortgage indebtedness
pursuant to the new HUD rules implementing MAHRAA or that the
Partnership would choose to restructure such mortgage indebtedness if it
were eligible to participate in the MAHRAA program. It should be noted
that there are uncertainties as to the economic impact on the
Partnership of the combination of the reduced payments under the HAP
Contracts and the restructuring of the existing FHA-insured mortgage
loans under MAHRAA. Accordingly, the General Partners are unable to
predict with certainty their impact on the Partnership's future cash
flow.
As a result of the foregoing, the Partnership is undergoing an extensive
review of the properties in which the limited partnerships have invested
that are subject to HUD mortgages and which may be sold to the REIT as
set forth below. The Partnership has incurred expenses in connection
with this review by various third party professionals, including
accounting, legal, valuation, structural review and engineering costs,
which amounted to approximately $469,000 through June 30, 1998,
including approximately $328,000 for the six months ended June 30, 1998,
which are included in general and administrative expenses.
A real estate investment trust ("REIT") organized by affiliates of
NAPICO has advised the Partnership that it intends to make a proposal to
purchase from the Partnership certain of the limited partnership
interests held for investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for
cash, which it plans to raise in connection with a private placement of
its equity securities. The purchase is subject to, among other things,
(i) consummation of such private placement by the REIT; (ii) the
purchase of the general partnership interests in the local limited
partnerships by the REIT; (iii) the approval of HUD and certain state
housing finance agencies; (iv) the consent of the limited partners to
the sale of the local limited partnership interests held for investment
by REAL III; and (v) the consummation of a minimum number
12
<PAGE> 15
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
of purchase transactions with other NAPICO affiliated partnerships. As
of June 30, 1998, the REIT had completed buy-out negotiations with a
majority of the general partners of the local limited partnerships.
A consent solicitation statement will be sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together
with certain amendments to the Partnership Agreement and other
disclosures of various conflicts of interest in connection with the
proposed transaction.
13
<PAGE> 16
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The corporate general partner is involved in various lawsuits. None of
these are related to REAL III.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 7 of regulation
S-K.
14
<PAGE> 17
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)
By: National Partnership Investments Corp.
General Partner
/s/ BRUCE NELSON
--------------------------------------
Bruce Nelson
President
Date: 8/14/98
--------------------------------------
/s/ CHARLES H. BOXENBAUM
--------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: 8/14/98
--------------------------------------
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,764,152
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,989,333
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,366,754
<CURRENT-LIABILITIES> 246,688
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,215,526
<TOTAL-LIABILITY-AND-EQUITY> 12,366,754
<SALES> 0
<TOTAL-REVENUES> 1,027,366
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 662,102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,500
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