SHELTER PROPERTIES III LTD PARTNERSHIP, 10KSB, 1999-03-26

SHELTER PROPERTIES III LTD PARTNERSHIP
10KSB, 1999-03-26
REAL ESTATE

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FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D)

(As last amended by 34-31905, eff. 4/26/93)
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [No Fee Required]

For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]

For the transition period from.........to.........

Commission file number 0-10260

SHELTER PROPERTIES III
(Name of small business issuer in its charter)

South Carolina 57-0718508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)

(864) 239-1000
Issuer's telephone number

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Units of Limited Partnership Interest
(Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year. $5,490,000

State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1998. No market exists for the limited
partnership interests of the Registrant, and, therefore, no aggregate market
value can be determined.
DOCUMENTS INCORPORATED BY REFERENCE

None

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Shelter Properties III (the "Partnership" or "Registrant") was organized as a
limited partnership under the laws of the State of South Carolina on May 15,
1981. The general partner responsible for management of the Partnership's
business is Shelter Realty III Corporation, a South Carolina corporation (the
"Corporate General Partner"). The only other general partner of the Partnership
is N. Barton Tuck, Jr. Mr. Tuck is not an affiliate of the Corporate General
Partner and is effectively prohibited by the Partnership's partnership agreement
(the "Partnership Agreement") from participating in the management of the
Partnership. The Corporate General Partner is a subsidiary of Apartment
Investment and Management Company ("AIMCO"). The Partnership Agreement provides
that the Partnership is to terminate on December 31, 2021 unless terminated
prior to such date.

The Registrant is engaged in the business of operating and holding real
properties for investment. In 1981 and 1982, during its acquisition phase, the
Registrant acquired five existing apartment properties. The Registrant
continues to own and operate four of these properties. See "Item 2, Description
of Properties."

Commencing September 2, 1981, the Registrant offered pursuant to a Registration
Statement filed with the Securities and Exchange Commission up to 54,800 Units
of Limited Partnership Interest (the "Units") at a purchase price of $500 per
Unit with a minimum purchase of 10 Units ($5,000) or 3 Units ($1,500) for an
Individual Retirement Account. An additional 200 Units were purchased by the
Corporate General Partner.

The offering terminated on March 22, 1982. Upon termination of the offering,
the Registrant had accepted subscriptions for 55,000 Units, including 200 Units
purchased by the Corporate General Partner, for an aggregate of $27,500,000. The
Registrant invested approximately $21,000,000 of such proceeds in five existing
apartment properties. Since its initial offering, the Registrant has not
received, nor are limited partners required to make, additional capital
contributions.

A further description of the Partnership's business is included in Management's
Discussion and Analysis or Plan of Operation included in "Item 6" of this Form
10-KSB.

The Registrant has no employees. Management and administrative services are
provided by the Corporate General Partner and by agents retained by the
Corporate General Partner. These services were provided by an affiliate of the
Corporate General Partner for the years ended December 31, 1998 and 1997.

The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Registrant's properties. The number and quality of competitive properties,
including those which may be managed by an affiliate of the Corporate General
Partner in such market area could have a material effect on the rental market
for the apartments at the Registrant's properties and the rents that may be
charged for such apartments. While, the Corporate General Partner and its
affiliates are a significant factor in the United States in the apartment
industry, competition for apartments is local. In addition, various limited
partnerships have been formed by the General Partners and/or their affiliates to
engage in business which may be competitive with the Registrant.

Both the income and expenses of operating the remaining properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential
properties because such properties are susceptible to the impact of economic and
other conditions outside of the control of the Partnership.

There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.

The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases environmental testing has been performed, which resulted in no material
adverse conditions or liabilities. In no case has the Partnership received
notice that it is a potentially responsible party with respect to an
environmental clean up site.

Transfer of Control

Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls the
Corporate General Partner. The Corporate General Partner does not believe that
this transaction will have a material effect on the affairs and operations of
the Partnership.

ITEM 2. DESCRIPTION OF PROPERTIES:

The following table sets forth the Registrant's investments in properties:

Date of
Property Purchase Type of Ownership Use

Essex Park Apartments 10/29/81 Fee ownership subject Apartment
Columbia, South Carolina to first and second 323 units
mortgages

Colony House Apartments 10/31/81 Fee ownership subject Apartment
Murfreesboro, Tennessee to first and second 194 units
mortgages

North River Village Apartments 04/21/82 Fee ownership subject Apartment
Atlanta, Georgia to first and second 133 units
mortgages (1)

Willowick Apartments 06/30/82 Fee ownership subject Apartment
Greenville, South Carolina to first and second 180 units
mortgages
(1) Property is held by a Limited Partnership which the Registrant owns a 99.99%
interest in.

SCHEDULE OF PROPERTIES:

Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.
<TABLE>
<CAPTION>

Gross

Carrying Accumulated Federal

Property Value Depreciation Rate Method Tax Basis

(in thousands) (in thousands)

Essex Park Apartments $10,055 $ 5,790 5-36 S/L $ 1,533

Colony House Apartments 5,829 3,369 5-36 S/L 673

North River Village Apartments 5,730 3,341 5-32 S/L 902

Willowick Apartments 4,618 2,643 5-32 S/L 659

Totals $26,232 $15,143 $ 3,767

</TABLE>

See "Note A" of the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the partnership's depreciation
policy.

SCHEDULE OF PROPERTY INDEBTEDNESS:

The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
<TABLE>
<CAPTION>

Principal Principal

Balance At Stated Balance

December 31, Interest Period Maturity Due At

Property 1998 Rate Amortized Date Maturity (3)

(in thousands) (in thousands)

Essex Park Apartments

1st mortgage $3,016 7.60% (1) 11/15/02 $ 2,552

2nd mortgage 109 7.60% none 11/15/02 109

Colony House Apartments

1st mortgage 2,248 7.60% (1) 11/15/02 1,903

2nd mortgage 81 7.60% none 11/15/02 81

North River Village

1st mortgage 1,628 7.83% (2) 10/15/03 1,489

2nd mortgage 54 7.83% none 10/15/03 54

Willowick Apartments

1st mortgage 1,178 7.60% (1) 11/15/02 997

2nd mortgage 43 7.60% none 11/15/02 43

8,357

Less unamortized

present value discounts (261)

Total $ 8,096 $ 7,228

</TABLE>

(1) The principal balance is being amortized over 257 months with a balloon
payment due November 15, 2002.
(2) The principal balance is being amortized over 344 months with a balloon
payment due October 15, 2003.
(3) See "Item 7, Financial Statements _ Note C" for information with respect to
the Registrant's ability to prepay these loans and other specific details
about the loans.

RENTAL RATES AND OCCUPANCY:

Average annual rental rate and occupancy for 1998 and 1997 for each property:

Average Annual Average Annual

Rental Rates Occupancy

Property 1998 1997 1998 1997

Essex Park $6,309 $6,084 94% 95%

Colony House 7,531 7,470 91% 90%

North River Village 8,972 8,826 94% 91%

Willowick 5,781 5,688 92% 92%

The Corporate General Partner attributes the increase in occupancy at North
River Village Apartments to an increase of promotion and advertising used by the
property's management.

As noted under "Item 1. Description of Business," the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes in the area. The
Corporate General Partner believes that all of the properties are adequately
insured. Each property is an apartment complex which leases units for lease
terms of one year or less. No residential tenant leases 10% or more of the
available rental space. All of the properties are in good physical condition,
subject to normal depreciation and deterioration as is typical for assets of
this type and age.

CAPITAL IMPROVEMENTS:

Essex Park

During 1998, the Partnership completed approximately $127,000 of capital
improvements at the property, consisting primarily of roof replacements, floor
covering and appliance replacement, land improvements and other building
improvements. These improvements were funded primarily from cash flow. Based on
a report received from an independent third party consultant analyzing necessary
exterior improvements and estimates made by the Corporate General Partner on
interior improvements, it is estimated that the property requires approximately
$278,000 of capital improvements over the near term. Capital improvements
budgeted for, but not limited to, approximately $289,000 are planned for 1999
consisting of floor covering and appliance replacement, swimming pool repairs
and major landscaping.

Colony House

During 1998, the Partnership completed approximately $96,000 of capital
improvements at the property, consisting primarily of roof replacements, HVAC
condensing unit and floor covering replacements. These improvements were funded
primarily from cash flow. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Corporate General Partner on interior improvements, it is estimated that the
property requires approximately $278,000 of capital improvements over the near
term. Capital improvements budgeted for, but not limited to, approximately
$254,000 are planned for 1999 consisting of roof repairs, air conditioning
system repairs, electrical, parking lot and major landscaping.

North River Village

During 1998, the Partnership completed approximately $67,000 of capital
improvements at the property, consisting primarily of floor covering and
appliance replacements and other building improvements. These improvements were
funded primarily from cash flow. Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the Corporate General Partner on interior improvements, it is estimated
that the property requires approximately $76,000 of capital improvements over
the near term. Capital improvements budgeted for, but not limited to,
approximately $104,000 are planned for 1999 consisting of floor covering and air
conditioning system repairs.

Willowick

During 1998, the Partnership completed approximately $62,000 of capital
improvements at the property, consisting primarily of air conditioning system
repairs, appliance replacements, and floor covering. These improvements were
funded primarily from cash flow. Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the Corporate General Partner on interior improvements, it is estimated
that the property requires approximately $278,000 of capital improvements over
the near term. Capital improvements budgeted for, but not limited to,
approximately $406,000 are planned for 1999 consisting of parking lot and
swimming pool repairs, exterior painting, and major landscaping.

The capital improvements planned for 1999 at the Partnership's properties will
be made only to the extent of cash available from operations and Partnership
reserves.

REAL ESTATE TAXES AND RATES:

Real estate taxes and rates in 1998 for each property were:

1998 1998

Billing Rate

(in thousands)

Essex Park $122 28.41%

Colony House 103 4.64%

North River Village 66 3.95%

Willowick 69 31.53%

ITEM 3. LEGAL PROCEEDINGS

In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Corporate General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates as well as a recently
announced agreement between Insignia and Apartment Investment and Management
Company. The complaint seeks monetary damages and equitable relief, including
judicial dissolution of the Partnership. On June 25, 1998, the Corporate General
Partner filed a motion seeking dismissal of the action. In lieu of responding to
the motion, the plaintiffs have filed an amended complaint. The Corporate
General Partner has filed demurrers to the amended complaint which were heard
during February 1999. No ruling on such demurrers has been received. The
Corporate General Partner does not anticipate that costs associated with this
case, if any, to be material to the Partnership's overall operations.

On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled EVEREST PROPERTIES, LLC. V.
INSIGNIA FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of
California, county of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. The expense
will not have a material effect on the Partnership's net operations.

The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the quarter ended December 31, 1998, no matter was submitted to a vote of
unit holders through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR PARTNERSHIP EQUITY AND RELATED PARTNER MATTERS

The Partnership, a publicly-held limited partnership, offered and sold 54,800
limited partnership units aggregating $27,400,000. An additional 200 units were
purchased by the Corporate General Partner. The Partnership currently has 2,110
holders of record owning an aggregate of 55,000 Units. Affiliates of the
Corporate General Partner owned 18,592 units or 33.804% at December 31, 1998.
No public trading market has developed for the Units, and it is not anticipated
that such a market will develop in the future.
During the years ended December 31, 1998 and 1997, distributions of $2,200,000
($39.60 per limited partnership unit) and $700,000 ($12.60 per limited
partnership unit), were paid from operations, respectively. Future cash
distributions will depend on the levels of net cash generated from operations,
refinancings, property sales and the availability of cash reserves. The
Partnership's distribution policy is reviewed on a quarterly basis. There can
be no assurance, however, that the Partnership will generate sufficient funds
from operations after required capital expenditures to permit any distributions
to its partners in 1999 or subsequent periods. In addition, the Partnership is
restricted from making distributions if the amount in the reserve account for
each property maintained by the mortgage lender is less than $1,000 per
apartment unit at Colony House, Essex Park, and Willowick and $400 per apartment
unit at North River Village. The reserve accounts are currently fully funded.
See "Item 2. Capital Improvements" and "Item 6. Management's Discussion and
Analysis or Plan of Operation" for information relating to anticipated capital
expenditures at the properties.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussions
of the Registrant's business and results of operations, including forward-
looking statements pertaining to such matters, does not take into account the
effects of any changes to the Registrant's business and results of operations.
Accordingly, actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.

Results of Operations

The Registrant's net income for the year ended December 31, 1998 was
approximately $794,000 as compared to $491,000 for the year ended December 31,
1997. (See "Note D" of the consolidated financial statements for a
reconciliation of these amounts to the Registrant's federal taxable income).
The increase in net income was primarily due to a decrease in total expenses and
to a lesser extent an increase in total revenue. Revenues increased due to an
increase in rental income, which was partially offset by a decrease in other
income. The increase in rental income is primarily attributable to the increase
in average annual rental rates at all four of the Registrant's investment
properties and to a lesser extent an increase in occupancy at North River
Village, all of which more than offset the small decrease in occupancy at Essex
Park. Other income decreased primarily due to a decrease in cleaning and damage
fees at all of the Registrant's investment properties.

Expenses decreased primarily due to reductions in operating and depreciation
expenses. Operating expense decreased due to the completion of (i) roof
replacements at North River Village during 1997, (ii) interior building
improvements incurred during 1997 at Colony House and Essex Park Apartments,
(iii) major landscaping at Essex Park, Willowick and North River Village
performed in 1997, and (iv) tennis court repairs at Colony House during 1997.
The decrease in depreciation expense is attributable to assets becoming fully
depreciated during 1998.

General and administrative expense remained relatively constant for the
comparable periods. Included in general and administrative expenses at both
December 31, 1998 and 1997 are management reimbursements to the Corporate
General Partner allowed under the Partnership Agreement. In addition, costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit and appraisals required by the
Partnership Agreement are also included.

Management relies on the annual appraisals performed by outside appraisers to
assess the impairment of the investment properties. There are three recognized
approaches or techniques available to the appraiser. When applicable, these
approaches are used to process the data considered significant to each to arrive
at separate value indications. In all instances the experience of the
appraiser, coupled with his objective judgment, plays a major role in arriving
at the conclusions of the indicated value from which the final estimate of value
is made. The three approaches commonly known are the cost approach, the sales
comparison approach, and the income approach. The cost approach is often not
considered to be reliable due to the lack of land sales and the significant
amount of depreciation and, therefore, is often not presented. Upon receipt of
the appraisals, any property which is stated on the books of the Registrant
above the estimated value given in the appraisal, is written down to the
estimated value given by the appraiser. The appraiser assumes a stabilized
occupancy at the time of the appraisal and, therefore, any impairment of value
is considered to be permanent by Management. For the year ended December 31,
1998, no adjustments for impairment of value were recorded.

As part of the ongoing business plan of the Registrant, the Corporate General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Registrant from increases in
expense. As part of this plan, the Corporate General Partner attempts to
protect the Registrant from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Corporate General Partner will be able to sustain
such a plan.

Liquidity and Capital Resources

At December 31, 1998, the Registrant had cash and cash equivalents of
approximately $630,000 as compared to approximately $1,624,000 at December 31,
1997. The decrease in cash and cash equivalents is due to approximately
$392,000 of cash used in investing activities and approximately $2,437,000 of
cash used in financing activities, which was partially offset by approximately
$1,835,000 of cash provided by operating activities. Cash used in investing
activities consisted of capital improvements and deposits to the escrow accounts
maintained by the mortgage lender. Cash used in financing activities consisted
of payments of principal made on the mortgages encumbering the Registrant's
properties and partner distributions. The Registrant invests its working
capital reserves in a money market account.

The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Registrant and to comply with Federal,
state, and local legal and regulatory requirements. The Registrant has budgeted
approximately $1,053,000 in capital improvements for all of the Registrant's
properties in 1999. Budgeted capital improvements at Essex Park include floor
covering and appliance replacement, swimming pool repairs and major landscaping.
Budgeted capital improvements at Colony House consist of roof replacements, air
conditioning system repairs, electrical, parking lot and landscaping. Budgeted
capital improvements at North River Village consist of floor covering and air
conditioning system repairs. Budgeted capital improvements at Willowick consist
of parking lot and swimming pool repairs, exterior painting, and major
landscaping. The capital expenditures will be incurred only if cash is
available from operations or from partnership reserves. To the extent that
such budgeted capital improvements are completed, the Registrant's distributable
cash flow, if any, may be adversely affected at least in the short term.

The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $8,096,000, net of discount, is amortized over
varying periods with required balloon payments ranging from November 15, 2002 to
October 15, 2003. The Corporate General Partner will attempt to refinance such
indebtedness and/or sell the properties prior to such maturity date. If the
properties cannot be refinanced or sold for a sufficient amount, the Registrant
will risk losing such properties through foreclosure.

Cash distributions from operations of approximately $2,200,000 and $700,000 were
made during the year ended December 31, 1998 and 1997, respectively. The
Registrant's distribution policy is reviewed on a quarterly basis. There can be
no assurance, however, that the Registrant will generate sufficient funds from
operations after required capital expenditures to permit further distributions
to its partners in 1999 or subsequent periods.

Year 2000 Compliance

General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems

The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Corporate General Partner and its affiliates for
management and administrative services ("Managing Agent"). Any of the computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.

Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.

The Managing Agent's plan to resolve Year 2000 issues involves four Phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.

Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase

Computer Hardware:

During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers and routers
and desktop PCs were analyzed for compliance. The Managing Agent has begun to
replace each of the non-compliant network connections and desktop PCs and, as of
December 31, 1998, had completed approximately 75% of this effort.

The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by March
31, 1999.

Computer software:

The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.

During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and the testing process is
expected to be completed by March 31, 1999.

The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
March 31, 1999.

Operating Equipment:

The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).

The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by March 31, 1999.

Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of December 31, 1998 the Managing Agent
has evaluated approximately 86% of the operating equipment for the Year 2000
compliance.

The total cost incurred for all properties managed by the Managing Agent as of
December 31, 1998 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by April 30, 1999.

The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within our enterprise.

Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000

The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.

The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.

The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.

Costs to Address Year 2000

The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.

Risks Associated with the Year 2000

The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.

In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.

Contingency Plans Associated with the Year 2000

The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.

ITEM 7. FINANCIAL STATEMENTS

SHELTER PROPERTIES III

LIST OF FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Auditors

Consolidated Balance Sheet - December 31, 1998

Consolidated Statements of Operations - Years ended December 31, 1998 and
1997

Consolidated Statements of Changes in Partners' Capital (Deficit) - Years
ended December 31, 1998 and 1997

Consolidated Statements of Cash Flows - Years ended December 31, 1998 and
1997

Notes to Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Auditors

The Partners
Shelter Properties III

We have audited the accompanying consolidated balance sheet of Shelter
Properties III as of December 31, 1998, and the related consolidated statements
of operations, changes in partners' capital (deficit) and cash flows for each of
the two years in the period ended December 31, 1998. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Shelter Properties
III at December 31, 1998, and the consolidated results of its operations and its
cash flows for each of the two years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.

/s/ERNST & YOUNG LLP

Greenville, South Carolina
March 3, 1999

SHELTER PROPERTIES III

CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1998

Assets

Cash and cash equivalents $ 630

Receivables and deposits 410

Restricted escrows 946

Other assets 190

Investment properties (Notes C and F):

Land $ 1,281

Buildings and related personal property 24,951

26,232

Less accumulated depreciation (15,143) 11,089

$13,265

Liabilities and Partners' Capital (Deficit)

Liabilities

Accounts payable $ 61

Tenant security deposit liabilities 109

Accrued property taxes 252

Other liabilities 390

Mortgage notes payable (Notes C and F) 8,096

Partners' Capital (Deficit)

General partners $ (89)

Limited partners (55,000 units

issued and outstanding) 4,446 4,357

$13,265

See Accompanying Notes to Consolidated Financial Statements

SHELTER PROPERTIES III

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)

Years Ended December 31,

1998 1997

Revenues:

Rental income $5,102 $5,025

Other income 388 427

Total revenues 5,490 5,452

Expenses:

Operating 2,469 2,675

General and administrative 205 207

Depreciation 914 941

Interest 746 762

Property taxes 362 376

Total expenses 4,696 4,961

Net income (Note D) $ 794 $ 491

Net income allocated to general partners (1%) $ 8 $ 5

Net income allocated to limited partners (99%) 786 486

$ 794 $ 491

Net income per limited partnership unit $14.29 $ 8.84

Distribution per limited partnership unit $39.60 $12.60

See Accompanying Notes to Consolidated Financial Statements

SHELTER PROPERTIES III

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)

Limited

Partnership General Limited

Units Partners Partners Total

Original capital contributions 55,000 $ 2 $27,500 $27,502

Partners' (deficit) capital

at December 31, 1996 55,000 $(73) $ 6,045 $ 5,972

Distributions to partners -- (7) (693) (700)

Net income for the year

ended December 31, 1997 -- 5 486 491

Partners' (deficit) capital

at December 31, 1997 55,000 (75) 5,838 5,763

Distributions to partners -- (22) (2,178) (2,200)

Net income for the year

ended December 31, 1998 -- 8 786 794

Partners' (deficit) capital

at December 31, 1998 55,000 $(89) $ 4,446 $ 4,357

See Accompanying Notes to Consolidated Financial Statements

SHELTER PROPERTIES III

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Years ended December 31,

1998 1997

Cash flows from operating activities:

Net income $ 794 $ 491

Adjustments to reconcile net income to

net cash provided by operating activities:

Depreciation 914 941

Amortization of discounts and loan costs 98 95

Change in accounts:

Receivables and deposits (181) 202

Other assets 13 (19)

Accounts payable (56) 67

Tenant security deposit liabilities (11) (17)

Accrued property taxes 252 (204)

Other liabilities 12 (10)

Net cash provided by operating activities 1,835 1,546

Cash flows from investing activities:

Property improvements and replacements (352) (474)

Deposits to restricted escrows (40) (37)

Net cash used in investing activities (392) (511)

Cash flows from financing activities:

Payments on mortgage notes payable (237) (220)

Partners' distributions (2,200) (700)

Net cash used in financing activities (2,437) (920)

Net (decrease) increase in cash and cash equivalents (994) 115

Cash and cash equivalents at beginning of year 1,624 1,509

Cash and cash equivalents at end of year $ 630 $ 1,624

Supplemental disclosure of cash flow information:

Cash paid for interest $ 649 $ 666

See Accompanying Notes to Consolidated Financial Statements

SHELTER PROPERTIES III

Notes to Consolidated Financial Statements
December 31, 1998

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization: Shelter Properties III (the "Partnership" or "Registrant") was
organized as a limited partnership under the laws of the State of South Carolina
on May 15, 1981. The general partner responsible for management of the
Partnership's business is Shelter Realty III Corporation, a South Carolina
corporation (the "Corporate General Partner"). The only other general partner of
the Partnership is N. Barton Tuck, Jr. Mr. Tuck is not an affiliate of the
Corporate General Partner and is effectively prohibited by the Partnership's
partnership agreement (the "Partnership Agreement") from participating in the
management of the Partnership. The Corporate General Partner is a subsidiary of
Apartment Investment and Management Company ("AIMCO"). See "Note B Transfer of
Control." The director and officers of the Corporate General Partner also serve
as executive officers of AIMCO. The Partnership Agreement provides that the
Partnership is to terminate December 31, 2021 unless terminated prior to such
date. The Partnership commenced operations on October 28, 1981, and completed
its acquisition of apartment properties on June 30, 1982. The Partnership
operates four apartment properties located in the South.

Principles of Consolidation: The financial statements include all the accounts
of the Partnership and its 99.99% owned partnership. The general partner of the
consolidated partnership is Shelter Realty III Corporation. Shelter Realty III
Corporation may be removed by the Registrant; therefore, the consolidated
partnership is controlled and consolidated by the Registrant. All significant
interpartnership balances have been eliminated.

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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Allocation of Cash Distributions: Cash distributions by the Partnership are
allocated between general and limited partners in accordance with the provisions
of the Partnership Agreement. The Partnership Agreement provides that net cash
from operations means revenue received less operating expenses paid, adjusted
for certain specified items which primarily include mortgage payments on debt,
property improvements and replacements not previously reserved, and the effects
of other adjustments to reserves including reserve amounts deemed necessary by
the Corporate General Partner. In the following notes to the consolidated
financial statements, whenever net cash from operations is used, it has the
aforementioned meaning. The following is a reconciliation of the subtotal in
the accompanying statements of cash flows captioned "net cash provided by
operating activities" to "net cash from operations," as defined in the
Partnership Agreement. However, "net cash from operations" should not be
considered an alternative to net income as an indicator of the Partnership's
operating performance or to cash flows as a measure of liquidity.

Years Ended December 31,

(in thousands)

1998 1997

Net cash provided by operating activities $ 1,835 $1,546

Property improvements and replacements (352) (474)

Payments on mortgage notes payable (237) (220)

Changes in reserves for net operating

liabilities (29) (19)

Changes in restricted escrows, net (40) (37)

Additional operating reserves (1,100) (296)

Net cash from operations $ 77 $ 500

The Corporate General Partner reserved approximately $1,100,000 and $296,000 on
December 31, 1998 and 1997, respectively, to fund capital improvements and
repairs at its properties.

Distributions made from reserves no longer considered necessary by the general
partners are considered to be additional net cash from operations for allocation
purposes. Cash distributions of $2,200,000 and $700,000 were made during the
years ended December 31, 1998 and 1997, respectively.

The Partnership Agreement provides that 99% of distributions of net cash from
operations are allocated to the limited partners until they receive net cash
from operations for such fiscal year equal to 7% of their adjusted capital
values (as defined in the Partnership Agreement), at which point the general
partners will be allocated all net cash from operations until they have received
distributions equal to 10% of the aggregate net cash from operations distributed
to partners for such fiscal year. Thereafter, the general partners will be
allocated 10% of any distributions of remaining net cash from operations for
such fiscal year.

All distributions of distributable net proceeds (as defined in the Partnership
Agreement) from property dispositions and refinancings will be allocated to the
limited partners until each limited partner has received an amount equal to a
cumulative 7% per annum of the average of the limited partners' adjusted capital
value, less any prior distributions of net cash from operations and
distributable net proceeds, and has also received an amount equal to the limited
partners' adjusted capital value. Thereafter, the general partners receive 1%
of the selling prices of properties sold where they acted as a broker, and then
the limited partners will be allocated 85% of any remaining distributions of
distributable net proceeds and the general partners will receive 15%.

Distributions may be restricted by the requirement to deposit net operating
income (as defined in the mortgage note) into the reserve accounts until the
reserve accounts are funded in an amount equal to $1,000 per apartment unit for
Colony House, Essex Park and Willowick and $400 per unit for North River Village
to the total of $752,000. As of December 31, 1998, the Partnership has deposits
of approximately $858,000 in its reserve accounts.

Undistributed Net Proceeds from Refinancing: Undistributed net proceeds of
approximately $185,000 are payable to the general partners once certain levels
of return are received by the limited partners. (See "Note E").

Allocation of Profits, Gains and Losses: Profits, gains and losses of the
Partnership are allocated between general and limited partners in accordance
with the provisions of the Partnership Agreement.

Profits, not including gains from property disposition, are allocated as if they
were distributions of net cash from operations.

Any gain from property dispositions attributable to the excess, if any, of the
indebtedness relating to a property immediately prior to the disposition of such
property over the Partnership's adjusted basis in the property shall be
allocated to each partner having a negative capital account balance, to the
extent of such negative balance. The balance of any gain shall be treated on a
cumulative basis as if it constituted an equivalent amount of distributable net
proceeds and shall be allocated to the general partners to the extent that
general partners would have received distributable net proceeds in connection
therewith and the balance shall be allocated to the limited partners. However,
the interest of the general partners will be equal to at least 1% of each gain
at all times during the existence of the Partnership.

All losses, including losses attributable to property dispositions, are
allocated 99% to the limited partners and 1% to the general partners.
Accordingly, net income as shown in the statements of operations and changes in
partners' capital (deficit) for 1998 and 1997 were allocated 99% to the limited
partners and 1% to the general partners. Net income per limited partnership
unit for 1998 and 1997 was computed as 99% of net income divided by 55,000 units
outstanding.

Fair Value of Financial Instruments: Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial
Instruments", as amended by SFAS No. 119, "Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments", requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate fair
value. Fair value is defined in the SFAS as the amount at which the instruments
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. The Partnership believes that the carrying
amount of its financial instruments (except for long term debt) approximates
their fair value due to the short term maturity of these instruments. The fair
value of the Partnership's long term debt, after discounting the scheduled loan
payments to maturity, approximates its carrying balance.

Other Reserves: The general partners may designate a portion of cash generated
from operations as "other reserves" in determining net cash from operations.
The general partners designated as other reserves an amount equal to the net
liabilities related to the operations of apartment properties during the current
fiscal year that are expected to require the use of cash during the next fiscal
year. The change in other reserves during 1998 and 1997 were decreases of
approximately $29,000 and $19,000 respectively, which amounts were determined by
considering changes in the balances of receivables and deposits, other assets,
accounts payable, tenant security deposit liabilities, accrued taxes, and other
liabilities. At this time, the general partner expects to continue to adjust
other reserves based on the net change in the aforementioned account balances.

Cash and Cash Equivalents: Includes cash on hand and in banks, money market
funds and certificates of deposit with original maturities less than 90 days.
At certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.

Restricted Escrow:

Capital Improvement Account - At the time of the refinancing of North River
Village Apartments in 1993, approximately $546,000 of the refinancing proceeds
were designated for a "capital improvement escrow" for certain capital
improvements. At December 31, 1998, the balance remaining in the escrow for
this property was approximately $15,000. Upon completion of the scheduled
property improvements, any excess funds will be returned for property
operations.

Reserve Account - In addition to the capital improvement account, a general
reserve account was established with the refinancing proceeds for each
mortgaged property. These funds were established to cover necessary repairs
and replacements of existing improvements, debt service, out of pocket
expenses incurred for ordinary and necessary administrative tasks, and payment
of real property taxes and insurance premiums. The Partnership is required to
deposit net operating income (as defined in the mortgage note) from Colony
House Apartments, Essex Park Apartments and Willowick Apartments to the
respective reserve account until they equal $1,000 per apartment unit or
$697,000 in total. The balance at December 31, 1998, for these three
properties is approximately $795,000, including interest earned on these
funds. In connection with the 1993 refinancing of North River Village, a
reserve account was established and fully funded at $400 per apartment unit or
approximately $53,000 in total. The balance at December 31, 1998, was
approximately $63,000, including interest earned on these funds.

Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984, and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of
the Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
additions over 27 1/2 years and (2) personal property additions over 7 years.

Loan Costs: Loan costs of approximately $408,000 less accumulated amortization
of approximately $236,000 are included in other assets and are being amortized
on a straight-line basis over the life of the loans.

Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits are included in
receivables and deposits. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments.

Leases: The Partnership generally leases apartment units for twelve-month terms
or less. The Partnership recognizes income as earned on its leases. In
addition, the Corporate General Partner's policy is to offer rental concessions
during particularly slow months or in response to heavy competition from other
similar complexes in the area. Concessions are charged against rental income as
incurred.

Investment Properties: Investment properties consist of four apartment
complexes and are stated at cost. Acquisition fees are capitalized as a cost of
real estate. In accordance with Financial Accounting Standards Board Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Partnership records impairment losses on long-
lived assets used in operations when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
Costs of apartment properties that have been permanently impaired have been
written down to appraised value. The Corporate General Partner relies on the
annual appraisals performed by the outside appraisers for the estimated value of
the Partnership's properties. There are three recognized approaches or
techniques available to the appraiser. When applicable, these approaches are
used to process the data considered significant to each to arrive at separate
value indications. In all instances the experience of the appraiser, coupled
with his objective judgment, plays a major role in arriving at the conclusions
of the indicated value from which the final estimate of value is made. The three
approaches commonly known are the cost approach, the sales comparison approach,
and the income approach. The cost approach is often not considered to be
reliable due to the lack of land sales and the significant amount of
depreciation and, therefore, is often not presented. Upon receipt of the
appraisals, any property which is stated on the books of the Partnership above
the estimated value given in the appraisal, is written down to the estimated
value given by the appraiser. The appraiser assumes a stabilized occupancy at
the time of the appraisal and, therefore, any impairment of value is considered
to be permanent by the Corporate General Partner. No adjustments for impairment
of value were recorded in the years ended December 31, 1998 or 1997.

Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $77,000 and $94,000 for the years ended
December 31, 1998 and 1997, respectively were charged to operating expense as
incurred.

Segment Reporting: In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("Statement 131"), which is
effective for years beginning after December 15, 1997. Statement 131
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
See "Note G" for required disclosure.

Reclassification: Certain reclassifications have been made to the 1997
information to conform to the 1998 presentation.

NOTE B - TRANSFER OF CONTROL

NOTE C - MORTGAGE NOTES PAYABLE

The principle terms of mortgage notes payable are as follows:

Principal Monthly Principal

Balance At Payment Stated Balance

December 31, Including Interest Maturity Due At

Property 1998 Interest Rate Date Maturity

(in thousands) (in thousands)

Essex Park Apartments

1st mortgage $ 3,016 $27,812 7.60% 11/15/02 $2,552

2nd mortgage 109 690 7.60% 11/15/02 109

Colony House Apartments

1st mortgage 2,248 20,736 7.60% 11/15/02 1,903

2nd mortgage 81 515 7.60% 11/15/02 81

North River Village

1st mortgage 1,628 12,654 7.83% 10/15/03 1,489

2nd mortgage 54 349 7.83% 10/15/03 54

Willowick Apartments

1st mortgage 1,178 10,862 7.60% 11/15/02 997

2nd mortgage 43 270 7.60% 11/15/02 43

8,357 $73,888

Less unamortized present

value of discounts (261)

Total $ 8,096 $ 7,228

</TABLE>

The Partnership exercised interest rate buy-down options when the debt was
refinanced, reducing the stated rates from 8.76% to 7.60% and 8.13% to 7.83% in
1992 and 1993, respectively. The fee for the interest rate reduction amounted
to approximately $575,000 and is being amortized as a loan discount on the
effective interest method over the life of the loans. The discount fee is
reflected as a reduction of the mortgage notes payable and increases the
effective rates of the debt to 8.76% and 8.13%, respectively.

The mortgage notes payable are non-recourse and are secured by pledge of all of
the apartment properties and by pledge of revenues from the apartment
properties. All of the notes require prepayment penalties if repaid prior to
maturity. Further the properties may not be sold subject to existing
indebtedness.

The estimated fair value of the Partnership's aggregate debt is approximately
$8,357,000. This estimate is not necessarily indicative of the amounts the
Partnership may pay in actual market transactions.

Scheduled principal payments of mortgage notes payable subsequent to December
31, 1998, are as follows (in thousands):

1999 $ 256

2000 277

2001 299

2002 5,957

2003 1,568

$8,357

NOTE D - INCOME TAXES

The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the consolidated financial
statements of the Partnership. Taxable income or loss of the Partnership is
reported in the income tax returns of its partners.

The following is a reconciliation of reported net income and Federal taxable
income (in thousands, except per unit data):

1998 1997

Net income as reported $ 794 $ 491

Add (deduct):

Amortization of present

value discounts -- (1)

Depreciation differences 487 336

Change in prepaid rental (29) 42

Other 20 (16)

Federal taxable income $1,272 $ 852

Federal taxable income per

limited partnership unit $22.90 $15.34

The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):

Net assets as reported $ 4,357

Land and buildings 3,086

Accumulated depreciation (10,408)

Syndication fees 3,246

Other 238

Net assets - tax basis $ 519

NOTE E - TRANSACTIONS WITH AFFILIATED PARTIES

The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following amounts were made to the
Corporate General Partner and affiliates during the year December 31, 1998 and
1997:

1998 1997

(in thousands)

Property management fees (included in operating expenses) $283 $272

Reimbursement for services of affiliates (included in

investment properties, general and administrative

and operating expenses) (1) 119 140

Due to General Partner 185 185

Due from General Partner 11 11

(1) Included in "reimbursement for services of affiliates" for the years ended
December 31, 1998 and 1997, is approximately $7,000 and $13,000,
respectively in reimbursements for construction oversight costs.

During the years ended December 31, 1998 and 1997, affiliates of the Corporate
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $283,000 and $272,000 for the
years ended December 31, 1998 and 1997 respectively.

An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $119,000 and
$140,000 for the years ended December 31, 1998 and 1997, respectively.

For the period January 1, 1997 to August 31, 1997, the Partnership insured its
properties under a master policy through an agency affiliated with the Corporate
General Partner with an insurer unaffiliated with the Corporate General Partner.
An affiliate of the Corporate General Partner acquired, in the acquisition of a
business, certain financial obligations from an insurance agency which was later
acquired by the agent who placed the master policy. The agent assumed the
financial obligations to the affiliate of the Corporate General Partner which
receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
Corporate General Partner by virtue of the agent's obligations was not
significant.

On September 26, 1997, an affiliate of the General Partner purchased Lehman
Brothers Class "D" subordinated bonds of SASCO, 1992-M1. These bonds are
secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including Essex Park Apartments, Colony House Apartments and Willowick
Apartments owned by the Partnership.

As of December 31, 1998, affiliates of AIMCO owned 18,952 Units or 33.80%
of the outstanding limited partner units.

NOTE F - REAL ESTATE AND ACCUMULATED DEPRECIATION

Investment Properties

Initial Cost

To Partnership

(in thousands)

Buildings Cost

and Related Capitalized

Personal Subsequent to

Description Encumbrances Land Property Acquisition

(in thousands) (in thousands)

Essex Park Apartments

Columbia, South Carolina $3,125 $ 473 $ 7,406 $2,176

Colony House Apartments

Murfreesboro, Tennessee 2,329 183 4,408 1,238

North River Village Apts.

Atlanta, Georgia 1,682 336 4,085 1,309

Willowick Apartments

Greenville,

South Carolina 1,221 289 3,563 766

Totals $8,357 $1,281 $19,462 $5,489

Gross Amount At Which Carried

At December 31, 1998

(in thousands)

Buildings

And

Personal Accumulated Date of Date Depreciable

Description Land Property Total Depreciation Construction Acquired Life-Years

(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Essex Park Apartments

Columbia, South $ 473 $ 9,582 $10,055 $ 5,790 1973 10/29/81 5-36
Carolina

Colony House
Apartments

Murfreesboro, 183 5,646 5,829 3,369 1970-1972 10/30/81 5-36

Tennessee

North River Village
Apartments

Atlanta, Georgia 336 5,394 5,730 3,341 1969 04/21/82 5-32

Willowick Apartments

Greenville, South 289 4,329 4,618 2,643 1974 06/30/82 5-32
Carolina

Totals $1,281 $24,951 $26,232 $15,143

</TABLE>

Reconciliation of "Real Estate and Accumulated Depreciation:"

Years Ended December 31,

1998 1997

Investment Properties (in thousands)

Balance at beginning of year $25,880 $25,406

Property improvements 352 474

Balance at end of year $26,232 $25,880

Accumulated Depreciation

Balance at beginning of year $14,229 $13,288

Additions charged to expense 914 941

Balance at end of year $15,143 $14,229

The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1998 and 1997, are $29,318,000 and $28,966,000, respectively. The
accumulated depreciation taken for Federal income tax purposes at December 31,
1998 and 1997 are $25,551,000 and $25,124,000, respectively.

NOTE G - SEGMENT REPORTING

DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH THE REPORTABLE
SEGMENT DERIVES ITS REVENUE

As defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", the "Partnership" has one reportable segment: residential
properties. The Partnership's residential property segment consists of four
apartment complexes located in three states in the United States. The
Partnership rents apartment units to people for terms that are typically less
than twelve months.

MEASUREMENT OF SEGMENT PROFIT OR LOSS

The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those described in the
summary of significant accounting policies.

FACTORS MANAGEMENT USED TO IDENTIFY THE ENTERPRISE'S REPORTABLE SEGMENT

The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
are managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.

Segment information for the years 1998 and 1997 is shown in the tables below (in
thousands). The "Other" column includes partnership administration related
items and income and expense not allocated to the reportable segment.

1998 RESIDENTIAL OTHER TOTALS

Rental income $ 5,102 $ -- $ 5,102
Other income 360 28 388
Interest expense 746 -- 746
Depreciation 914 -- 914
General and administrative expense -- 205 205
Segment profit (loss) 971 (177) 794
Total assets 12,901 364 13,265
Capital expenditures for
investment properties 352 -- 352

1997 RESIDENTIAL OTHER TOTALS

Rental income $ 5,025 $ -- $ 5,025
Other income 387 40 427
Interest expense 762 -- 762
Depreciation 941 -- 941
General and administrative expense -- 207 207
Segment profit (loss) 658 (167) 491
Total assets 13,889 765 14,654
Capital expenditures for
investment properties 474 -- 474

NOTE H - LEGAL PROCEEDINGS

The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The Registrant has no officers or directors. The Individual and Corporate
General Partners are as follows:

Individual General Partner - N. Barton Tuck, Jr., age 60, is the Individual
General Partner of the Registrant. Mr. Tuck is Chairman of GolfSouth Management,
Inc. Until August 1990, he served as Chairman and Chief Executive Officer of
U.S. Shelter Corporation ("Shelter"), the former parent of AmReal Corporation
(parent of the Corporate General Partner of the Partnership). For six years
prior to 1966, Mr. Tuck was employed in Greenville, South Carolina by the
certified public accounting firm of S.D. Leidesdorf & Company. From 1966 to
1970, he was a registered representative with the investment banking firm of
Harris Upham & Co., Inc. in Greenville, South Carolina. Since 1970, Mr. Tuck has
been engaged in arranging equity investments for individuals and partnerships.
Mr. Tuck is a graduate of the University of North Carolina. Mr. Tuck has
delegated to the Corporate General Partner all of his authority, as a general
partner of the Partnership, to manage and control the Partnership and its
business and affairs.

Corporate General Partner - The names and ages of, as well as the positions and
offices held by, the executive officers and director of Shelter Realty III
Corporation are set forth below. There are no family relationships between or
among any officers or director.

Name Age Position

Patrick J. Foye 41 Executive Vice President and Director

Timothy R. Garrick 42 Vice President - Accounting and Director

Patrick J. Foye has been Executive Vice President and Director of the Corporate
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.

Timothy R. Garrick has served as Vice President-Accounting of AIMCO and Vice
President-Accounting and Director of the Corporate General Partner since October
1, 1998. Prior to that date, Mr. Garrick served as Vice President-Accounting
Services of Insignia Financial Group since June of 1997. From 1992 until June
of 1997, Mr. Garrick served as Vice President of Partnership Accounting and from
1990 to 1992 as an Asset Manager for Insignia Financial Group. From 1984 to
1990, Mr. Garrick served in various capacities with U.S. Shelter Corporation.
From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney.
Mr. Garrick received his B.S. Degree from the University of South Carolina and
is a Certified Public Accountant.

ITEM 10. EXECUTIVE COMPENSATION

Neither the Individual General Partner nor the director and officers of the
Corporate General Partner received any remuneration from the Registrant for
services performed.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Except as noted below, as of December 31, 1998, no person or entity was known by
the Registrant to be the beneficial owner of more than 5% of the Limited
Partnership Units of the Registrant as of December 31, 1998.

Number

Entity of Units Percentage

Insignia Properties, LP 18,592 33.80%

(an affiliate of AIMCO)

Insignia Properties LP is indirectly ultimately owned by AIMCO. The business
address is 55 Beattie Place, Greenville, SC 29602.

No director or officer of the Corporate General Partner owns any Units. The
Corporate General Partner owns 200 Units as required by the terms of the
partnership agreement governing the Partnership.

On October 1, 1998, Insignia Financial Group, Inc. merged into AIMCO, a real
estate investment trust, whose Class A Common Shares are listed on the New York
Stock Exchange. As a result of such merger, AIMCO and AIMCO Properties, L.P., a
Delaware limited partnership and the operating partnership of AIMCO ("AIMCO OP")
acquired indirect control of the Corporate General Partner. AIMCO and its
affiliates currently own 33.80% of the limited partnership interests in the
Partnership. AIMCO is presently considering whether it will engage in an
exchange offer for additional limited partnership interests in the Partnership.
There is a substantial likelihood that, within a short period of time, AIMCO OP
will offer to acquire limited partnership interests in the Partnership for cash
or preferred units or common units of limited partnerships interests in AIMCO
OP. While such an exchange offer is possible, no definite plans exist as to when
or whether to commence such an exchange offer, or as to the terms of any such
exchange offer, and it is possible that none will occur.

A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Form 10-KSB shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such state.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Individual General Partner and the Corporate General Partner received cash
distributions of $22,000 and $7,000 from operations as general partners during
the years ended December 31, 1998 and 1997, respectively. For a description of
the share of cash distributions from operations, if any, to which the general
partners are entitled, reference is made to "Item 7. Financial Statements - Note
A - Allocation of Cash Distributions" and "Allocation of Profits, Gains, and
Losses."

1998 1997

(in thousands)

Property management fees (included in operating expenses) $283 $272

Reimbursement for services of affiliates (included in

investment properties, general and administrative

and operating expenses) (1) 119 140

Due to General Partner 185 185

Due from General Partner 11 11

An affiliate of the Corporate General Partner acquired, in the acquisition of a
business, certain financial obligations from an insurance agency which was later
acquired by the agent who placed the master policy. The agent assumed the
financial obligations to the affiliate of the Corporate General Partner which
receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
Corporate General Partner by virtue of the agent's obligations was not
significant.

As of December 31, 1998, affiliates of AIMCO owned 18,952 Units or 33.80%
of the outstanding limited partner units.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

Exhibit 27, Financial Data Schedule, is filed as part of this report.

(b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1998:

Current Report of Form 8-K dated October 1, 1998 and filed on October
16, 1998 disclosing the change in control of Registrant from Insignia
Financial Group, Inc. to AIMCO.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SHELTER PROPERTIES III

By: Shelter Realty IV Corporation
Corporate General Partner

By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President

By: /s/Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting

Date: March 26, 1999

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.

/s/Patrick J. Foye Date: March 26, 1999
Patrick J. Foye
Executive Vice President and Director

/s/Timothy R. Garrick Date: March 26, 1999
Timothy R. Garrick
Vice President - Accounting and Director
.

EXHIBIT INDEX

Exhibit

2.1 Agreement and Plan of Merger dated as of October 1, 1998, by and
between AIMCO and IPT.

3 See Exhibit 4(a)

4 (a) Amended and Restated Certificate and Agreement of Limited
Partnership [included as Exhibit A to the Prospectus of
Registrant dated September 2, 1981 contained in Amendment No. 1
to Registration Statement No. 2-72567, of Registrant filed
September 2, 1981 (the "Prospectus") and incorporated herein by
reference].

(b) Subscription Agreements and Signature Pages [Filed with Amendment
No. 1 of Registration Statement No. 2-72567, of Registrant and
incorporated herein by reference].

(c) Real Estate Note and Deed to Secure Debt and Security Agreement
between Pacific Mutual Life Insurance Company and Shelter
Properties III to acquire North River Village Apartments.*

(d) Modification Agreement between Citibank, N.A. and Southern
Associates Limited Partnership and a Title to Real Estate between
Southern Associates Limited Partnership and Shelter Properties
III to acquire Essex Park Apartments.*

*Filed as Exhibit 4(c) and 4(d), respectively, to Form 10-K of Registrant for
year ended December 31, 1987 and incorporated herein by
reference.

10(i) Contract related to acquisition of properties.

(a) Purchase Agreement dated July 1, 1981 and First Addendum to
Purchase Agreement dated August 4, 1981 between Colony House of
Murfreesboro and U. S. Shelter Corporation to purchase Colony
House Apartments.**

(b) Purchase Agreement dated July 31, 1981, between Southern
Associated Limited Partnership and U. S. Shelter Corporation to
purchase Essex Park Apartments.**

**Filed as Exhibits 12(a) and 12(b), respectively, to Amendment No. 1 of
Registration Statement, No. 2-72567, of Registrant filed
September 2, 1981 and incorporated herein by reference.

(c) Purchase Agreement dated December 3, 1981 between Plantation
Company of Georgia and Shelter Properties III to purchase River
Parkway Apartments. [Filed with form 8-K of Registrant dated
November 30, 1981 and incorporated herein by reference.]

(d) Purchase Agreement dated April 15, 1982 between North River
Village Joint Venture (a partnership) and U.S. Shelter
Corporation to purchase North River Village Apartments. [Filed
with Form 8-K of Registrant dated April 21, 1982 and incorporated
herein by reference.]

(e) Purchase Agreement dated May 14, 1982 between Lincoln Willowick
Greenville Associates and U.S. Shelter Corporation to purchase
Willowick Apartments. [Filed with Form 8-K of Registrant dated
May 14, 1982 and incorporated herein by reference.]

(f) Contract dated June 12, 1986, between Shelter Properties III and
Thomas J. Gochberg, William T. Bozarth and Michael J. Weinburger,
as Trustees of Security Capital Real Estate Fund to sell River
Parkway Apartments. [Filed as Exhibit 10(f) to Form 10-K of
Registrant for year ended December 31, 1987 and incorporated
herein by reference.]

(ii) Form of Management Agreement with U.S. Shelter Corporation
subsequently assigned to Shelter Management Group, L.P. (now
known as Insignia Management Group, L.P.) [filed with Amendment
No. 1 to Registration Statement, No. 2-72567 of Registrant and
incorporated herein by reference].

(iii) Contracts related to refinancing of debt:

(a) First Deeds of Trust and Security Agreements dated October 28,
1992 between Shelter Properties III and Wesley D. Turner
(Trustee) and First Commonwealth Realty Credit Corporation, a
Virginia Corporation, securing the following properties: Colony
House, Essex Park and Willowick. ***

(b) Second Deeds of Trust and Security Agreements dated October 28,
1992 between Shelter Properties III and Wesley D. Turner
(Trustee) and First Commonwealth Realty Credit Corporation, a
Virginia Corporation, securing the following properties: Colony
House, Essex Park and Willowick. ***

(c) First Assignments of Leases and Rents dated October 28, 1992
between Shelter Properties III and Wesley D. Turner (Trustee) and
First Commonwealth Realty Credit Corporation, a Virginia
Corporation, securing the following properties: Colony House,
Essex Park and Willowick. ***

(d) Second Assignments of Leases and Rents dated October 28, 1992
between Shelter Properties III and Wesley D. Turner (Trustee) and
First Commonwealth Realty Credit Corporation, a Virginia
Corporation, securing the following properties: Colony House,
Essex Park and Willowick. ***

(e) First Deeds of Trust Notes dated October 28, 1992 between Shelter
Properties III and Wesley D. Turner (Trustee) and First
Commonwealth Realty Credit Corporation, relating to the following
properties: Colony House, Essex Park and Willowick. ***

(f) Second Deeds of Trust Notes dated October 28, 1992 between
Shelter Properties III and Wesley D. Turner (Trustee) and First
Commonwealth Realty Credit Corporation, relating to the following
properties: Colony House, Essex Park and Willowick. ***

***Filed as Exhibits 10(iii)(a) through (f), respectively, to Form 10KSB of
Registrant for year ended December 31, 1992 and incorporated
herein by reference.

(g) First Deed to Secure Debt and Security Agreement dated September
30, 1993 between North River Village III Limited Partnership and
Lexington Mortgage Company, a Virginia corporation receiving
North River Village. ****

(h) Second Deed to Secure Debt and Security Agreement dated September
30, 1993 between North River Village III Limited Partnership and
Lexington Mortgage Company, a Virginia corporation receiving
North River Village. ****

(i) First Assignment of Leases and Rents dated September 30, 1993
between North River Village III Limited Partnership and Lexington
Mortgage Company, a Virginia corporation receiving North River
Village. ****

(j) Second Assignment of Leases and Rents dated September 30, 1993
between North River Village III Limited Partnership and Lexington
Mortgage Company, a Virginia corporation receiving North River
Village. ****

(k) First Real Estate Note dated September 30, 1993 between North
River Village III Limited Partnership and Lexington Mortgage
Company, a Virginia corporation, relating to North River Village.
****

(l) Second Real Estate Note dated September 30, 1993 between North
River Village III Limited Partnership and Lexington Mortgage
Company, a Virginia corporation, relating to North River Village.
****

****Filed as Exhibit 10 (iii) (a) through (f) of Form 10QSB for quarter ended
September 30, 1993, and incorporated herein by reference.

27 Financial Data Schedule

99(a) Prospectus of Registrant dated September 2, 1981 [included in
Registration Statement No. 2-72567, of Registrant] and
incorporated herein by reference.

(b) Agreement of Limited Partnership for North River Village III
Limited Partnership between Shelter III GP Limited Partnership
and Shelter Properties III entered into April 30, 1992. [Filed
as Exhibit 28(b) to Form 10KSB of Registrant for year ended
December 31, 1992 and incorporated herein by reference.]

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties III 1998 Year-End 10-KSB and is qualified in its entirety by
reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000353282
<NAME> SHELTER PROPERTIES III
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 630
<SECURITIES> 0
<RECEIVABLES> 410
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 26,232
<DEPRECIATION> 15,143
<TOTAL-ASSETS> 13,265
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,096
0
0
<COMMON> 0
<OTHER-SE> 4,357
<TOTAL-LIABILITY-AND-EQUITY> 13,265
<SALES> 0
<TOTAL-REVENUES> 5,490
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 746
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 794
<EPS-PRIMARY> 14.29<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>

</TABLE>