<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
-----------------
Commission file number 0-11962
-----------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1311532
- ---------------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- --------------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number,
including area code) (301) 468-9200
---------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- --------------------------------------------- ---------------------
NONE N/A
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
- -------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K (X)
The partnership interests of the Registrant are not traded in any market.
Therefore, the partnership interests had neither a market selling price nor an
average bid or asked price within the 60 days prior to the date of this filing.
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
1995 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . I-7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . I-7
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . I-7
PART II
-------
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters . . . II-1
Item 6. Selected Financial Data . . . . . . . . . . . . . II-1
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . II-2
Item 8. Financial Statements and Supplementary Data . . . II-12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . II-12
PART III
--------
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . III-1
Item 11. Executive Compensation . . . . . . . . . . . . . III-2
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . III-3
Item 13. Certain Relationships and Related Transactions . III-4
PART IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . IV-1
Signatures . . . . . . . . . . . . . . . . . . . . . . . . IV-3
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . IV-32
<PAGE>
PART I
------
ITEM 1. BUSINESS
--------
Capital Realty Investors-III Limited Partnership (the Partnership) is a
limited partnership which was formed under the Maryland Revised Uniform Limited
Partnership Act on June 27, 1983. On November 7, 1983, the Partnership
commenced offering 60,000 limited partnership interests through a public
offering which was managed by Merrill Lynch, Pierce, Fenner and Smith,
Incorporated. The Partnership closed the offering in January 1984 when it
became fully subscribed.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which is
the Managing General Partner, and current and former shareholders of CRI.
Services for the Partnership are performed by CRI, as the Partnership has no
employees of its own.
The Partnership was formed to invest in real estate, which is the
Partnership's principal business activity, by acquiring and holding a limited
partnership interest in limited partnerships (Local Partnerships). As of
December 31, 1995, the Partnership has invested in thirty-five Local
Partnerships. Each of these Local Partnerships owns or owned a federal or state
government-assisted or conventionally financed apartment complex, which provides
housing principally to the elderly and/or to individuals and families of low or
moderate income. The original objectives of these investments, not necessarily
in order of importance, were to:
(1) preserve and protect the Partnership's capital;
(2) provide, during the early years of the Partnership's operations,
current tax benefits to the partners in the form of tax losses which
the partners may use to offset income from other sources;
(3) provide capital appreciation through increases in the value of the
Partnership's investments and increased equity through periodic
payments on the indebtedness on the apartment complexes; and
(4) provide cash distributions from sale or refinancing of the
Partnership's investments and, on a limited basis, from rental
operations.
See Part II, Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, for a discussion of factors affecting the original
investment objectives.
The Local Partnerships in which the Partnership has invested were organized
by private developers who acquired the sites, or options thereon, applied for
applicable mortgage insurance and/or subsidies, and remain as the local general
partners in the Local Partnerships. The Partnership became the principal
limited partner in twenty-nine of these Local Partnerships pursuant to
negotiations with these developers who act as the local general partners.
However, in the event of non-compliance with the Local Partnerships' partnership
agreements, the local general partner may be removed and replaced with another
local general partner or with an affiliate of the Partnership's Managing General
Partner. As a limited partner, the Partnership's legal liability for
obligations of the Local Partnership is limited to its investment. In six Local
Partnerships, the Partnership has invested as a limited partner in intermediary
partnerships which, in turn, have invested in the Local Partnerships. An
affiliate of the Managing General Partner of the Partnership is also a general
partner of the twenty-nine Local Partnerships and the six intermediary
partnerships. In most cases, the local general partners of the Local Partnership
retain responsibility for developing, constructing, maintaining, operating and
managing the project. Additionally, the local general partners and affiliates
of the Managing General Partner may operate other apartment complexes which may
I-1
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
be in competition for eligible tenants with the Local Partnerships' apartment
complexes.
Although each of the Local Partnerships in which the Partnership has
invested owns an apartment complex which must compete in the market place for
tenants, interest subsidies and/or rent supplements from governmental agencies
generally make it possible to offer certain of these dwelling units to eligible
tenants at a cost significantly below the market rate for comparable
conventionally financed dwelling units. Based on available data, the General
Partners believe there to be no material risk of market competition in the
operations of the apartment complexes described below which would adversely
impact the Partnership, except in specific circumstances as described in Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following is a schedule of the apartment complexes owned by Local
Partnerships in which the Partnership has an investment:
I-2
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1)
<TABLE>
<CAPTION>
Units
Mortgage Authorized for
Name and Location Payable at Financed and/or Insured Number of Rental Asst.
of Apartment Complex 12/31/95 (2) and/or Subsidized Under Rental Units Under Sec. 8
- -------------------- ------------ ----------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Arboretum Village $ 9,158,405 General Motors Acceptance Corporation 308 0
Lisle, IL
Audubon Towers 3,678,837 New Jersey Housing and Mortgage 124 123
Audubon, NJ Finance Agency (NJHMFA)
Bartley Manor 854,273 Federal National Mortgage Associ- 70 69
Superior, WI ation (FNMA)/236
Briar Crest I 626,453 FNMA/236 53 53
Niles, MI
Briar Crest II 658,660 FNMA/236 49 49
Niles, MI
Briar Hills 637,933 FNMA/236 50 33
South Haven, MI
Cedar Valley Apts. 1,423,481 Section 221(d)(3) of the NHA 186 0
Cedar Rapids, IA
College Park 1,435,000 Mid Atlantic National Bank 100 100
Meridian, MS
Congress Plaza 2,407,625 Connecticut Housing Finance Agency 101 100
Bridgeport, CT
Glen Agnes 4,555,316 California Housing Finance Agency 149 149
Fresno, CA (CHFA)
Greeley Manor 1,378,453 FNMA/236 128 119
Greeley, CO
Heritage Estates I 2,898,180 Missouri Housing Development Agency 228 0
St. Louis, MO (MHDA)/Section 221(d)(4) of the NHA
Heritage Estates II 2,301,555 MHDA/Section 221 (d)(4) of the NHA 160 0
St. Louis, MO
Highland Manor 2,350,208 Government National Mortgage (GNMA)/ 111 111
Birmingham, AL Section 221(d)(4) of the NHA/
Section 8
Indian Hills 555,932 FNMA/236 40 24
Townhouses
Dowagiac, MI
Lakewood Apts. 836,179 Farmers Home Administration/ 515 50 50
Eufaula, AL
</TABLE>
I-3
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Units
Mortgage Authorized for
Name and Location Payable at Financed and/or Insured Number of Rental Asst.
of Apartment Complex 12/31/95 (2) and/or Subsidized Under Rental Units Under Sec. 8
- -------------------- ------------ ----------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Meadow Lanes Apts. $ 1,950,026 Michigan State Housing Development 118 48
Holland, MI Authority
Monterey/Hillcrest 14,059,928 GNMA 221(d)(4) 300 60
Waukesha, WI
O'Farrell Towers 8,339,073 CHFA 101 101
San Francisco, CA
Park Heights Towers 2,272,513 FNMA/236 180 129
Rochester, MN
Rolling Green at 4,306,779 Massachusetts Housing Finance 304 15
Milford Agency/236
Milford, MA
Southmoor Townhouse 494,072 Intrawest Mortgage Company Federal 40 8
Apts. National Mortgage Assn./236
Greeley, CO
Tyee Apts. 1,468,133 FNMA/236 100 56
Anchorage, AK
Victorian Towers 5,281,392 NJHMFA/236 205 0
Cape May, NJ
Villa Mirage I 2,234,118 CHFA 50 50
Rancho Mirage, CA
Villa Mirage II 2,215,435 CHFA 48 48
Rancho Mirage, CA
Village Green 373,628 FNMA/236 36 36
Reedsburg, WI
Village Square 503,880 FNMA/236 48 48
Barabou, WI
Village Squire I & II 3,834,864 Huntoon-Paige Associates, Ltd./ 377 0
Canton, MI Section 221(d)(4) of the NHA
Village Squire III 2,474,086 Manufacturers National Bank/ 224 0
Canton, MI Section 221(d)(4) of the NHA
Walden Apts. 4,257,812 Section 221(d)(4) of the NHA 396 0
Schaumburg, IL
Walsh Park 5,388,954 IHDA 134 134
Chicago, IL
</TABLE>
I-4
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Units
Mortgage Authorized for
Name and Location Payable at Financed and/or Insured Number of Rental Asst.
of Apartment Complex 12/31/95 (2) and/or Subsidized Under Rental Units Under Sec. 8
- -------------------- ------------ ----------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Winchester Gardens Apts. $ 3,384,826 FNMA/236 206 202
Columbus, OH
Windham Village 2,544,899 CHFA 50 50
Santa Rose, CA
Woodside Village 2,758,085 FNMA/236 180 114
Anchorage, AK
------------ ------ ------
Totals(3) 35 $103,898,993 5,004 2,079
============ ====== ======
</TABLE>
I-5
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1)
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arboretum Village 94% 96% 97% 87% 95% $ 8,363 $ 7,976 $ 7,593 $ 7,333 $ 7,387
Lisle, IL
Audubon Towers 100% 100% 100% 100% 100% 9,129 9,563 8,614 8,292 7,965
Audubon, NJ
Bartley Manor 90% 97% 91% 100% 100% 5,024 5,263 4,549 4,712 4,302
Superior, WI
Briar Crest I 98% 100% 98% 100% 100% 4,611 4,696 4,572 4,423 4,234
Niles, MI
Briar Crest II 100% 100% 100% 100% 100% 4,579 4,689 4,615 4,614 4,447
Niles, MI
Briar Hills 96% 98% 96% 100% 96% 4,105 4,164 4,123 4,060 3,777
South Haven, MI
Cedar Valley Apts. 100% 99% 99% 99% 100% 3,474 3,246 3,115 2,986 2,760
Cedar Rapids, IA
College Park 100% 100% 98% 99% 100% 4,856 4,701 4,735 4,503 4,366
Meridian, MS
Congress Plaza 100% 100% 100% 100% 100% 10,507 10,196 9,895 9,411 9,184
Bridgeport, CT
Glen Agnes 94% 97% 97% 99% 99% 7,742 7,793 7,776 7,784 7,177
Fresno, CA
Greeley Manor 97% 98% 98% 98% 94% 2,928 2,819 2,816 2,832 2,516
Greeley, CO
Heritage Estates I 98% 97% 95% 87% 94% 4,629 4,494 4,267 4,186 4,033
St. Louis, MO
Heritage Estates II 98% 95% 91% 83% 90% 4,605 4,373 3,983 3,839 3,899
St. Louis, MO
Highland Manor 99% 98% 98% 100% 100% 8,739 8,621 9,173 8,269 8,128
Birmingham, AL
Indian Hills 98% 100% 100% 100% 100% 4,653 4,706 4,673 4,497 4,164
Townhouses
Dowagiac, MI
</TABLE>
I-6
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lakewood Apts. 100% 100% 100% 100% 96% $ 4,200 $ 4,103 $ 4,951 $ 3,904 $ 3,783
Eufaula, AL
Meadow Lanes Apts. 98% 97% 97% 98% 92% 5,694 5,369 5,110 4,876 4,678
Holland, MI
Monterey/Hillcrest 94% 94% 95% 94% 93% 8,413 8,215 8,098 7,921 7,746
Waukesha, WI
O'Farrell Towers 99% 100% 100% 100% 100% 14,391 14,134 13,906 13,574 12,959
San Francisco, CA
Park Heights Towers 97% 100% 100% 100% 100% 3,592 3,618 3,616 3,633 3,636
Rochester, MN
Rolling Green at 98% 99% 99% 99% 99% 7,457 7,447 7,445 6,273 6,250
Milford
Milford, MA
Southmoor Townhouse 98% 100% 100% 98% 100% 4,464 4,415 4,147 4,111 4,027
Apts.
Greeley, CO
Tyee Apts. 98% 99% 98% 100% 99% 8,311 7,540 6,721 6,427 5,924
Anchorage, AK
Victorian Towers 100% 100% 99% 100% 99% 4,588 4,504 4,325 4,126 3,941
Cape May, NJ
Villa Mirage I 100% 98% 92% 100% 100% 9,560 9,686 9,339 9,113 8,833
Rancho Mirage, CA
Villa Mirage II 100% 100% 98% 98% 100% 9,673 9,580 9,349 9,198 8,911
Rancho Mirage, CA
Village Green 94% 97% 100% 94% 100% 3,761 3,796 3,638 3,674 3,689
Reedsburg, WI
Village Square 94% 96% 92% 94% 98% 3,988 4,083 3,944 3,909 3,975
Barabou, WI
Village Squire I 98% 96% 85% 87% 88% 5,682 5,247 4,766 4,540 4,629
& II
Canton, MI
Village Squire III 96% 96% 77% 85% 85% 5,567 5,077 4,535 4,384 4,264
Canton, MI
</TABLE>
I-7
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Walden Apts. 95% 94% 95% 97% 91% $ 7,460 $ 7,068 $ 6,831 $ 6,892 $ 6,614
Schaumburg, IL
Walsh Park 100% 100% 100% 100% 100% 10,777 10,584 10,255 10,090 9,876
Chicago, IL
Winchester Gardens 98% 100% 100% 99% 100% 4,405 4,129 4,094 3,959 3,700
Apts.
Columbus, OH
Windham Village 100% 98% 100% 100% 100% 10,396 10,038 10,157 9,656 9,700
Santa Rose, CA
Woodside Village 90% 93% 95% 89% 94% 9,145 9,027 7,886 7,652 7,107
Anchorage, AK
- ---------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
Totals(3) 35 97% 98% 97% 97% 97% $ 6,556 $ 6,427 $ 6,217 $ 5,990 $ 5,788
==== ==== ==== ==== ==== ======== ======== ======== ======== ========
</TABLE>
(1) All properties are multifamily housing complexes. No single
tenant/resident rents 10% or more of the rentable square footage.
Residential leases are typically one year or less in length, with varying
expiration dates, and substantially all rentable space is for residential
purposes.
(2) The amounts provided are the balances of first mortgage loans payable of
the Local Partnerships as of December 31, 1995.
(3) The totals for the percentage of units occupied and the average effective
annual rental per unit are based on a simple average.
For additional information regarding the real estate of Local Partnerships
in which the Partnership has invested, see Part IV, Schedule III - "Real Estate
and Accumulated Depreciation of Local Partnerships in which Capital Realty
Investors-III Limited Partnership has Invested."
On February 2, 1996 Park Heights Towers Limited Partnership sold Park
Heights Towers to a non-profit entity. See Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
notes to the consolidated financial statements for additional information
pertaining to the sale.
The local general partners of Kapetan Associates Limited Partnership
(Congress Plaza) had been negotiating a sale for Congress Plaza. Because
certain contingencies were not satisfied, the offer to purchase the property has
expired and negotiations have ended.
I-8
<PAGE>
PART I
------
ITEM 2. PROPERTIES
----------
Through its ownership of limited partnership interests in Local
Partnerships, Capital Realty Investors-III Limited Partnership indirectly holds
an interest in the underlying real estate. See Part I, Item 1 and Schedule III
in Part IV, Item 14 for information pertaining to these properties.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Information concerning potential future legal proceedings is contained in
Part II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 6 of the notes to consolidated financial
statements in Part IV, Item 14.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
I-9
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------
(a) It is not anticipated that there will be any market for resale of
interests in the Partnership. As a result, investors may be unable to
sell or otherwise dispose of their interests in the Partnership.
(b) As of March 8, 1996 there were approximately 5,600 registered holders
of limited partner interests in the Partnership.
(c) No distributions were declared or paid by the Partnership in 1995 or
1994. The Partnership expects to pay a cash distribution of
approximately $9.65 per unit of Additional Limited Partnership
Interest, all of which is a return of capital on a Generally Accepted
Accounting Principles basis, on or before April 30, 1996, to investors
of record as of February 2, 1996. The distribution is a result of the
disposition of the Partnership's interest in the Park Heights Towers
Limited Partnership. The Partnership received distributions of
$2,142,665 and $4,716,303 from the Local Partnerships during 1995 and
1994, respectively. Some of the Local Partnerships operate under
restrictions imposed by the pertinent government agencies that limit
the cash return available to the Partnership.
II-1
<PAGE>
PART II
-------
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Share of income from
partnerships $ 1,761,512 $ 3,036,990 $ 759,161 $ 111,479 $ 279,305
Interest and other income 166,943 201,695 194,736 155,280 571,444
Expenses (10,077,802) (9,081,713) (9,419,795) (8,119,603) (7,385,502)
Extraordinary gain from early
extinguishment of debt and sale
of partnership -- 3,052,664 -- 1,833,981 --
------------ ------------ ------------ ------------ ------------
Net loss $ (8,149,347) $ (2,790,364) $ (8,465,898) $ (6,018,863) $ (6,534,753)
============ ============ ============ ============ ============
Loss allocated to Additional
Limited Partners (97%) $ (7,904,867) $ (2,706,654) $ (8,211,921) $ (5,838,298) $ (6,338,710)
============ ============ ============ ============ ============
Loss per unit of Additional
Limited Partner Interest
based on 60,000 units
outstanding $ (131.75) $ (45.11) $ (136.87) $ (97.30) $ (105.65)
============ ============ ============ ============ ============
Cash distribution per unit
of Additional Limited
Partner Interest based
on 60,000 units outstanding $ -- $ -- $ -- $ -- $ 10.00
============ ============ ============ ============ ============
Total assets $ 33,961,256 $ 34,138,522 $ 38,256,363 $ 39,038,858 $ 40,258,266
============ ============ ============ ============ ============
Total remaining amounts due on
investments, including accrued
interest on purchase money
notes and unpaid purchase price $ 69,845,262 $ 61,899,028 $ 63,199,165 $ 55,549,721 $ 50,832,399
============ ============ ============ ============ ============
</TABLE>
II-2
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
General
-------
The Partnership has invested, through Local Partnerships, primarily in
federal or state government-assisted apartment complexes intended to provide
housing to low and moderate income tenants. In conjunction with such government
assistance, which includes federal and/or state financing at below-market
interest rates and rental subsidies, the Local Partnerships agreed to regulatory
limitations on (i) cash distributions, (ii) use of the properties and (iii) sale
or refinancing. These limitations typically were designed to remain in place
for the life of the mortgage.
The original investment objectives of the Partnership primarily were to
deliver tax benefits, as well as cash proceeds upon disposition of the
properties, through the Partnership's investment in local limited partnerships.
Only limited annual cash distributions from property operations were projected
because of the regulatory restrictions on cash distributions from the
properties.
The original investment objectives of the Partnership have been affected by
the Tax Reform Act of 1986, which virtually eliminated many of the incentives
for the new construction of or the sale of existing low income housing
properties by limiting the use of passive loss deductions. Therefore, the
Managing General Partner continues to concentrate on transferring the source of
investment yield from tax benefits to cash flow wherever possible and
potentially enhancing the ability of the Partnership to share in the appreciated
value of the properties.
The acquisition of interests in certain Local Partnerships resulted in
purchase money note obligations of the Partnership. The purchase money notes
are nonrecourse obligations of the Partnership which typically mature fifteen
years from the dates of acquisition of the interests in particular Local
Partnerships.
The Managing General Partner has been working to develop a strategy to sell
certain properties by utilizing opportunities presented by federal affordable
housing legislation, favorable financing terms and preservation incentives
available to non-profit purchasers. The Managing General Partner intends to
utilize part or all of the Partnership's net proceeds (after 50% distribution to
limited partners) received from the sales of properties to fund reserves for
paying at maturity, prepaying or purchasing prior to maturity, at a discount
where possible, currently outstanding purchase money notes. The Managing
General Partner believes that this represents an opportunity to reduce the
Partnership's long-term obligations.
Many of the rental properties owned by the Local Partnerships have
mortgages which are federally insured under Section 236 or Section 221(d)(3) of
the National Housing Act, as amended. These properties may be eligible for sale
or refinancing, subject to numerous requirements, under the Low Income Housing
Preservation and Resident Homeownership Act of 1990 (LIHPRHA). This program may
provide incentives to owners of qualifying multifamily housing who commit to
permanently maintain their properties as low to moderate income housing.
Incentives available under LIHPRHA include selling the property to qualified
buyers or obtaining supplemental financing for the property. As of March 8,
1996, members of Congress were recommending substantial changes to the LIHPRHA
II-3
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
program ranging from the elimination of the program to the redesigning of the
program. Substantial uncertainty exists as to whether any properties which have
already filed the notice of intent to participate under LIHPRHA will qualify
under a redesigned program or as to whether the program will continue at all.
Some of the rental properties owned by the Local Partnerships are financed
by state housing agencies. The Managing General Partner has been working to
develop a strategy to sell or refinance certain properties by utilizing programs
developed by these agencies. These programs may include opportunities to sell
the property to a qualifying purchaser who would agree to maintain the property
as low to moderate income housing in perpetuity, or may include opportunities to
refinance the property through supplemental financing. The Managing General
Partner continues to monitor these programs to ascertain whether the properties
would qualify within the parameters of the programs and whether the programs
would provide an appropriate economic benefit to the limited partners of the
Partnership.
Many of the rental properties owned by the Local Partnerships are dependent
on the receipt of housing assistance payments guaranteed by contract under the
Department of Housing and Urban Development (HUD) Section 8 program. The level
of funding for the Section 8 program, and HUD-insured multifamily housing in
general, is dependent upon the continuation of appropriations approved by
Congress for subsidy payments. In the event that the rental subsidy programs
are reduced or phased out, there is no assurance that the rental properties will
be able to maintain the occupancy levels necessary to pay debt-service and
operating costs or that the rents necessary to pay debt- service and operating
costs will be competitive with rents for comparable units in the rental
properties' market areas. While the Managing General Partner has no reason to
believe that HUD will not honor its obligations under the contracts, some
uncertainty exists in light of the recent Congressional scrutiny of
appropriations for HUD programs.
In 1990, CRI, as Managing General Partner of the Partnership and various
other entities, subcontracted certain property-level asset management functions
for certain properties to Capital Management Strategies, Inc. (CMS). Among
these properties were properties owned by certain of the Local Partnerships in
which the Partnership invested. CMS was formed by Martin C. Schwartzberg, a
nominal general partner of the Partnership and a former stockholder of CRI, when
he cashed out of CRI and its related businesses as of January 1, 1990. Mr.
Schwartzberg agreed not to act as a general partner with respect to any of the
CRI-sponsored partnerships, including this Partnership, and has not done so
since that time. In late 1995, a dispute arose between CRI and CMS over the
funding level of the 1996 contract for CMS. On November 9, 1995, CRI filed a
complaint against CMS to determine the proper amount of fees to be paid in 1996
under the asset management agreement. CMS answered on January 10, 1996, but
asserted no counterclaims.
Thereafter, Mr. Schwartzberg launched a hostile consent solicitation to be
designated as managing general partner of approximately 125 private partnerships
sponsored by CRI. On January 18, 1996, Mr. Schwartzberg and CMS filed a
complaint in the Circuit Court of Montgomery County, Maryland (the Circuit
Court), against CRI and Messrs. Dockser and Willoughby (who are general partners
of the Partnership) alleging, among other things, that CRI and Messrs. Dockser
and Willoughby have breached the asset management agreement pursuant to which
Mr. Schwartzberg's company, CMS, agreed to perform limited functions related to
II-4
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
property-level issues for a portion of CRI's subsidized housing portfolio
(including some of the properties in which the Partnership invested), by
reducing the proposed budget for 1996. The Partnership is not named as a
defendant in this action. Messrs. Dockser and Willoughby have entered an answer
denying all of Mr. Schwartzberg's claims. Messrs. Dockser and Willoughby have
publicly responded that Mr. Schwartzberg's suit is motivated by his budget
dispute with CRI and personal animosity. On February 6, 1996, CRI terminated
the CMS contract for cause. Mr. Schwartzberg and CMS responded by filing a
motion for injunctive relief in the Circuit Court, asking the court to enjoin
CRI from terminating the contract. In a ruling issued on February 12, 1996, the
Circuit Court, among other things, refused to grant the injunction requested by
CMS. A hearing in this case is scheduled for April 29, 1996. On February 12,
1996, the Circuit Court also issued a memorandum opinion and order enjoining CMS
and Mr. Schwartzberg from disclosing information made confidential under the
asset management agreement.
On February 1, 1996 and February 16, 1996, Mr. Schwartzberg sent letters to
the Partnership requesting investor lists and other forms of investor
information. On February 5, 1996, the Partnership, acting through its managing
general partner, CRI, denied Mr. Schwartzberg's request. On February 20, 1996,
counsel for the Partnership responded to Mr. Schwartzberg's second request,
denying that Mr. Schwartzberg had standing or a proper purpose for requesting
the investor lists. In view of Mr. Schwartzberg's solicitation efforts against
other CRI-sponsored partnerships, CRI anticipates that litigation may arise from
this request.
Financial Condition/Liquidity
-----------------------------
As of March 8, 1996, the Partnership had approximately 5,600 investors who
subscribed to a total of 60,000 units of limited partnership interests in the
original amount of $60,000,000. As of December 31, 1995, the Partnership has
investments in thirty-five Local Partnerships. The Partnership's liquidity,
with unrestricted cash resources of $2,897,013 as of December 31, 1995, along
with anticipated future cash distributions from the Local Partnerships, is
expected to meet its current and anticipated operating cash needs. In
connection with the refinancing of the respective first-mortgage loans on the
Village Squire I & II and Village Squire III Local Partnerships on March 1,
1996, as discussed below, the Partnership received an aggregate amount of
approximately $8.3 million from the Local Partnerships. The Partnership used
these additional funds along with approximately $560,000 in existing Partnership
cash resources to retire the outstanding purchase money note obligations
relating to Village Squire I & II and Village Squire III which matured on March
1, 1996, as discussed below. Other than the above-described purchase money note
pay-offs, as of March 8, 1996, there are no material commitments for capital
expenditures. Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" (SFAS 107), requires the disclosure
of fair value information about financial instruments for which it is
practicable to estimate that value. The Partnership implemented SFAS 107 in
1995, and has determined that the carrying amount of its cash and cash
equivalents approximates fair value.
During 1995, 1994 and 1993, the Partnership received cash distributions of
$2,142,665, $4,716,303 and $1,613,001, respectively, from the Local
Partnerships.
II-5
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
As of December 31, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships, in the form of purchase money notes of
$36,062,896 (exclusive of unamortized discount on purchase money notes of
$11,879,234) plus accrued interest of $45,508,080 are payable upon the earliest
of: (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's permanent
loan; or (3) maturity. Purchase money notes in an aggregate principal amount of
$3,861,070 matured on January 1, 1996, as discussed below. Purchase money notes
in an aggregate principal amount of $6,100,000 matured and were paid off on
March 1, 1996, as discussed below. Purchase money notes in an aggregate
principal amount of $2,100,000 mature on May 1, 1996, as discussed below. The
remaining purchase money notes mature from 1997 to 2015. The purchase money
notes are generally secured by the Partnership's interest in the respective
Local Partnership. There is no assurance that the underlying properties will
have sufficient appreciation and equity to enable the Partnership to pay the
purchase money notes' principal and accrued interest when due. If a purchase
money note is not paid in accordance with its terms, the Partnership will either
have to renegotiate the terms of repayment or risk losing its partnership
interest in the Local Partnership. The Managing General Partner is continuing
to investigate possible alternatives to reduce the Partnership's long-term debt
obligations. These alternatives include, among others, retaining the cash
available for distribution to meet the purchase money note requirements, buying
out certain purchase money notes at a discounted price, extending the due dates
of certain purchase money notes, or refinancing the respective properties'
underlying debt and using the Partnership's share of the proceeds to pay off or
buy down certain purchase money note obligations.
As of December 31, 1995, the Partnership's obligations with respect to its
investment in Local Partnerships included $119,544 due to local general
partners, plus accrued interest on these obligations of $33,976.
Purchase money notes, plus accrued interest, relating to the following
properties have matured or will mature in 1996:
<TABLE>
<CAPTION>
Property Principal Amount Maturity Date
-------- ---------------- -------------
<S> <C> <C>
Briar Crest I $ 525,050 January 1, 1996 (A,E)
Briar Crest II 415,920 January 1, 1996 (A,E)
Briar Hills 458,100 January 1, 1996 (A,E)
Indian Hills 327,000 January 1, 1996 (A,E)
Park Heights Towers 2,135,000 January 1, 1996 (B)
Village Squire I & II 3,660,000 March 1, 1996 (C)
Village Squire III 2,440,000 March 1, 1996 (C)
Cedar Valley 2,100,000 May 1, 1996 (D,E)
</TABLE>
(A) On June 15, 1994, the Local Managing General Partner of Briar Crest I,
Briar Crest II, Briar Hills and Indian Hills filed a notice of intent to
participate under the LIHPRHA program in hopes of refinancing the existing
first mortgages of each property. The Managing General Partner believes
II-6
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
that refinancings under the LIHPRHA program may no longer be feasible, and
asked the Local Managing General Partner to pursue a sale of the properties
under the LIHPRHA program. On February 20, 1996, the local managing
general partner filed a notice with HUD to amend the plan of action under
the LIHPRHA program requesting a sale of the properties. The Local
Managing General Partner is also the noteholder of the related purchase
money notes. The Partnership defaulted on its purchase money notes
relating to Briar Crest I, Briar Crest II, Briar Hills and Indian Hills on
January 1, 1996 when the notes matured and were not paid. The default
amounts included principal and accrued interest as follows:
<TABLE>
<CAPTION>
Accrued Interest Accrued Interest
Property Principal January 1, 1996 March 8, 1996
-------- --------- ---------------- ----------------
<S> <C> <C> <C>
Briar Crest I $ 525,050 $ 746,672 $ 759,233
Briar Crest II 415,920 574,963 584,739
Briar Hills 458,100 683,564 694,771
Indian Hills 327,000 477,973 485,873
---------- ---------- ----------
$1,726,070 $2,483,172 $2,524,616
========== ========== ==========
</TABLE>
The Managing General Partner has offered to extend the maturity dates to
coincide with the possible future sale of the properties under the LIHPRHA
program. No agreement has been reached as of March 8, 1996. There can be
no assurance that an agreement will be reached, or that the eventual sale
of the properties will occur. As such, there is no assurance that the
Partnership will be able to retain its interest in the Local Partnerships.
(B) On January 5, 1994 the local general partners of Park Heights Towers
Limited Partnership filed a notice of intent to participate under the
LIHPRHA program. On February 2, 1996, the local general partners of Park
Heights Towers sold the property to a non-profit entity. The sale of the
property generated net proceeds to the Partnership of $1.27 million. The
proceeds were net of $2.135 million used to retire, at a discount, the
Partnership's purchase money note obligation with respect to the property.
The sale provided proceeds to the Partnership in excess of its investment
in the Local Partnership, and will result in a net financial statement gain
and a net tax gain in 1996 of approximately $5.1 million and $7.0 million,
respectively. The Partnership intends to distribute approximately $579,000
(or approximately $9.65 per Additional Limited Partner unit) to the
Additional Limited Partners as return of capital on a Generally Accepted
Accounting Principles basis by April 30, 1996. The Managing General
Partner intends to retain all of the Partnership's remaining undistributed
net sale proceeds for the possible repayment, prepayment or purchase of the
outstanding purchase money notes of other Local Partnerships. The General
Partner and/or its affiliates earned net fees of $117,028 for its services
relating to the sale of the property. As of March 8, 1996, these fees have
not been paid.
II-7
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
(C) On March 1, 1996, the local general partner of Village Squire I & II and
Village Squire III refinanced the respective properties' existing first
mortgages. On March 1, 1996, proceeds provided to the Partnership from the
properties' mortgage refinancings along with approximately $560,000 of
existing Partnership cash resources were used to pay off the related
purchase money note obligations.
(D) The Managing General Partner is currently negotiating with the noteholders
to extend the Cedar Valley purchase money note due dates to coincide with a
potential future LIHPHRA sale. There is no assurance that any agreement
will be reached with the noteholders or that a sale of the property will
eventually occur.
(E) The uncertainty about the continued ownership of the Partnership's interest
in the Briar Crest I, Briar Crest II, Briar Hills, Indian Hills and Cedar
Valley Local Partnerships does not impact the Partnership's financial
condition because the related purchase money notes are nonrecourse and
secured solely by the Partnership's interest in the respective Local
Partnerships. Should the investment in any or all of the above listed
Local Partnership's, excluding Indian Hills, not produce sufficient value
to satisfy the related purchase money notes, the Partnership's exposure to
loss is limited since the amount of the nonrecourse indebtedness exceeds
the carrying amount of the investment in and advances to the Local
Partnerships. Thus, even a complete loss of these investments would not
have a material impact on the operations of the Partnership. However,
should the Partnership be unable to retain its interest in these Local
Partnerships, the investments in Local Partnerships would be reduced by the
Partnership's basis in these Local Partnerships, which at December 31,
1995, was approximately 4% of the total investment in Local Partnerships.
In the case of Indian Hills, the carrying amount of the investment exceeds
the amount of nonrecourse indebtedness, however, the Partnership's exposure
to loss is limited to this excess, which at December 31, 1995 was
approximately $850,000.
SFAS 107 requires the disclosure of fair value information about financial
instruments for which it is practicable to estimate that value. The Partnership
has determined that it is not practicable to estimate the fair value of the
purchase money notes, either individually or in the aggregate, due to: (1) the
lack of an active market for this type of financial instrument, (2) the variable
nature of purchase money note interest payments as a result of fluctuating cash
flow distributions received from the related Local Partnerships, and (3) the
excessive costs associated with an independent appraisal of the purchase money
notes.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
In 1995, the receipt of distributions from Local Partnerships was adequate to
support operating cash requirements.
In 1994, the receipt of distributions from Local Partnerships was adequate
to support operating cash requirements. Cash and cash equivalents decreased in
1994 from 1993 primarily due to the pay-off of the Fifth Lakewood note payable,
as well as the principal payment on the new Arboretum Village purchase money
note payable, as discussed below.
II-8
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Results of Operations
---------------------
The Partnership's net loss increased in 1995 from 1994 primarily due to the
extraordinary gain on early extinguishment of the Arboretum Village purchase
money note in 1994, as discussed below. Contributing to the increase in net
loss was a decrease in income from Local Partnerships, resulting principally
from the receipt in 1994 of a distribution in excess of the Partnership's basis,
as a result of the refinancing of the Arboretum Village first mortgage, as
discussed below. Also contributing to the increase in net loss was an increase
in interest expense as a result of the amortization of imputed interest, as well
as a decrease in interest income primarily due to the receipt in 1994 of the
outstanding receivable and accrued interest from Arbor Club, as discussed below.
The Partnership's net loss decreased in 1994 from 1993 primarily due to the
extraordinary gain on early extinguishment of debt, as discussed below.
Contributing to the decrease in net loss was an increase in income from the
Local Partnerships, resulting principally from the receipt of a distribution in
excess of the Partnership's basis, as discussed below, as well as an increase in
rental revenues at five properties. The increase in rental revenue at one
property related to a retroactive rent adjustment received in 1994, while the
increases in rental revenue at the other four properties were as a result of
improved operations. Also contributing to the decrease in net loss was a
decrease in interest expense due to the pay-off of the Arboretum Village
purchase money note in the second quarter of 1994, as well as a decrease in
proxy solicitation costs relating to the proxy solicitation submitted to
investors during the first quarter of 1993.
The purchase money notes originated from 1983 through 1985. When they were
issued, the market interest rate was approximately 15%, while the stated
interest rates ranged from 9% to 12%. The notes were discounted as required by
Generally Accepted Accounting Principles, and a simple/compound method was used
at the stated interest rate for tax purposes, and the compound method at the
market interest rate was used for book purposes. As the book interest is being
compounded, the interest expense for book purposes will eventually surpass the
interest expense for tax purposes, thereby reducing the discount and increasing
the interest expense. In fiscal year 1995, all properties with purchase money
notes had book interest which exceeded the tax interest. This increase in
interest expense and the resulting reduction in the discount is expected to
increase in future years.
For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships. As
a result, the Partnership's share of income from Local Partnerships for the
years ended December 31, 1995, 1994 and 1993 did not include losses of $822,642,
$912,870 and $644,265, respectively. The Partnership's net loss recognized from
the Local Partnerships is generally expected to decrease in subsequent years as
the Partnership's investments in the Local Partnerships are reduced to zero.
Accordingly, excludable losses are generally expected to increase. Distributions
of $287,289, $2,253,433 and $239,053 received from six, seven and six Local
Partnerships during 1995, 1994 and 1993, respectively, were offset against the
respective years' recorded losses because those amounts were in excess of the
Partnership's investment.
II-9
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
In September 1995, HUD sold the mortgage of New Fifth Lakewood Associates
Limited Partnership (Walden Apartments) to a new mortgagee. The new mortgagee
will now service the loan and Walden Apartments will no longer be subject to HUD
regulatory requirements.
The Partnership purchased the Walden Apartments purchase money note for
$2,450,000 (the original principal was $4,000,000) at a public auction on
December 11, 1989, and the $4,000,000 purchase money note was retired. The
purchase price was financed through the payment of $350,000 cash from the
Partnership and a $2,100,000 loan from Bank One (formerly First Illinois Bank of
Evanston). The new note had a maturity date of July 1, 1994 and bore interest at
7.5%. The Partnership paid-off the new note in full on June 30, 1994. Interest
expense on the note payable was $80,063 and $159,687 for the years ended
December 31, 1994 and 1993, respectively. No cash distributions were received
from Walden Apartments during 1995, 1994 or 1993.
The Arbor Club was involved in litigation with the former general
contractor for the Arbor Club complex and its surety company. During 1990, the
litigation was settled for $2,235,000, which represented the original settlement
amount plus recovery of certain legal costs incurred by the Arbor Limited
Partnership. Pursuant to an agreement with the local general partner, the
Partnership was to receive $350,928 as follows: $70,928 in cash, which was
received upon execution of the agreement and $280,000 payable in four annual
installments with interest at 9% beginning December 1992. The $70,000
installment due in December 1992 plus accrued interest of $6,300 was paid as
scheduled and the December 1993 payment of $70,000 plus accrued interest of
$12,600 was received in January 1994. In addition, in February 1994, the
Partnership received the remaining principal amount of $140,000 plus accrued
interest of $27,335, and the security for such payments was released.
In September 1994, the Partnership modified purchase money notes totaling
$1,365,000 relating to Bartley Manor, Village Square and Village Green. In
accordance with the modification agreement, the Partnership paid an aggregate of
$100,000 in accrued interest, and the maturity dates for the notes were extended
from February 1994 to July 1, 1997.
On May 5, 1994, the local general partner of Arboretum Village Limited
Partnership (Arboretum Village) refinanced the property's first mortgage. The
refinancing provided proceeds of $3,387,382 to the Partnership with which the
Partnership acquired, at a discount, the existing purchase money note in the
original principal amount of $4,106,944, which resulted in an extraordinary gain
from extinguishment of debt of $3,052,664. In addition, proceeds to the
Partnership relating to the refinancing of $1,987,969 were in excess of the
Partnership's investment and were included in share of income from Local
Partnerships. In connection with the refinancing, the Partnership executed a
new purchase money note to the local general partner in the principal amount of
$1,050,000, which was a non-cash transaction. The new purchase money note bears
simple interest at the same rate (9.73%) and matures at the same time (May 2001)
as the new first mortgage. In August 1994, the Partnership made a $300,000
payment towards the principal balance of the purchase money note. Accrued
interest on the purchase money note was $71,753 and $56,180 as of December 31,
1995 and 1994, respectively.
The local general partners of Kapetan Associates Limited Partnership
(Congress Plaza) had been negotiating a sale for Congress Plaza. Because
II-10
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
certain contingencies were not satisfied, the offer to purchase the property has
expired and negotiations have ended.
The local general partners of the following properties have each filed a
notice of intent to participate under the LIHPRHA program:
<TABLE>
<CAPTION>
Property Date of Filing
-------- -----------------
<C> <C>
Rolling Green at Milford April 23, 1993
Woodside Village March 31, 1994
Briar Crest I June 15, 1994
Briar Crest II June 15, 1994
Briar Hills June 15, 1994
Indian Hills June 15, 1994
Winchester Gardens July 18, 1994
Tyee Apartments November 28, 1994
Bartley Manor December 5, 1994
Village Green December 5, 1994
Village Square December 5, 1994
Cedar Valley January 23, 1995
Southmoor January 31, 1995
Greeley Manor January 31, 1995
</TABLE>
Incentives available under LIHPRHA are discussed above in the General
section. There is no assurance that a sale or supplemental financing of these
properties will occur.
Inflation
---------
Inflation allows for increases in rental rates, usually offsetting any
higher operating and replacement costs. Furthermore, inflation generally does
not impact the fixed rate long-term financing under which real property
investments were purchased. Future inflation could allow for appreciated values
of the Local Partnerships' properties over an extended period of time as rental
revenue and replacement values gradually increase.
II-11
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
The following table reflects the combined rental revenues of the properties
for the five years ended December 31, 1995.
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Rental
Revenue $33,256,209 $32,270,051 $31,007,780 $30,469,064 $30,174,947
Annual Percentage
Increase 3.06% 4.07% 1.77% 0.97%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item is contained in Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
II-12
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a), (b) and
(c) The Partnership has no directors, executive officers or
significant employees of its own.
(a), (b), (c)
and (e) The names, ages and business experience for the directors and
executive officers of C.R.I., Inc. (CRI), the Managing General
Partner of the Partnership, are as follows:
William B. Dockser, 59, has been the Chairman of the Board of CRI and a Director
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment complexes. For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs. Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts. He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University. He is also Chairman of the
Board of CRIIMI MAE Inc., CRIIMI, Inc. and CRI Liquidating REIT, Inc.
H. William Willoughby, 49, President, Secretary and a Director of CRI since
January 1990 and Senior Executive Vice President, Secretary and a Director of
CRI from 1974 to 1989. He is principally responsible for the financial
management of CRI and its associated partnerships. Prior to joining CRI in 1974,
he was Vice President of Shelter Corporation of America and a number of its
subsidiaries dealing principally with real estate development and equity
financing. Before joining Shelter Corporation, he was a Senior Tax Accountant
with Arthur Andersen & Company. He holds a Juris Doctorate degree, a Master of
Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota. He is also a Director and
executive officer of CRIIMI MAE Inc., CRIIMI, Inc. and CRI Liquidating REIT,
Inc.
Richard J. Palmer, 44, Senior Vice President-Chief Financial Officer. Prior to
joining CRI in 1983 as Director of Tax Policy, he was a Tax Manager at Grant
Thornton (formerly Alexander Grant & Company). He also served in the Tax and
Audit Departments of Peat, Marwick, Main and Company (formerly Peat, Marwick,
Mitchell and Company) prior to his seven years at Grant Thornton. He holds a
Bachelor of Business Administration degree from the Florida Atlantic University
and is also a Certified Public Accountant.
Ronald W. Thompson, 49, Group Executive Vice President-Hotel Asset Management.
Prior to joining CRI in 1985, he was employed at the Hyatt Organization where he
most recently served as the General Manager of the Hyatt Regency in Flint,
Michigan. During his nine year tenure with Hyatt, he held senior management
positions with the Hyatt Regency in Dearborn, Michigan, the Hyatt in Richmond,
Virginia, the Hyatt in Winston-Salem, North Carolina and the Hyatt Regency in
Atlanta, Georgia. Before joining Hyatt, Mr. Thompson worked in London, England
for the English Tourist Board as well as holding management positions in Europe,
Australia, and New Zealand in the hotel industry. Mr. Thompson received his
education in England where he received a business degree in Hotel Administration
from Winston College.
III-1
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
Susan R. Campbell, 37, Senior Vice President-CRI Realty Services. Prior to
joining CRI in March 1985, she was a budget analyst for the B. F. Saul Advisory
Company. She holds a Bachelor of Science degree in General Business from the
University of Maryland.
Melissa Cecil Lackey, 40, Senior Vice President and General Counsel. Prior to
joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas. She holds a Juris Doctorate from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.
(d) There is no family relationship between any of the foregoing directors
and executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
(a), (b), (c) and (d)
The Partnership has no officers or directors. However, in accordance with
the Partnership Agreement, and as disclosed in the public offering, various
kinds of compensation and fees were paid or are payable to the General
Partners and their affiliates. Additional information required in these
sections is included in Notes 3 and 4 to the financial statements contained
in Part IV, Item 14.
Additionally, the General Partners may receive an annual distribution from
the Partnership if there is cash available for distribution, as defined in
the Partnership Agreement. The General Partners are also entitled to the
following payments:
(1) Annual incentive management fee for managing the affairs and business
of the Partnership in an amount not to exceed .25% of invested assets,
including the Partnership's allocable share of the mortgages, payable
first, in an annual amount equal to $300,000; and second, after
distributions to investors in the amount of 1% of the gross proceeds
of the offering, the balance of such .25% of invested assets. The
annual incentive management fee amounted to $300,000 for each of the
years ended December 31, 1995, 1994, and 1993.
(2) 15% of sale and refinancing proceeds remaining after the limited
partners have received a return of all their capital contributions,
adjusted as provided in the Partnership Agreement, and the General
Partners have received the property disposition fees described below.
The General Partners may also receive a return of their capital
contributions and repayment of any loans made to the Partnership. No
sale proceeds were paid to the General Partners during the years ended
December 31, 1995, 1994 or 1993.
III-2
<PAGE>
PART III
--------
ITEM 11. EXECUTIVE COMPENSATION - Continued
----------------------
(3) 1% of the aggregate selling prices, including any amounts previously
unpaid upon prior sales of apartment complexes, payable after the
limited partners have received a return of all their capital
contributions, adjusted as provided in the Partnership Agreement.
This amount and any other commissions or fees payable upon the sale of
apartment complexes shall not in the aggregate exceed the lesser of
the competitive rate or 6% of the sales price of the apartment
complexes. No such amounts were paid to the General Partners during
the years ended December 31, 1995, 1994 and 1993.
(4) In addition, the Managing General Partner and/or its affiliates may
receive a fee in an amount of not more than 2% of the sales price of
the investment in a Local Partnership or the property it owns. The
fee would only be payable upon the sale of the investment in a Local
Partnership or the property it owns and would be subject to certain
restrictions, including achievement of a certain level of sales
proceeds and making certain minimum distributions to limited partners.
No such amounts were paid to the Managing General Partner and/or its
affiliates during 1995, 1994 and 1993. The Managing General Partner
and/or its affiliates earned fees of $117,028 for its services
relating to the sale of Park Heights Towers on February 2, 1996.
These fees have not been paid as of March 8, 1996.
(e) Termination of employment and change in control arrangements.
None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
(a) Security ownership of certain beneficial owners.
No person or "group", as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, is known by the Partnership to be the
beneficial owner of more than 5% of the issued and outstanding
partnership units at December 31, 1995.
(b) Security ownership of management.
The following table sets forth certain information concerning all
units beneficially owned, as of December 31, 1995, by each director
and by all directors and officers as a group of the Managing General
Partner of the Partnership.
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
---------------- ----------------------- ------------
William B. Dockser None 0%
H. William Willoughby None 0%
All Directors and Officers
as a Group (6 persons) None 0%
(c) Changes in control.
III-3
<PAGE>
PART III
--------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT - Continued
----------
There exists no arrangement known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership. There is a provision in the Limited Partnership
Agreement which allows, under certain circumstances, the ability to
change control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with management and others.
The Partnership has no directors or officers. In addition, the
Partnership has had no transactions with individual officers or
directors of the Managing General Partner of the Partnership other
than any indirect interest such officers and directors may have in the
amounts paid to the Managing General Partner or its affiliates by
virtue of their stock ownership in CRI. Item 11 of this report, which
contains a discussion of the fees and other compensation paid or
accrued by the Partnership to the General Partners or their
affiliates, is incorporated herein by reference. Note 3 of the notes
to consolidated financial statements, which contains disclosure of
related party transactions, is also incorporated herein by reference.
(b) Certain business relationships.
The Partnership's response to Item 13(a) is incorporated herein by
reference. In addition, the Partnership has no business relationship
with entities of which the officers and directors of the Managing
General Partner of the Partnership are officers, directors or equity
owners other than as set forth in the Partnership's response to Item
13(a).
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
III-4
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
------------------------------------------------------
FORM 8-K
--------
(a) 1. Financial Statements Page
-------------------- ----
Report of Independent Certified Public Accountants -
Capital Realty Investors-III Limited
Partnership IV-4
Reports of Independent Certified Public Accountants -
Local Partnerships in which Capital
Realty Investors-III Limited
Partnership has invested IV-5
Consolidated Balance Sheets as of December 31,
1995 and 1994 IV-6
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993 IV-7
Consolidated Statements of Changes in
Partners' Deficit for the years
ended December 31, 1995, 1994 and 1993 IV-8
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 IV-9
Notes to Consolidated Financial Statements IV-10
(a) 2. Financial Statement Schedules
-----------------------------
Included in Part IV of this report are the following schedules
for the year ended December 31, 1995, which are applicable to the
Local Partnerships in which Capital Realty Investors-III Limited
Partnership has invested:
Report of Independent Certified Public
Accountants on Financial Statement Schedule IV-28
Schedule III - Real Estate and Accumulated
Depreciation IV-29
The remaining schedules are omitted because the required
information is included in the financial statements and notes
thereto or they are not applicable or not required.
(a) 3. Exhibits (listed according to the number assigned to the table
in Item 601 of Regulation S-K)
Exhibit No. 3. - Articles of Incorporation and bylaws
a. Certificate of Limited Partnership of Capital Realty
Investors-III Limited Partnership. (Incorporated by
reference from Exhibit 4 to Registrant's Registration
Statement on Form S-11, as amended, dated October 24, 1983).
IV-1
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
------------------------------------------------------
FORM 8-K - Continued
--------
Exhibit No. 4.- Instruments defining rights of security holders
including indentures
a. Limited Partnership Agreement of Capital Realty
Investors-III Limited Partnership. (Incorporated by
reference from Exhibit 4 to Registrant's Registration
Statement on Form S-11, as amended, dated October 24, 1983).
Exhibit No. 10. - Material contracts
a. Management Services Agreement between CRI and Capital Realty
Investors-III Limited Partnership. (Incorporated by
reference from Exhibit 10B to Registrant's Registration
Statement on Form S-11, as amended, dated October 24, 1983).
Exhibit No. 27 - Financial Data Schedule
Exhibit No. 99 - Additional Exhibits
a. Prospectus of the Partnership, dated May 6, 1983
(Incorporated by reference to the Registrant's Registration
Statement on Form S-11, as amended, dated October 24, 1983.)
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
December 31, 1995.
(c) Exhibits
--------
The list of Exhibits required by Item 601 of Regulation S-K is
included in Item (a)3., above.
(d) Financial Statement Schedules
-----------------------------
See Item (a)2., above.
IV-2
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Capital Realty Investors-III
Limited Partnership
By: C.R.I., Inc.
General Partner
March 26, 1996 /s/ William B. Dockser
- -------------------------- ----------------------------------
DATE William B. Dockser, Director
Chairman of the Board,
Treasurer and Principal
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
March 26, 1996 /s/ H. William Willoughby
- -------------------------- ----------------------------------
DATE H. William Willoughby
Director, President and Secretary
March 26, 1996 /s/ Richard J. Palmer
- -------------------------- ----------------------------------
DATE Richard J. Palmer
Senior Vice President,
Chief Financial Officer,
Principal Financial and
Principal Accounting Officer
IV-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
-------------------------------
PUBLIC ACCOUNTANTS
-------------------
To the Partners
Capital Realty Investors-III
Limited Partnership
We have audited the consolidated balance sheets of Capital Realty
Investors-III Limited Partnership as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in partners' deficit and
cash flows for the years ended December 31, 1995, 1994 and 1993. 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 did not audit the financial statements for thirty-three of
the Local Partnerships in 1995, 1994 and 1993, which are accounted for as
described in Note 1d. The statements of the remaining Local Partnerships were
audited by other auditors whose reports thereon have been furnished to us, and
our opinion expressed herein, insofar as it relates to the amounts included for
these Local Partnerships, is based solely upon the reports of the other
auditors.
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
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, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Capital Realty Investors-III
Limited Partnership as of December 31, 1995 and 1994, and the consolidated
results of its operations, changes in partners' deficit and cash flows for the
years ended December 31, 1995, 1994 and 1993, in conformity with generally
accepted accounting principles.
Vienna, VA Grant Thornton LLP
March 8, 1996
IV-4
<PAGE>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -
LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
HAS INVESTED*
* The reports of independent certified public accountants - Local
Partnerships in which Capital Realty Investors-III Limited Partnership has
invested were filed in paper format under Form SE on March 26, 1996, in
accordance with the Securities and Exchange Commission's continuing
hardship exemption granted December 21, 1995.
IV-5
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1995 1994
------------ ------------
<S> <C> <C>
Investments in partnerships $ 28,502,606 $ 30,085,154
Investment in partnership held for sale 1,249,305 --
Cash and cash equivalents 2,897,013 2,681,974
Acquisition fees, principally paid to related parties, net
of accumulated amortization of $415,716 and $397,948,
respectively 632,123 696,691
Property purchase costs, net of accumulated amortization of
$376,110 and $355,253, respectively 600,026 653,480
Other assets 80,183 21,223
------------ ------------
Total assets $ 33,961,256 $ 34,138,522
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 24,303,206 $ 19,743,584
Accrued interest payable 45,542,056 42,155,444
Accounts payable and accrued expenses 114,599 88,752
------------ ------------
Total liabilities 69,959,861 61,987,780
------------ ------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid-in:
General Partners 2,000 2,000
Limited Partners 60,001,500 60,001,500
------------ ------------
60,003,500 60,003,500
Less:
Accumulated distributions to partners (1,709,681) (1,709,681)
Offering costs (6,156,933) (6,156,933)
Accumulated losses (88,135,491) (79,986,144)
------------ ------------
Total partners' deficit (35,998,605) (27,849,258)
------------ ------------
Total liabilities and partners' deficit $ 33,961,256 $ 34,138,522
============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
IV-6
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Share of income from partnerships $ 1,761,512 $ 3,036,990 $ 759,161
----------- ----------- -----------
Other revenue and expenses:
Revenue
Interest and other income 166,943 201,695 194,736
----------- ----------- -----------
Expenses
Interest 9,462,914 8,458,314 8,694,620
Management fee 300,000 300,000 300,000
General and administrative 132,791 133,945 155,420
Professional fees 111,985 119,341 151,080
Amortization 70,112 70,113 70,112
Proxy solicitation -- -- 48,563
----------- ----------- -----------
10,077,802 9,081,713 9,419,795
----------- ----------- -----------
Total other revenue and expenses (9,910,859) (8,880,018) (9,225,059)
----------- ----------- -----------
Loss before extraordinary gain from early
extinguishment of debt (8,149,347) (5,843,028) (8,465,898)
Extraordinary gain from early extinguishment
of debt -- 3,052,664 --
----------- ----------- -----------
Net loss $(8,149,347) $(2,790,364) $(8,465,898)
=========== =========== ===========
Loss allocated to General Partners (1.51%) $ (123,055) $ (42,134) $ (127,835)
=========== =========== ===========
Loss allocated to Initial and Special Limited
Partners (1.49%) $ (121,425) $ (41,576) $ (126,142)
=========== =========== ===========
Loss allocated to Additional Limited Partners (97%) $(7,904,867) $(2,706,654) $(8,211,921)
=========== =========== ===========
Loss per unit of Additional Limited Partnership Interest
based on 60,000 units outstanding $ (131.75) $ (45.11) $ (136.87)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
IV-7
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Initial and
Special Additional
General Limited Limited
Partners Partners Partners Total
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' deficit, January 1, 1993 $(1,059,109) $(1,045,749) $(14,488,138) $(16,592,996)
Net loss (127,835) (126,142) (8,211,921) (8,465,898)
----------- ----------- ------------ ------------
Partners' deficit, December 31, 1993 (1,186,944) (1,171,891) (22,700,059) (25,058,894)
Net loss (42,134) (41,576) (2,706,654) (2,790,364)
----------- ----------- ------------ ------------
Partners' deficit, December 31, 1994 (1,229,078) (1,213,467) (25,406,713) (27,849,258)
Net loss (123,055) (121,425) (7,904,867) (8,149,347)
----------- ----------- ------------ ------------
Partners' deficit, December 31, 1995 $(1,352,133) $(1,334,892) $(33,311,580) $(35,998,605)
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
IV-8
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,149,347) $ (2,790,364) $ (8,465,898)
Adjustments to reconcile net loss to net cash used
in operating activities:
Share of income from partnerships (1,761,512) (3,036,990) (759,161)
Extraordinary gain from early extinguishment of debt -- (3,052,664) --
Payment of interest on note payable -- (80,063) (159,687)
Payment of purchase money note interest (1,516,680) (874,636) (989,004)
Amortization of discount on purchase money notes 4,559,622 3,030,167 2,764,778
Amortization of deferred costs 70,112 70,113 70,112
Changes in assets and liabilities:
(Increase) decrease in other assets (58,960) 212,820 18,927
Increase in accrued interest payable 4,903,292 5,428,149 5,929,840
Increase (decrease) in accounts payable 25,847 (27,340) 33,959
------------ ------------ ------------
Net cash used in operating activities (1,927,626) (1,120,808) (1,556,134)
------------ ------------ ------------
Cash flows from investing activities:
Receipt of distributions from partnerships 2,142,665 4,716,303 1,613,001
Sale of short-term investments -- -- 1,035,000
Payments of amounts due on investments in partnerships -- -- (16,100)
------------ ------------ ------------
Net cash provided by investing activities 2,142,665 4,716,303 2,631,901
------------ ------------ ------------
Cash flows used in financing activities:
Pay-off of notes payable -- (2,100,000) --
Payment of purchase money note principal -- (300,000) --
Pay-off of purchase money note -- (3,387,382) --
------------ ------------ ------------
Net cash used in financial activities -- (5,787,382) --
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 215,039 (2,191,887) 1,075,767
Cash and cash equivalents, beginning of year 2,681,974 4,873,861 3,798,094
------------ ------------ ------------
Cash and cash equivalents, end of year $ 2,897,013 $ 2,681,974 $ 4,873,861
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
IV-9
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
------------
Capital Realty Investors-III Limited Partnership (the Partnership) was
formed under the Maryland Revised Uniform Limited Partnership Act on June
27, 1983 and shall continue until December 31, 2037, unless sooner
dissolved in accordance with the Partnership Agreement. The Partnership
was formed to invest in real estate by acquiring and holding a limited
partner interest in limited partnerships (Local Partnerships) which own and
operate federal or state government-assisted or conventionally financed
apartment complexes located throughout the United States, which provide
housing principally to the elderly and/or to individuals and families of
low to moderate income.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which
is the Managing General Partner, and current and former shareholders of
CRI. The Initial Limited Partner is Rockville Pike Associates Limited
Partnership-III, a limited partnership which includes certain officers and
former employees of CRI or its affiliates. The Special Limited Partner is
Two Broadway Associates II, a limited partnership which includes an
affiliate and employees of Merrill Lynch, Pierce, Fenner & Smith,
Incorporated.
The Partnership sold 60,000 units at $1,000 per unit of Additional
Limited Partner Interest through a public offering. The offering period
was terminated in January 1984.
b. Method of accounting
--------------------
The financial statements of the Partnership are prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles.
c. Principles of consolidation
---------------------------
These financial statements include the accounts of six intermediary
limited partnerships, which have invested in six Local Partnerships which
own and operate government assisted or conventionally financed apartment
complexes.
d. Investments in partnerships
---------------------------
The investments in Local Partnerships (see Note 2) are accounted for
by the equity method because the Partnership is a limited partner in the
Local Partnerships. Under this method, the carrying amount of the
investments in Local Partnerships is (i) reduced by distributions received
and (ii) increased or reduced by the Partnership's share of earnings or
losses, respectively, of the Local Partnerships. As of December 31, 1995
and 1994, the Partnership's share of cumulative losses of eleven and eight
of the Local Partnerships exceeds the amount of the Partnership's
investments in these Local Partnerships by $11,371,859 and $10,769,501,
respectively. Since the Partnership has no further obligation to advance
funds or provide financing to these Local Partnerships, the excess losses
IV-10
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
have not been reflected in the accompanying consolidated financial
statements. During 1995 and 1994, cash distributions of $287,289 and
$2,253,433, respectively, have been received from the Local Partnerships
for which the Partnership's carrying value is zero. These distributions are
offset against the Partnership's share of loss from partnerships.
Costs incurred in connection with acquiring these investments have
been capitalized and are being amortized using the straight-line method
over the estimated useful lives of the properties owned by the Local
Partnerships.
e. Fair value of financial instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" (SFAS 107), requires the
disclosure of fair value information about financial instruments for which
it is practicable to estimate that value. The Partnership implemented SFAS
107 in 1995.
f. Cash and cash equivalents
-------------------------
Cash and cash equivalents consist of all money market funds, time and
demand deposits, repurchase agreement and commercial paper with original
maturities of three months or less. The Partnership has determined that
the carrying amount of its cash and cash equivalents approximates fair
value.
g. Offering costs
--------------
The Partnership incurred certain costs in connection with the offering
and selling of limited partnership interests. Such costs were recorded as
a reduction of partners' capital when incurred.
h. Income taxes
------------
For federal and state income tax purposes, each partner reports on his
or her personal income tax return his or her share of the Partnership's
income or loss as determined for tax purposes. Accordingly, no provision
(credit) has been made for income taxes in these consolidated financial
statements.
i. Use of estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles, the Partnership is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
IV-11
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
j. Asset held for sale
-------------------
On February 2, 1996, the local general partners of Park Heights Towers
Limited Partnership sold the property to a non-profit entity. Accordingly,
the Partnership's investment in this Local Partnership was classified as an
investment held for sale on the balance sheet as of December 31, 1995.
Assets held for sale are not recorded in excess of their estimated net
realizable value.
k. Reclassifications
-----------------
Certain amounts in the 1994 financial statements have been
reclassified to conform to the 1995 presentation.
2. INVESTMENTS IN PARTNERSHIPS
a. Due on investments in partnerships
----------------------------------
As of December 31, 1995 and 1994, the Partnership had acquired limited
partnership interests in thirty-five Local Partnerships, which were
organized to develop, construct, own, maintain and operate rental apartment
complexes which provide housing principally to the elderly and/or to
individuals and families of low or moderate income. The remaining
principal amounts due on investments in the Local Partnerships as of
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Due to local general partners $ 119,544 $ 119,544
Purchase money notes due:
1996 12,061,070 12,061,070
1997 3,065,000 3,065,000
1998 2,250,000 2,250,000
1999 17,614,500 17,614,500
2000 -- --
Thereafter 1,072,326 1,072,326
----------- -----------
36,182,440 36,182,440
Less unamortized discount
on purchase money notes (11,879,234) (16,438,856)
----------- -----------
$24,303,206 $19,743,584
=========== ===========
</TABLE>
The amounts due to local general partners will be paid upon the
occurrence of certain specific events as outlined in the respective Local
Partnership's partnership agreements.
The purchase money notes have stated interest rates ranging from 9% to
12%, certain of which are compounded annually. Unamortized discounts are
IV-12
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
based upon an imputed interest rate of 15% to reflect market interest rates
which prevailed when the notes were issued. The resulting discount has
been recorded by the Partnership and is being amortized to interest expense
over the life of the respective purchase money notes using the effective
interest method. The purchase money notes are payable upon the earliest
of: (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's
permanent loan; or (3) maturity. Purchase money notes in an aggregate
principal amount of $3,861,070 matured on January 1, 1996, as discussed
below. Purchase money notes in an aggregate principal amount of $6,100,000
matured and were paid off on March 1, 1996, as discussed below. Purchase
money notes in an aggregate principal amount of $2,100,000 mature on May 1,
1996, as discussed below. The remaining purchase money notes mature from
1997 to 2015. The purchase money notes are generally secured by the
Partnership's interest in the respective Local Partnership. There is no
assurance that the underlying properties will have sufficient appreciation
and equity to enable the Partnership to pay the purchase money notes'
principal and accrued interest when due. If a purchase money note is not
paid in accordance with its terms, the Partnership will either have to
renegotiate the terms of repayment or risk losing its partnership interest
in the Local Partnership. The Managing General Partner is continuing to
investigate possible alternatives to reduce the Partnership's long-term
debt obligations. These alternatives include, among others, retaining the
cash available for distribution to meet the purchase money note
requirements, buying out certain purchase money notes at a discounted
price, extending the due dates of certain purchase money notes, or
refinancing the respective properties' underlying debt and using the
Partnership's share of the proceeds to pay off or buy down certain purchase
money note obligations.
Interest expense on the unpaid purchase price and the Partnership's
purchase money notes for the years ended December 31, 1995, 1994 and 1993
was $9,462,914, $8,322,071 and $8,534,933, respectively. The accrued
interest on the purchase money notes of $45,508,080 and $42,065,288, as of
December 31, 1995 and 1994, respectively, is due on the respective maturity
dates of the purchase money notes or earlier if the Local Partnerships have
distributable net cash flow, as defined in the relevant Local Partnership
agreements.
Purchase money notes, plus accrued interest, relating to the following
properties have matured or will mature in 1996:
<TABLE>
<CAPTION>
Property Principal Amount Maturity Date
-------- ---------------- -------------
<S> <C> <C>
Briar Crest I $ 525,050 January 1, 1996 (A,E)
Briar Crest II 415,920 January 1, 1996 (A,E)
Briar Hills 458,100 January 1, 1996 (A,E)
Indian Hills 327,000 January 1, 1996 (A,E)
Park Heights Towers 2,135,000 January 1, 1996 (B)
Village Squire I & II 3,660,000 March 1, 1996 (C)
Village Squire III 2,440,000 March 1, 1996 (C)
Cedar Valley 2,100,000 May 1, 1996 (D,E)
</TABLE>
IV-13
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
(A) On June 15, 1994, the Local Managing General Partner of Briar Crest I,
Briar Crest II, Briar Hills and Indian Hills filed a notice of intent
to participate under the LIHPRHA program in hopes of refinancing the
existing first mortgages of each property. The Managing General
Partner believes that refinancings under the LIHPRHA program may no
longer be feasible, and asked the Local Managing General Partner to
pursue a sale of the properties under the LIHPRHA program. On
February 20, 1996, the local managing general partner filed a notice
with HUD to amend the plan of action under the LIHPRHA program
requesting a sale of the properties. The Local Managing General
Partner is also the noteholder of the related purchase money notes.
The Partnership defaulted on its purchase money notes relating to
Briar Crest I, Briar Crest II, Briar Hills and Indian Hills on January
1, 1996 when the notes matured and were not paid. The default amounts
included principal and accrued interest as follows:
IV-14
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Accrued Interest Accrued Interest
Property Principal January 1, 1996 March 8, 1996
-------- --------- ---------------- ----------------
<S> <C> <C> <C>
Briar Crest I $ 525,050 $ 746,672 $ 759,233
Briar Crest II 415,920 574,963 584,739
Briar Hills 458,100 683,564 694,771
Indian Hills 327,000 477,973 485,873
---------- ---------- ----------
$1,726,070 $2,483,172 $2,524,616
========== ========== ==========
</TABLE>
The Managing General Partner has offered to extend the maturity
dates to coincide with the possible future sale of the properties
under the LIHPRHA program. No agreement has been reached as of March
8, 1996. There can be no assurance that an agreement will be reached,
or that the eventual sale of the properties will occur. As such,
there is no assurance that the Partnership will be able to retain its
interest in the Local Partnerships.
(B) On January 5, 1994 the local general partners of Park Heights Towers
Limited Partnership filed a notice of intent to participate under the
LIHPRHA program. On February 2, 1996, the local general partners of
Park Heights Towers sold the property to a non-profit entity. The
sale of the property generated net proceeds to the Partnership of
$1.27 million. The proceeds were net of $2.135 million used to
retire, at a discount, the Partnership's purchase money note
obligation with respect to the property. The sale provided proceeds
to the Partnership in excess of its investment in the Local
Partnership, and will result in a net financial statement gain and a
net tax gain in 1996 of approximately $5.1 million and $7.0 million,
respectively. The Partnership intends to distribute approximately
$579,000 (or approximately $9.65 per Additional Limited Partner unit)
to the Additional Limited Partners as return of capital on a Generally
Accepted Accounting Principles basis by April 30, 1996. The Managing
General Partner intends to retain all of the Partnership's remaining
undistributed net sale proceeds for the possible repayment, prepayment
or purchase of the outstanding purchase money notes of other Local
Partnerships. The General Partner and/or its affiliates earned net
fees of $117,028 for its services relating to the sale of the
property. As of March 8, 1996, these fees have not been paid.
(C) On March 1, 1996, the local general partner of Village Squire I & II
and Village Squire III refinanced the respective properties' existing
first mortgages. On March 1, 1996, proceeds provided to the
Partnership from the properties' mortgage refinancings along with
approximately $560,000 of existing Partnership cash resources were
used to pay off the related purchase money note obligations.
(D) The Managing General Partner is currently negotiating with the
noteholders to extend the Cedar Valley purchase money note due dates
IV-15
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
to coincide with a potential future LIHPHRA sale. There is no
assurance that any agreement will be reached with the noteholders or
that a sale of the property will eventually occur.
(E) The uncertainty about the continued ownership of the Partnership's
interest in the Briar Crest I, Briar Crest II, Briar Hills, Indian
Hills and Cedar Valley Local Partnerships does not impact the
Partnership's financial condition because the related purchase money
notes are nonrecourse and secured solely by the Partnership's interest
in the respective Local Partnerships. Should the investment in any or
all of the above listed Local Partnership's, excluding Indian Hills,
not produce sufficient value to satisfy the related purchase money
notes, the Partnership's exposure to loss is limited since the amount
of the nonrecourse indebtedness exceeds the carrying amount of the
investment in and advances to the Local Partnerships. Thus, even a
complete loss of these investments would not have a material impact on
the operations of the Partnership. However, should the Partnership be
unable to retain its interest in these Local Partnerships, the
investments in Local Partnerships would be reduced by the
Partnership's basis in these Local Partnerships, which at December 31,
1995, was approximately 4% of the total investment in Local
Partnerships. In the case of Indian Hills, the carrying amount of the
investment exceeds the amount of nonrecourse indebtedness, however,
the Partnership's exposure to loss is limited to this excess, which at
December 31, 1995 was approximately $850,000.
In September 1995, HUD sold the mortgage of New Fifth Lakewood
Associates Limited Partnership (Walden Apartments) to a new mortgagee. The
new mortgagee will now service the loan and Walden Apartments will no
longer be subject to HUD regulatory requirements.
The Partnership purchased the Walden Apartments purchase money note
for $2,450,000 (the original principal was $4,000,000) at a public auction
on December 11, 1989, and the $4,000,000 purchase money note was retired.
The purchase price was financed through the payment of $350,000 cash from
the Partnership and a $2,100,000 loan from Bank One (formerly First
Illinois Bank of Evanston). The new note had a maturity date of July 1,
1994 and bore interest at 7.5%. The Partnership paid-off the new note in
full on June 30, 1994. Interest expense on the note payable was $80,063
and $159,687 for the years ended December 31, 1994 and 1993, respectively.
No cash distributions were received from Walden Apartments during 1995,
1994 and 1993.
In September 1994, the Partnership modified purchase money notes
totaling $1,365,000 relating to Bartley Manor, Village Square and Village
Green. In accordance with the modification agreement, the Partnership paid
an aggregate of $100,000 in accrued interest, and the maturity dates for
the notes were extended from February 1994 to July 1, 1997.
SFAS 107 requires the disclosure of fair value information about
financial instruments for which it is practicable to estimate that value.
The Partnership has determined that it is not practicable to estimate the
fair value of the purchase money notes, either individually or in the
aggregate, due to: (1) the lack of an active market for this type of
financial instrument, (2) the variable nature of purchase money note
interest payments as a result of fluctuating cash flow distributions
IV-16
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
received from the related Local Partnerships, and (3) the excessive costs
associated with an independent appraisal of the purchase money notes.
b. Interest in profits, losses and cash distributions
--------------------------------------------------
The Partnership has a 96% to 98.99% interest in profits and losses and
cash distributions (as restricted by various federal and state housing
agencies) of each Local Partnership. An affiliate of the General Partners
of the Partnership is also a general partner of each Local Partnership or
the intermediary limited partnership which invests in the Local
Partnership. The Partnership received cash distributions from the rental
operations of the Local Partnerships of $2,142,665, $4,716,303 and
$1,613,001 during the years ended December 31, 1995, 1994 and 1993,
respectively. As of December 31, 1995 and 1994, twenty-eight and thirty,
respectively, of the Local Partnerships had surplus cash, as defined by
their respective agencies, in the amounts of $2,551,821 and $2,678,525,
respectively, which is available for distribution in accordance with their
respective agencies' regulations.
The cash distributions to the Partnership from the operations of the
rental properties may be limited by Department of Housing and Urban
Development (HUD) regulations. Such regulations limit annual cash
distributions to a percentage of the owner's equity investment in a rental
property. Funds in excess of those which may be distributed to owners are
required to be placed in a residual receipts account held by the governing
state or federal agency for the benefit of the property.
Upon sale, refinancing or liquidation of each Local Partnership, the
proceeds from the sale, refinancing or liquidation shall be distributed in
accordance with the respective provisions of each Local Partnership's
partnership agreement. In accordance with such provisions, the Partnership
would receive from such proceeds its respective percentage interest of any
remaining proceeds, after payment of (1) all debts and liabilities of the
Local Partnership and certain other items, (2) the Partnership's capital
contributions plus certain specified amounts as outlined in each
partnership agreement, and (3) certain special distributions to general
partners and related entities of the Local Partnership.
c. Property matters
----------------
The Arbor Club was involved in litigation with the former general
contractor for the Arbor Club complex and its surety company. During 1990,
the litigation was settled for $2,235,000, which represented the original
settlement amount plus recovery of certain legal costs incurred by the
Arbor Limited Partnership. Pursuant to an agreement with the local general
partner, the Partnership was to receive $350,928 as follows: $70,928 in
cash, which was received upon execution of the agreement and $280,000
payable in four annual installments with interest at 9% beginning December
1992. The $70,000 installment due in December 1992 plus accrued interest
of $6,300 was paid as scheduled and the December 1993 payment of $70,000
plus accrued interest of $12,600 was received in January 1994. In
addition, in February 1994, the Partnership received the remaining
principal amount of $140,000 plus accrued interest of $27,335, and the
security for such payments was released.
IV-17
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
On May 5, 1994, the local general partner of Arboretum Village Limited
Partnership (Arboretum Village) refinanced the property's first mortgage.
The refinancing provided proceeds of $3,387,382 to the Partnership with
which the Partnership acquired, at a discount, the existing purchase money
note in the original principal amount of $4,106,944, which resulted in an
extraordinary gain from extinguishment of debt of $3,052,664. In addition,
proceeds to the Partnership relating to the refinancing of $1,987,969 were
in excess of the Partnership's investment and were included in share of
income from Local Partnerships. In connection with the refinancing, the
Partnership executed a new purchase money note to the local general partner
in the principal amount of $1,050,000, which was a non-cash transaction.
The new purchase money note bears simple interest at the same rate (9.73%)
and matures at the same time (May 2001) as the new first mortgage. In
August 1994, the Partnership made a $300,000 payment towards the principal
balance of the purchase money note. Accrued interest on the purchase money
note was $71,753 and $56,180 as of December 31, 1995 and 1994,
respectively.
The local general partners of Kapetan Associates Limited Partnership
(Congress Plaza) had been negotiating a sale for Congress Plaza. Because
certain contingencies were not satisfied, the offer to purchase the
property has expired and negotiations have ended.
Many of the rental properties owned by the Local Partnerships have
mortgages which are federally insured under Section 236 or Section
221(d)(3) of the National Housing Act, as amended. These properties may be
eligible for sale or refinancing, subject to numerous requirements, under
the LIHPRHA program. This program may provide incentives to owners of
qualifying multifamily housing who commit to permanently maintain their
properties as low to moderate income housing. Incentives available under
LIHPRHA include selling the property to qualified buyers or obtaining
supplemental financing for the property. As of March 8, 1996, members of
Congress were recommending substantial changes to the LIHPRHA program
ranging from the elimination of the program to the redesigning of the
program. Substantial uncertainty exists as to whether any properties which
have already filed the notice of intent to participate under LIHPRHA will
qualify under a redesigned program or as to whether the program will
continue at all.
The local general partners of the following properties have each filed
a notice of intent to participate under the LIHPRHA program:
IV-18
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Property Date of Filing
-------- -----------------
<C> <C>
Rolling Green at Milford April 23, 1993
Woodside Village March 31, 1994
Briar Crest I June 15, 1994
Briar Crest II June 15, 1994
Briar Hills June 15, 1994
Indian Hills June 15, 1994
Winchester Gardens July 18, 1994
Tyee Apartments November 28, 1994
Bartley Manor December 5, 1994
Village Green December 5, 1994
Village Square December 5, 1994
Cedar Valley January 23, 1995
Southmoor January 31, 1995
Greeley Manor January 31, 1995
</TABLE>
There is no assurance that a sale or supplemental financing of these
properties will occur.
Some of the rental properties owned by the Local Partnerships are
financed by state housing agencies. The Managing General Partner has been
working to develop a strategy to sell or refinance certain properties by
utilizing programs developed by these agencies. These programs may include
opportunities to sell the property to a qualifying purchaser who would
agree to maintain the property as low to moderate income housing in
perpetuity, or may include opportunities to refinance the property through
supplemental financing. The Managing General Partner continues to monitor
these programs to ascertain whether the properties would qualify within the
parameters of the programs and whether the programs would provide an
appropriate economic benefit to the limited partners of the Partnership.
Many of the rental properties owned by the Local Partnerships are
dependent on the receipt of housing assistance payments guaranteed by
contract under the HUD Section 8 program. The level of funding for the
Section 8 program, and HUD-insured multifamily housing in general, is
dependent upon the continuation of appropriations approved by Congress for
subsidy payments. In the event that the rental subsidy programs are
reduced or phased out, there is no assurance that the rental properties
will be able to maintain the occupancy levels necessary to pay debt-
service and operating costs or that the rents necessary to pay debt-
service and operating costs will be competitive with rents for comparable
units in the rental properties' market areas. While the Managing General
Partner has no reason to believe that HUD will not honor its obligations
under the contracts, some uncertainty exists in light of the recent
Congressional scrutiny of appropriations for HUD programs.
IV-19
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
d. Summarized financial information
--------------------------------
Summarized financial information for the Local Partnerships as of
December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994
and 1993 is as follows:
IV-20
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
------------ ------------
<S> <C> <C>
Rental property, at cost, net of accumulated depreciation
of $69,987,195 and $64,566,221, respectively $ 98,203,512 $102,190,220
Land and land improvements 15,335,374 15,203,971
Other assets 17,933,930 17,161,059
------------ ------------
Total assets $131,472,816 $134,555,250
============ ============
Mortgage notes payable $103,898,993 $105,836,981
Other liabilities 10,551,978 10,353,576
------------ ------------
Total liabilities 114,450,971 116,190,557
Partners' capital 17,021,845 18,364,693
------------ ------------
Total liabilities and partners' capital $131,472,816 $134,555,250
============ ============
</TABLE>
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Rental $ 33,256,209 $ 32,270,051 $ 31,007,780
Interest 695,422 551,946 502,857
Other 748,368 604,401 584,361
------------ ------------ ------------
Total revenue 34,699,999 33,426,398 32,094,998
------------ ------------ ------------
Expenses:
Operating 20,943,312 20,570,071 19,449,132
Interest 7,085,360 7,046,805 6,967,055
Depreciation 5,749,135 5,679,409 5,703,780
Amortization 33,047 30,981 29,170
------------ ------------ ------------
Total expenses 33,810,854 33,327,266 32,149,137
------------ ------------ ------------
Net income (loss) $ 889,145 $ 99,132 $ (54,139)
============ ============ ============
</TABLE>
IV-21
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
e. Reconciliation of the Local Partnerships' financial statement net
-----------------------------------------------------------------
loss to income tax loss
-----------------------
For federal income tax purposes, the Local Partnerships report on a
basis whereby: (1) certain revenue and the related assets are recorded
when received rather than when earned; (2) certain costs are expensed when
paid or incurred rather than capitalized and amortized over the period of
benefit; and (3) a shorter life is used to compute depreciation of the
property for tax purposes as permitted by Internal Revenue Service (IRS)
Regulations. These returns are subject to audit and, therefore, possible
adjustment by the IRS.
A reconciliation of the Local Partnerships' financial statement net
loss reflected above to the income tax loss for the years ended December
31, 1995, 1994 and 1993 is as follows:
IV-22
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net income (loss) $ 889,145 $ 99,132 $ (54,139)
Adjustments:
Additional tax depreciation using accelerated
methods, net of depreciation on construction
period expenses capitalized for financial
statement purposes (3,413,758) (3,732,479) (4,036,117)
Amortization for tax purposes not deducted for
financial statement purposes 25,569 25,569 25,569
Miscellaneous, net 2,199 119,459 (205,462)
------------ ------------ ------------
Income tax loss $ (2,496,845) $ (3,488,319) $ (4,270,149)
============ ============ ============
</TABLE>
3. RELATED-PARTY TRANSACTIONS
In accordance with the Partnership Agreement, the Partnership paid the
Managing General Partner a fee for services in connection with the review,
selection, evaluation, negotiation and acquisition of the interests in the Local
Partnerships. The fee amounted to $1,200,000, which is equal to 2% of the
Additional Limited Partners' capital contributions to the Partnership. The
acquisition fee was capitalized and is being amortized over a thirty-year period
using the straight-line method.
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership and to pay an annual incentive management fee (the
Management Fee), after all other expenses of the Partnership are paid. For the
years ended December 31, 1995, 1994 and 1993, the Partnership paid $77,544,
$102,491 and $76,217, respectively, as direct reimbursement of expenses incurred
on behalf of the Partnership. Such expenses are included in the accompanying
consolidated statements of operations as general and administrative expenses.
The amount of the Management Fee shall be equal to .25% of invested assets,
as defined in the Partnership Agreement, and shall be payable from the
Partnership's cash available for distribution, as defined in the Partnership
Agreement, as of the end of each calendar year, as follows:
a. First, on a monthly basis as an operating expense before any
distributions to limited partners in the amount computed as described
in the Partnership Agreement, provided that such amount shall not be
greater than $300,000 and;
b. Second, after distributions to the limited partners in the amount of
1% of the gross proceeds of the offering, the balance of such .25% of
invested assets.
IV-23
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED-PARTY TRANSACTIONS - Continued
For each of the years ended December 31, 1995, 1994 and 1993, the
Partnership paid the Managing General Partner a Management Fee of $300,000.
From April 1990 through January 1994, CRICO Management Corporation (CRICO),
an affiliate of the Managing General Partner, provided consulting, accounting
and other services to Walden Apartments. Fees paid or accrued to CRICO for
these services amounted to $12,278 for the month ended January 31, 1994. Fees
paid or accrued were $138,336 for the year ended December 31, 1993. On February
1, 1994, CRICO contributed its property management and/or consulting contracts
and personnel to CAPREIT Residential Corporation (CAPREIT). CAPREIT was formed
by CRI but is not currently owned or controlled by CRI and/or its affiliates.
On April 12, 1995, HUD approved CAPREIT as the new management agent.
The Managing General Partner and/or its affiliates may receive a fee of not
more than 2% of the sales price of an investment in a Local Partnership or the
property it owns, payable under certain conditions upon the sale of an
investment in a Local Partnership or the property its owns. The payment of the
fee is subject to certain restrictions, including the achievement of a certain
level of sales proceeds and making certain minimum distributions to limited
partners. The Managing General Partner and/or its affiliates earned net fees
for services relating to the sale of the Partnership's interest in the Park
Heights Towers Local Partnership of $117,028 on February 2, 1996. These fees
have not been paid as of March 8, 1996.
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS
All profits and losses prior to the first date on which Additional Limited
Partners were admitted were allocated 98.49% to the Initial Limited Partners and
1.51% to the General Partners. Upon admission of the Special Limited Partner
and the Additional Limited Partners, the interest of the Initial Limited
Partners was reduced to .49%. The net proceeds resulting from the liquidation
of the Partnership or the Partnership's share of the net proceeds from any sale
or refinancing of the projects or their rental properties which are not
reinvested shall be distributed and applied as follows:
(i) to the payment of debts and liabilities of the Partnership
(including all expenses of the Partnership incident to the sale
or refinancing) other than loans or other debts and liabilities
of the Partnership to any partner or any affiliate, such debts
and liabilities, in the case of a non-liquidating distribution,
to be only those which are then required to be paid or, in the
judgment of the Managing General Partner, required to be provided
for;
(ii) to the establishment of any reserves which the Managing General
Partner deems reasonably necessary for contingent, unmatured or
unforeseen liabilities or obligations of the Partnership;
(iii) to each partner in an amount equal to the positive balance in his
capital account as of the date of the sale or refinancing,
adjusted for operations and distributions to that date, but
before allocation of any profits for tax purposes realized from
such sale or refinancing and allocated pursuant to the
Partnership Agreement;
(iv) to the limited partners (A) an aggregate amount of proceeds from
sale or refinancing and all prior sales or refinancings equal to
their capital contributions, without reduction for prior cash
distributions other than prior distributions of sale and
IV-24
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
refinancing proceeds, plus (B) an additional amount equal to a
cumulative noncompounded 6% return, on each limited partners'
capital contribution, reduced, but not below zero, by (1) an
amount equal to 50% of the losses for tax purposes plus tax
credits allocated to such limited partner and (2) distributions
of net cash flow to each limited partner, such return, losses for
tax purposes and net cash flow distributions commencing on the
first day of the month in which the capital contribution was
made;
(v) to the repayment of any unrepaid loans theretofore made by any
partner or any affiliate to the Partnership for Partnership
obligations and to the payment of any unpaid amounts owing to the
General Partners pursuant to the Partnership Agreement;
(vi) to the General Partners in the amount of their capital
contributions;
(vii) thereafter, for their services to the Partnership, in equal
shares to certain general partners (or their designees), whether
or not any is then a general partner, an aggregate fee of 1% of
the gross proceeds resulting from (A) such sale (if the proceeds
are from a sale rather than a refinancing) and (B) any prior sale
from which such 1% fee was not paid to the General Partners or
their designees; and,
(viii) the remainder, 12% to the General Partners (or their assignees),
3% to the Special Limited Partner and 85% to the Initial and
Additional Limited Partners (or their assignees).
Fees payable to certain general partners (or their designees) under (vii)
above, together with all other property disposition fees and any other
commissions or fees payable upon the sale of apartment complexes, shall not in
the aggregate exceed the lesser of the competitive rate or 6% of the sales price
of the apartment complexes.
In addition, the Managing General Partner and/or its affiliates may receive
a fee in an amount of not more than 2% of the sales price of the investment in a
Local Partnership or the property it owns. The fee would only be payable upon
the sale of the investment in a Local Partnership or the property it owns and
would be subject to certain restrictions, including achievement of a certain
level of sales proceeds and making certain minimum distributions to limited
partners. No such amounts were paid to the Managing General Partner and/or its
affiliates during 1995, 1994 and 1993. In February 1996, the Managing General
Partner and/or its affiliates earned fees totalling $117,028 relating to the
sale of the Park Heights Towers property. These fees have not been paid as of
March 8, 1996.
Pursuant to the Partnership Agreement, all cash available for distribution,
as defined, shall be distributed, not less frequently than annually, 97% to the
Additional Limited Partners, 1% to the Special Limited Partner, .49% to the
Initial Limited Partner and 1.51% to the General Partners, after payment of the
Management Fee (see Note 3), as specified in the Partnership Agreement. As
defined in the Partnership Agreement, prior to the establishment of any reserves
deemed necessary by the Managing General Partner and after payment of the
Management Fee, the Partnership had cash available for distribution of
approximately $250,000, $0, and $4,000 for the years ended December 31, 1995,
1994 and 1993, respectively. No distributions were declared or paid during
1995, 1994 and 1993 because any cash available for distribution is currently
being retained by the Partnership, as previously discussed.
IV-25
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET
LOSS TO INCOME TAX LOSS
For federal income tax purposes, the Partnership reports on a basis
whereby: (1) certain expenses are amortized rather than expensed when incurred;
(2) certain costs are amortized over a shorter period for tax purposes, as
permitted by IRS Regulations, and (3) certain costs are amortized over a longer
period for tax purposes. The Partnership records its share of losses from its
investments in limited partnerships for federal income tax purposes as reported
on the Local Partnerships' federal income tax returns (see Note 2e), including
losses in excess of related investments amounts. In addition, adjustments
arising from the imputation of interest on the Partnership's purchase money
notes for financial reporting purposes are eliminated for income tax purposes
(see Note 2a). These returns are subject to audit and, therefore, possible
adjustment by the IRS.
A reconciliation of the Partnership's financial statement net loss to the
income tax loss for the years ended December 31, 1995, 1994 and 1993 is as
follows:
IV-26
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET LOSS TO INCOME
TAX LOSS - Continued
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net loss $ (8,149,347) $ (2,790,364) $ (8,465,897)
Adjustments:
Differences between the income tax losses and financial
statement losses related to the Partnership's equity
in the Local Partnerships' losses (5,112,498) (5,488,768) (4,895,901)
Difference between extraordinary gain from early extinguishment
of debt (1,050,000) 1,977,258 --
Costs amortized over a shorter period for income tax purposes (82,742) (82,864) (82,916)
Effect of imputed interest on purchase money notes for financial
reporting purposes 4,570,051 2,964,825 2,777,162
Miscellaneous difference -- -- (36,415)
------------ ----------- ------------
Income tax loss $ (9,824,536) $(3,419,913) $(10,703,967)
============ =========== ============
</TABLE>
6. CONTINGENCIES
In 1990, CRI, as Managing General Partner of the Partnership and various
other entities, subcontracted certain property-level asset management functions
for certain properties to Capital Management Strategies, Inc. (CMS). Among
these properties were properties owned by certain of the Local Partnerships in
which the Partnership invested. CMS was formed by Martin C. Schwartzberg, a
nominal general partner of the Partnership and a former stockholder of CRI, when
he cashed out of CRI and its related businesses as of January 1, 1990. Mr.
Schwartzberg agreed not to act as a general partner with respect to any of the
CRI-sponsored partnerships, including this Partnership, and has not done so
since that time. In late 1995, a dispute arose between CRI and CMS over the
funding level of the 1996 contract for CMS. On November 9, 1995, CRI filed a
complaint against CMS to determine the proper amount of fees to be paid in 1996
under the asset management agreement. CMS answered on January 10, 1996, but
asserted no counterclaims.
Thereafter, Mr. Schwartzberg launched a hostile consent solicitation to be
designated as managing general partner of approximately 125 private partnerships
sponsored by CRI. On January 18, 1996, Mr. Schwartzberg and CMS filed a
complaint in the Circuit Court of Montgomery County, Maryland (the Circuit
Court), against CRI and Messrs. Dockser and Willoughby (who are general partners
of the Partnership) alleging, among other things, that CRI and Messrs. Dockser
and Willoughby have breached the asset management agreement pursuant to which
Mr. Schwartzberg's company, CMS, agreed to perform limited functions related to
property-level issues for a portion of CRI's subsidized housing portfolio
(including some of the properties in which the Partnership invested), by
IV-27
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. CONTINGENCIES - Continued
reducing the proposed budget for 1996. The Partnership is not named as a
defendant in this action. Messrs. Dockser and Willoughby have entered an answer
denying all of Mr. Schwartzberg's claims. Messrs. Dockser and Willoughby have
publicly responded that Mr. Schwartzberg's suit is motivated by his budget
dispute with CRI and personal animosity. On February 6, 1996, CRI terminated
the CMS contract for cause. Mr. Schwartzberg and CMS responded by filing a
motion for injunctive relief in the Circuit Court, asking the court to enjoin
CRI from terminating the contract. In a ruling issued on February 12, 1996, the
Circuit Court, among other things, refused to grant the injunction requested by
CMS. A hearing in this case is scheduled for April 29, 1996. On February 12,
1996, the Circuit Court also issued a memorandum opinion and order enjoining CMS
and Mr. Schwartzberg from disclosing information made confidential under the
asset management agreement.
On February 1, 1996 and February 16, 1996, Mr. Schwartzberg sent letters to
the Partnership requesting investor lists and other forms of investor
information. On February 5, 1996, the Partnership, acting through its managing
general partner, CRI, denied Mr. Schwartzberg's request. On February 20, 1996,
counsel for the Partnership responded to Mr. Schwartzberg's second request,
denying that Mr. Schwartzberg had standing or a proper purpose for requesting
the investor lists. In view of Mr. Schwartzberg's solicitation efforts against
other CRI-sponsored partnerships, CRI anticipates that litigation may arise from
this request.
IV-28
<PAGE>
FINANCIAL STATEMENT SCHEDULE
IV-29
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
-----------------------------------------------------
FINANCIAL STATEMENT SCHEDULE
----------------------------
To the Partners
Capital Realty Investors-III
Limited Partnership
In connection with our audit of the consolidated financial statements of
Capital Realty Investors-III Limited Partnership referred to in our report dated
March 8, 1996, which is included in this Form 10-K, we have also audited
Schedule III as of December 31, 1995, 1994 and 1993. We did not audit the
financial statements for thirty-three of the Local Partnerships in 1995 and 1994
and 1993, which are accounted for as described in Note 1d. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
Grant Thornton LLP
Vienna, VA
March 8, 1996
IV-30
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF
LOCAL PARTNERSHIPS IN WHICH CAPITAL REALTY INVESTORS-III LIMITED
PARTNERSHIP HAS INVESTED
December 31, 1995
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
- -------------------- ------- ------------------------------- -------------------------------
Initial Costs Capitalized
Cost to Local Subsequent
Partnership to Acquisition
------------------------------- -------------------------------
Building
Description Encum- and Carrying
Operating Properties brances Land Improvements Improvements Costs (B)
- -------------------- ------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Arboretum Village (A) $ 1,165,630 $ 9,319,370 $ 2,830,997 $ --
Lisle, IL
(308 units-family
apartment complex)
Monterey/Hillcrest (A) 1,332,233 2,168,760 13,065,221 468,293
Apartments
Waukesha, WI
(300 units-family
apartment complex)
O'Farrell Towers (A) 950,000 1,680,000 8,319,850 5,988
San Francisco, CA
(101 units-elderly
apartment complex)
Rolling Green (A) 550,000 8,926,785 505,072 --
at Milford
Milford, MA
(304 units-family
apartment complex)
Village Squire I & II (A) 942,500 8,864,440 (426,804) --
Canton, MI
(376 units-family
apartment complex)
Walden Apartments (A) 1,404,196 9,560,754 1,406,451 --
Schaumburg, IL
(396 units-family
apartment complex)
Aggregate of remaining
properties which are
individually less than
5% of the total of
Column E (A) 7,427,172 81,206,346 21,825,758 27,069
----------- ------------ ------------ -----------
Total $13,771,731 $121,726,455 $ 47,526,545 $ 501,350
=========== ============ ============ ===========
</TABLE>
IV-31
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF
LOCAL PARTNERSHIPS IN WHICH CAPITAL REALTY INVESTORS-III LIMITED
PARTNERSHIP HAS INVESTED - Continued
December 31, 1995
<TABLE>
<CAPTION>
COL. A COL. E COL. F COL. G COL. H COL. I
- -------------------- ------------------------------------------- ------------ ------- ------- ----------------
Gross amount at which Life upon
carried at close of period which dep-
------------------------------------------- Date reciation in
Land Building Accumulated of latest income
Description and Land and depreciation Const- Date statement is
Operating Properties Improvements Improvements Total (C) (D) (D) ruction Acquired computed (years)
- -------------------- ------------ ------------ ------------- ------------ ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arboretum Village $ 1,611,964 $ 11,704,033 $ 13,315,997 $ 4,594,556 1972 1/84 10-30
Lisle, IL
(308 units-family
apartment complex)
Monterey/Hillcrest 1,335,534 15,698,973 17,034,507 6,653,797 1984 11/83 5-30
Apartments
Waukesha, WI
(300 units-family
apartment complex)
O'Farrell Towers 950,000 10,005,838 10,955,838 3,644,529 1985 10/83 5-30
San Francisco, CA
(101 units-elderly
apartment complex)
Rolling Green 465,015 9,516,842 9,981,857 4,278,463 1974 3/84 5-30
at Milford
Milford, MA
(304 units-family
apartment complex)
Village Squire I & II 805,897 8,574,239 9,380,136 3,706,915 1980 3/84 5-33
Canton, MI
(376 units-family
apartment complex)
Walden Apartments 1,444,057 10,927,344 12,371,401 4,091,461 1974 3/84 5-30
Schaumburg, IL
(396 units-family
apartment complex)
Aggregate of remaining
properties which are
individually less than
5% of the total of
Column E 8,722,907 101,763,438 110,486,345 43,017,474
----------- ------------ ------------- ------------
Total $15,335,374 $168,190,707 $ 183,526,081 $ 69,987,195
=========== ============ ============= ============
</TABLE>
IV-32
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
OF LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP HAS INVESTED
December 31, 1995
(A) Secured by mortgages.
(B) Consists of capitalized construction period interest and real estate taxes
during construction.
(C) The aggregate cost of land for federal income tax purposes is $14,968,940
and the aggregate cost of buildings and improvements for federal income tax
purposes is $185,964,295. The total of the above-mentioned items is
$200,933,235.
(D) Reconciliation of real estate
-----------------------------
IV-33
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
OF LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP HAS INVESTED
December 31, 1995
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $181,960,413 $179,101,252 $177,108,174
Improvements and acquisitions during period 1,962,413 3,041,641 2,130,808
Deletions during period (396,745) (182,480) (137,730)
------------ ------------ ------------
Balance at end of period $183,526,081 $181,960,413 $179,101,252
============ ============ ============
</TABLE>
Reconciliation of accumulated depreciation
------------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $ 64,566,221 $ 59,007,931 $ 53,441,412
Depreciation expense for the period 5,749,135 5,679,409 5,703,781
Retirements (328,161) (121,119) (137,262)
------------ ------------ ------------
Balance at end of period $ 69,987,195 $ 64,566,221 $ 59,007,931
============ ============ ============
</TABLE>
IV-34
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
IV-35
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,897,013
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,961,256
<CURRENT-LIABILITIES> 0
<BONDS> 69,845,262
0
0
<COMMON> 0
<OTHER-SE> (35,998,605)
<TOTAL-LIABILITY-AND-EQUITY> 33,961,256
<SALES> 0
<TOTAL-REVENUES> 1,928,455
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 614,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,462,914
<INCOME-PRETAX> (8,149,347)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,149,347)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,149,347)
<EPS-PRIMARY> (131.75)
<EPS-DILUTED> (131.75)
</TABLE>
