<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 ..... Commission file number 0-14457
----------------- -------
NATIONAL HOUSING PARTNERSHIP REALTY FUND III (A MARYLAND LIMITED PARTNERSHIP)
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 52-1394972
-------- ---------
(State or other Jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
1225 EYE STREET, N.W. WASHINGTON, D.C. 20005
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 347-6247
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
----
Securities registered pursuant to Section 12(g) of the Act: 11,500 LIMITED
PARTNERSHIP
INTERESTS
-----------------
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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes X No
----- -----
The registrant is a partnership. Accordingly, no voting stock is held by
non-affiliates of the registrant.
Documents incorporated by reference. NONE
----
<PAGE> 2
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Business 2
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial
Owners and Management 30
Item 13. Certain Relationships and Related Transactions 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 31
</TABLE>
1
<PAGE> 3
PART I
Item 1. Business
National Housing Partnership Realty Fund III (A Maryland Limited
Partnership) (the Partnership) was formed under the Maryland Revised Uniform
Limited Partnership Act as of May 10, 1985. On June 14, 1985, the Partnership
commenced offering 11,500 limited partnership interests, at a price of $1,000
per interest, through a public offering registered with the Securities and
Exchange Commission (the Offering). The Offering was managed by Dean Witter
Reynolds, Inc. and was terminated on July 18, 1985, with subscriptions for all
11,500 limited partnership interests.
The General Partner with a 1% interest in the Partnership is The
National Housing Partnership (NHP), a District of Columbia limited partnership,
whose sole general partner (0.2%) is National Corporation for Housing
Partnerships (NCHP). Following a corporate reorganization in August 1995, which
involved an initial public offering of NHP Incorporated's management-related
service companies (the "Reorganization"), the remaining 99.8% of NHP's limited
partnership interest is owned by NHP Partners Two Limited Partnership (Partners
Two), a Delaware limited partnership. NCHP is wholly owned by NHP Partners,
Inc. (Partners), a Delaware corporation. Notwithstanding the Reorganization,
control of NCHP, Partners Two and Partners remains with Demeter Holdings
Corporation (a Massachusetts nonprofit corporation, which is
wholly-owned/controlled by the President and Fellows of Harvard College, a
Massachusetts educational corporation created by the constitution of
Massachusetts), Capricorn Investors, L.P. (a Delaware investment limited
partnership, whose general partner is Capricorn Holdings, G.P., a Delaware
general partnership), and J. Roderick Heller, III (Chairman, President and
Chief Executive Officer of NCHP and Partners).
The Original Limited Partner of the Partnership is 1133 Fifteenth
Street Three Associates, a Maryland limited partnership, whose general partner
is NHP and whose limited partners were key employees of NCHP at the time the
Partnership was formed. The Original Limited Partner holds a 1% Limited
Partnership interest in the Partnership.
The remaining 98% limited partnership interests in the Partnership are
held by the investors who subscribed to the Offering.
The Partnership's business is to hold limited partnership interests in
twelve limited partnerships (Local Limited Partnerships) each of which owns and
operates multi-family rental housing properties (Properties), which receive one
or more forms of assistance from the Federal Government. In each instance, NHP
is the general partner of the Local Limited Partnership and the Partnership is
the principal limited partner. As a limited partner, the Partnership's
liability for obligations of the Local Limited Partnerships is limited to its
investment and, as a limited partner, the Partnership does not exercise control
over the activities of the Local Limited Partnerships in accordance with the
partnership agreements.
The Partnership's investment objectives are to:
(1) preserve and protect Partnership capital;
(2) provide current tax benefits to Limited Partners to the extent
permitted by law, including, but not limited to, deductions
that Limited Partners may use to offset otherwise taxable
income from other sources;
(3) provide capital appreciation through increase in value of the
Partnership's investments, subject to considerations of
capital preservation and tax planning; and
(4) provide potential cash distributions from sales or
refinancings of the Partnership's investments and, on a
limited basis, from operations.
2
<PAGE> 4
The Partnership does not have any employees. Services are performed
for the Partnership by the General Partner and agents retained by it.
The following is a schedule of the Properties owned by the Local
Limited Partnerships in which the Partnership is a limited partner:
SCHEDULE OF PROPERTIES OWNED BY LOCAL LIMITED PARTNERSHIPS
IN WHICH NATIONAL HOUSING PARTNERSHIP REALTY FUND III HAS AN INVESTMENT
<TABLE>
<CAPTION>
Units Authorized for Units Occupied as a
Financed, Insured and Rental Assistance Percentage of Total
Property Name, Location and Number Subsidized Under Units as of
Partnership Name of Units Under Section 8 (C) December 31, 1995
----------------------------------------------- -------- ----------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Brunswick Village 110 (B) 72 99%
Trenton, New Jersey
(Brunswick Village
Limited Partnership)
Edmond Estates 120 (A) 56 98%
Phoenix City, Alabama
(Edmond Estates
Limited Partnership)
Elden Terrace 184 (A) 0 99%
Herndon, Virginia
(Elden Limited
Partnership)
Galion East 61 (B) 60 97%
Galion, Ohio
(Galion Limited
Partnership)
Indian Valley I 100 (A) 40 97%
Kent, Ohio
(Indian Valley I
Limited Partnership)
Indian Valley II 90 (A) 36 99%
Kent, Ohio
(Indian Valley II
Limited Partnership)
Indian Valley III 98 (A) 39 100%
Kent, Ohio
(Indian Valley III
Limited Partnership)
Cherry Branch Townhomes 172 (A) 20 100%
Laurel, Maryland
(Kimberly Associates
Limited Partnership)
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
Units Authorized for Units Occupied as a
Financed, Insured and Rental Assistance Percentage of Total
Property Name, Location and Number Subsidized Under Units as of
Partnership Name of Units Under Section 8 (C) December 31, 1995
----------------------------------------------- -------- ----------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Meadowood Apartments I and II 291 (A) 100 95%
Edgewood, Maryland
(Meadowood Townhouses I
Limited Partnership)
Meadowood Associates III 283 (A) 164 91%
Edgewood, Maryland
(Meadowood Townhouses III
Limited Partnership)
Newton Hill 40 (A) 16 100%
Akron, Ohio
(Newton Hill
Limited Partnership)
Woodmark 150 (A) 0 95%
Woodbridge, Virginia
(Woodmark Limited
Partnership)
</TABLE>
(A) The mortgage is insured by the Federal Housing Administration under
the provisions of Section 236 of the National Housing Act.
(B) The mortgage is insured by the Federal Housing Administration under
the provisions of Section 221(d)(3) of the National Housing Act.
(C) Section 8 of Title II of the Housing and Community Development Act of
1974.
Although each Local Limited Partnership in which the Partnership has
invested owns an apartment complex which must compete with other apartment
complexes for tenants, government mortgage interest and rent subsidies make it
possible to rent units to eligible tenants at below market rates. In general,
this insulates the Properties from market competition.
As discussed in Note 12 to the combined financial statements of the
Local Limited Partnerships, the General Partner determined that during 1994, a
write-down of $2,500,000 in the carrying value of the property of Meadowood III
was required. During 1993, a write-down of $1,400,000 in the carrying value of
the property of Edmond Estates was required. These reductions were required
since the estimated undiscounted total future cash flows from operations and
the future sale of each property were less than the net book value of each
property at each year end. These write-downs are in accordance with methods
consistent with generally accepted accounting principles.
Meadowood Townhouses I and Meadowood Townhouses III, investees of the
Partnership, have generated losses for several years which have required
funding from partners. These partners are under no obligation to continue to
provide the funding. The ability of these Local Limited Partnerships to
continue as going concerns is dependent on whether the Local Limited
Partnership can produce positive cash flows or obtain additional fundings.
Should the Partnership lose its interest in a Local Limited Partnership,
partners in the Partnership may incur adverse tax consequences. The impact of
the tax consequences is dependent upon each partner's individual tax situation.
Operations at all of the other properties were generally satisfactory
during the period.
4
<PAGE> 6
NCHP was a significant participant in the drafting and passage of the
Low Income Housing Preservation and Resident Homeownership Act of 1990
(LIHPRHA). LIHPRHA creates a procedure under which owners of properties
assisted under the HUD Section 236 or 221(d)(3) program may be eligible to
receive financial incentives in return for agreeing to extend their property's
use as low income housing. Virtually all of the Local Limited Partnership
Properties may be eligible for these incentives; however, not all may benefit
from the particular incentives provided for under LIHPRHA (see item 7). The
appropriation for the Department of Housing and Urban Development (which
administers LIHPRHA) for the 1996 fiscal year has not yet been approved, and
NHP management expects that funding for the 1996 fiscal year, if approved, will
be limited. Management also expects that funding for LIHPRHA is unlikely to be
renewed in future fiscal years. Anticipating these developments, Notices of
Intent to participate in the LIHPRHA program have been filed for Brunswick
Village, Edmond Estates, Indian Valley I, II and III, Cherry Branch Townhomes,
Meadowood I, II and III and Newton Hill. However, with the exception of
Brunswick Village and Meadowood I, II, and III, all of the properties are in
the early stages of LIHPRHA processing and are not expected to receive
incentives under the program. Of the properties which are in advanced stages of
processing (Brunswick Village and Meadow I, II and III), NHP is working to see
if these can receive incentives under LIHPRHA, but there can be no assurances
that these efforts will be successful. The ability of the Partnership to sell
or refinance any of the Local Limited Partnership Properties under LIHPRHA
could be adversely affected by the aforementioned events (lack of program
funding and likely termination of the LIHPRHA program after fiscal year 1996).
As discussed in Note 7 to the Local Limited Partnerships' combined
financial statements, all of the Local Limited Partnerships in which the
Partnership has invested carry deferred acquisition notes due the original
owner of each Property. The deferred acquisition notes of Meadowood Townhouses
I and II reach final maturity in April 1996. All other notes will reach final
maturity during 1999. These notes are secured by both the Partnership's and
NHP's interests in the Local Limited Partnerships. In the event of a default on
the notes, the noteholders would be able to assume NHP's and the Partnership's
interests in the Local Limited Partnerships.
The Meadowood Townhouses I Limited Partnership has granted an option
to the former project owners which enables them to reacquire the properties.
The option becomes effective on the maturity date of certain nonrecourse
deferred acquisition notes owed by NHP and Meadowood Townhouses I Limited
Partnership and expires 90 days thereafter. The option price for the project is
the greater of (I) the fair market value of the project at the date of the
option, or (ii) the unpaid principal balance and accrued interest on the notes.
During 1991, the maturity date of the notes was extended to April 15, 1996. The
option may be terminated if the notes, including all accrued interest, are paid
in full within 15 days of the exercise of the option. NHP is negotiating with
the holders of the note and the purchase option on behalf of the Partnership
and Meadowood Townhouses I Limited Partnerships so as to revise the note to
extend the due date or terms of the note and the option agreement.
Due to the weakness in the rental market conditions where the
Properties are located, the General Partner believes the amounts due on the
acquisition notes will likely exceed the value to be obtained through the
Properties' participation in LIHPRHA or other sale or refinancing
opportunities. The General Partner intends to continue negotiations with the
noteholders to extend the maturity date of the notes and/or to structure an
arrangement under which both the noteholders and the partners can receive a
financial benefit by having the Properties participate in LIHPRHA or other sale
or refinancing opportunities. Should no agreement be reached and the notes
mature without sufficient funds from sale or refinancing to repay the notes,
the Partnership may lose its interest in these Local Limited Partnerships.
Should the Partnership lose its interest in the Local Limited Partnership,
partners in the Partnership may incur adverse tax consequences. The impact of
the tax consequences is dependent upon each partner's individual tax situation.
The following details the Partnership's ownership percentages of the
Local Limited Partnerships and the cost of acquisitions of such ownership. All
interests are limited partner interests. Also included are the total mortgage
encumbrance and acquisition notes and related accrued interest encumbrances on
each property for each of the Local Limited Partnerships as of December 31,
1995.
5
<PAGE> 7
<TABLE>
<CAPTION>
Deferred
NHP Realty Acquisition
Fund III Cost of Notes
Percentage Ownership Mortgage and Accrued
Partnership Ownership Interest Notes Interest
- ----------- --------- -------------- --------------- --------------------
<S> <C> <C> <C> <C>
Brunswick Village, L.P. 99.0% $ 580,612 $ 718,929 $1,993,520
Edmond Estates, L.P. 98.0% 416,038 1,067,602 1,949,215
Elden, L.P. 94.5% 876,011 1,958,990 3,271,354
Galion, L.P. 94.5% 282,933 554,267 960,568
Indian Valley I, II, III, L.P. 94.5% 1,456,232 3,631,110 4,910,441
Kimberly Associates, L.P. 94.5% 902,469 2,065,005 2,793,753
Meadowoods
Townhouses I, III, L.P. 99.0% 2,998,424 5,843,637 10,417,580
Newton Hill, L.P. 94.5% 210,227 468,209 655,122
Woodmark, L.P. 94.5% 835,732 1,584,651 3,095,548
</TABLE>
Item 2. Properties
See Item 1 for the real estate owned by the Partnership through the
ownership of limited partnership interests in Local Limited Partnerships.
Item 3. Legal Proceedings
The Partnership is not involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted.
PART II
Item 5. Market for the Registrant's Partnership Interests and Related
Partnership Matters
(a) Interests in the Partnership were sold through a public
offering managed by Dean Witter Reynolds, Inc. There is no
established market for resale of interests in the Partnership.
Accordingly, an investor may be unable to sell or otherwise
dispose of his interest in the Partnership.
(b) As of December 31, 1995, there were 921 registered holders of
limited partnership interests (in addition to 1133 Fifteenth
Street Three Associates - See Item 1).
(c) No cash dividends or distributions have been declared from the
inception of the Partnership through December 31, 1995.
6
<PAGE> 8
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Share of losses from
Local Limited
Partnerships (A) $ - $ (13,066) $ (47,504) $ (65,412) $ (56,313)
Other revenue and
expenses:
Interest income 6,057 7,185 32,783 7,362 7,215
Loss on investment in Local
Limited Partnerships - (10,641) (527,829) - -
Distributions received
in excess of
investment in
Local Limited
Partnerships 28,528 24,527 23,846 88,482 24,944
Partnership operating
expenses (135,432) (139,684) (126,611) (121,738) (149,594)
-------- -------- -------- -------- --------
Net loss $(100,847) $(131,679) $(645,315) $ (91,306) $(173,748)
======== ======== ======== ======== ========
Loss per unit of limited
partnership interest
based on the units
outstanding during
the period $ (9) $ (11) $ (56) $ (8) $ (15)
======== ======== ======== ======== ========
Total assets, at December 31 $ 164,374 $ 176,583 $ 215,240 $ 836,714 $ 849,711
======== ======== ======== ======== ========
Cash distributions per unit of
limited partnership interest $ - $ - $ - $ - $ -
======== ======== ======== ======== ========
</TABLE>
(A) The Partnership holds limited partnership interests in the Local
Limited Partnerships, and since its liability for obligations is
limited to its original investment, its investment account is not
reduced below zero (creating a liability) for the investments in these
Local Limited Partnerships. As a result, during 1995, 1994, 1993, 1992
and 1991, $936,943, $3,803,923, $2,859,089, $1,322,679 and $1,287,401,
respectively, of losses from twelve, twelve, eleven, eleven and eleven
of the Local Limited Partnerships have not been recognized by the
Partnership.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Properties in which the Partnership has invested, through its
investments in the Local Limited Partnerships, receive one or more forms of
assistance from the Federal Government. As a result, the Local Limited
Partnerships' ability to transfer funds either to the Partnership or among
themselves in the form of cash distributions, loans or advances is generally
restricted by these government assistance programs. These restrictions,
however, are not expected to impact the Partnership's ability to meet its cash
obligations.
7
<PAGE> 9
In 1994, the Partnership advanced $10,641 to four of the Local Limited
Partnerships by paying expenses on behalf of the Local Limited Partnerships. No
advances were repaid to the Partnership during 1995 and 1994. As discussed in
Note 3 to the Partnership's financial statements, during 1993, the Partnership
re-evaluated the collectibility of its total outstanding advances and, based on
the Local Limited Partnerships' current operations, determined that such
advances to Local Limited Partnerships are not likely to be collected currently
and, for accounting purposes, treated the advances balance as additional
Investment in Local Limited Partnerships. The balance was then reduced to zero,
with the corresponding charge to operations to reflect a portion of the
cumulative unrecognized losses in investments. Advances to the Local Limited
Partnerships remain due and payable to the Partnership.
During 1995 and 1994, NHP advanced a total of $120,953 and $29,629,
respectively, to ten of the Local Limited Partnerships for expenses incurred
relating to potential sales or refinancing under the LIHPRHA program. During
1995 and 1994, loans of $2,392 and $1,800, respectively, were repaid by four
and one Local Limited Partnerships. The balance owed to NHP by Local Limited
Partnerships at December 31, 1995 and 1994, was $674,767 and $556,206,
respectively. Interest is charged at a rate equal to the Chase Manhattan Bank
prime interest rate plus 2%.
Net cash used in operations for the year ended December 31, 1995 was
$7,994 as compared to cash used in operations of $17,697 in 1994 and $49,843 in
1993. The decrease in cash used in operations from 1994 to 1995 was primarily
the result of an increase in distributions received from the Local Limited
Partnerships and an increase in interest received. The decrease in cash used in
operations from 1993 to 1994 was the result of decrease in accrued and
administrative and reporting fees paid to the General Partner, partially offset
by a decrease in interest received.
Distributions in excess of investment in Local Limited Partnerships
and distributions from Local Limited Partnerships represent the Partnership's
proportionate share of the excess cash available for distribution from the
Local Limited Partnerships. As a result of the use of the equity method of
accounting for the Partnership's investment in Local Limited Partnerships,
carrying values for all Local Limited Partnerships were reduced to zero during
1994. Cash distributions received are recorded as revenue as distributions in
excess of investment in Local Limited Partnerships. In prior years, cash
distributions received from investments in Local Limited Partnerships which had
not been reduced to zero, were recorded as distributions in the statement of
cash flows and reduced the Partnership's investment on the statement of
financial position. Cash distributions totaling $28,528 and $24,527 were
received from two Local Limited Partnerships during the years ended December
31, 1995 and 1994, respectively. The receipt of distributions in future years
is dependent on the operations of the underlying Properties of the Local
Limited Partnerships.
Cash and cash equivalents amounted to $163,374 at December 31, 1995.
The ability of the Partnership to meet its on-going cash requirements, in
excess of cash on hand at December 31, 1995, is dependent on distributions
received from the Local Limited Partnerships and proceeds from sales or
refinancings of the underlying Properties. Cash on hand at December 31, 1995,
together with projected distributions from Local Limited Partnerships, should
provide sufficient capital to fund the Partnership during 1996.
As of December 31, 1995, the Partnership owes the General Partner
$447,489 for administrative and reporting services performed. The payment of
the unpaid administrative and reporting fees and any other advances will most
likely result from the sale or refinancing of the underlying Properties of the
Local Limited Partnerships rather than through recurring operations, although
the Partnership did pay $57,966 in such fees to the General Partner during
1993.
NCHP was a significant participant in the drafting and passage of
LIHPRHA. LIHPRHA creates a procedure under which owners of properties assisted
under the HUD Section 236 or 221(d)(3) program may be eligible to receive
financial incentives in return for agreeing to extend their property's use as
low income housing. Virtually all of the Local Limited Partnership Properties
may be eligible for these incentives; however, not all may benefit from the
particular incentives provided for under LIHPRHA. The appropriation for the
Department of Housing and Urban Development (which administers LIHPRHA) for the
1996 fiscal year has not yet been approved, and NHP management expects that
funding for the 1996 fiscal year, if approved, will be limited. Management also
expects that funding for LIHPRHA is unlikely to be renewed in future fiscal
years. Anticipating these developments, Notices of Intent to participate in the
LIHPRHA program have been filed for Brunswick Village, Edmond Estates, Indian
Valley I, II and III, Cherry Branch Townhomes, Meadowood I, II and III and
Newton Hill. All filings except Brunswick Village are in
8
<PAGE> 10
the early stages of processing. Depending on the outcome of this process, the
ability of the Partnership to sell or refinance any of the Local Limited
Partnership Properties under LIHPRHA could be adversely affected.
All the Local Limited Partnerships in which the Partnership has
invested carry deferred acquisition notes due to the original owners of the
Properties. In the event of a default on these notes, the noteholders would
re-assume both NHP's and the Partnership's interests in the Local Limited
Partnerships. All of the notes have final maturity dates between 1996 and 1999.
Due to the weakness in the rental markets where some of the Properties are
located, the General Partner currently believes the amounts due on the
acquisition notes may likely exceed the value to be obtained through the
Properties' participation in LIHPRHA or other refinancing opportunities. In the
event that the Partnership loses its interest in these Local Limited
Partnerships, the partners in the Partnership may incur adverse tax
consequences. The impact of the adverse tax consequences is dependent on each
partner's individual tax situation.
The Meadowood Townhouses I Limited Partnership has granted an option
to the former project owners which enables them to reacquire the properties.
The option becomes effective on the maturity date of certain nonrecourse
deferred acquisition notes owed by NHP and Meadowood Townhouses I Limited
Partnership and expires 90 days thereafter. The option price for the project is
the greater of (i) the fair market value of the project at the date of the
option, or (ii) the unpaid principal balance and accrued interest on the notes.
During 1991, the maturity date of the notes was extended to April 15, 1996. The
option may be terminated if the notes, including all accrued interest, are paid
in full within 15 days of the exercise of the option. NHP is negotiating with
the holders of the note and the purchase option on behalf of the Partnership
and Meadowood Townhouses I Limited Partnerships so to revise the Agreement to
extend the due date or terms of the note and the option agreement. There can be
no assurance that these negotiations will be successful.
The noteholders of Cherry Branch Townhomes, which appears to be a
potentially good candidate under LIHPRHA, have indicated that they do not
desire to accept a discounted payoff of their note. This situation may prevent
Cherry Branch Townhomes from participating in LIHPRHA.
Results of Operations
The Partnership has invested as a limited partner in Local Limited
Partnerships which operate thirteen rental housing properties. Due to the use
of the equity method of accounting as discussed in Note 1 to the Partnership's
financial statements, to the extent the Partnership still has a carrying basis
in a respective Local Limited Partnership, results of operations would be
impacted by the Partnership's share of the losses of the Local Limited
Partnerships. As of December 31, 1995 and 1994, the Partnership had no carrying
basis in any of the Local Limited Partnerships and reflected no share of losses
for Local Limited Partnerships in 1995, 1994 and 1993.
The Partnership's net loss decreased $100,847 in 1995 from a net loss
of $131,679 in 1994. Net loss per unit of limited partnership interest
decreased to $9 in 1995 from $11 in 1994 for the 11,500 units outstanding
throughout both years. This decrease was primarily due to a decrease in loss on
the Partnership's investment in the Local Limited Partnerships and a decrease
in the Partnership's share of losses from Local Limited Partnerships, as well
as an increase in distributions received in excess of investment in Local
Limited Partnerships. The Partnership did not recognize $936,943 of its
allocated share of losses from twelve Local Limited Partnerships for the year
ended December 31, 1995, as the Partnership's net book investment in them was
reduced to zero in a prior year (see Note 3 to the Partnership's financial
statements). The Partnership's share of losses from the Local Limited
Partnerships, if not limited to its investment account balance, would have
decreased $2,543,754 between years. The decrease was primarily the result of
one of the Local Limited Partnerships recording a loss on reduction of carrying
value of their respective rental property of $2,500,000 during 1994, as the
estimated future undiscounted cash flows from operations and ultimate sale are
less than the current net book value (discussed more fully in Note 3 to the
Partnership's financial statements). No such loss was recorded during 1995.
Additionally, rental income increased in 1995 from 1994 and operating expenses
decreased.
The Partnership's net loss decreased to $131,679 in 1994 from a net
loss of $645,315 in 1993. Net loss per unit of limited partnership interest
decreased to $11 from $56 for the 11,500 units outstanding throughout both
years. This decrease was primarily due to a decrease in the loss on the
Partnership's investment in the Local Limited Partnerships and a decrease in
losses from the Local Limited Partnerships, partially offset by a decrease in
interest income. The
9
<PAGE> 11
Partnership did not recognize $3,803,923 of its allocated share of losses from
eleven Local Limited Partnerships for the year ended December 31, 1994, as the
Partnership's net book investment in them was reduced to zero (see Note 3 to
the Partnership's financial statements). The Partnership's share of losses from
the Local Limited Partnerships, if not limited to its investment account
balance, would have increased $406,275 between years. The increase in the loss
was primarily the result of two of the Local Limited Partnerships recording a
loss on reduction of carrying value of rental property of $1,100,000 more than
in 1993, as the estimated future undiscounted cash flows from operations and
ultimate sale are less than the current net book value, partially offset by an
increase in rental income.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary schedules of the
Partnership are included on pages 11 through 26 of this report.
10
<PAGE> 12
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund III
Washington, D.C.
We have audited the accompanying statements of financial position of National
Housing Partnership Realty Fund III (the Partnership) as of December 31, 1995
and 1994, and the related statements of operations, partners' deficit, and cash
flows for each of the three years in the period ended December 31, 1995, and
the supporting schedule listed in the Index at Item 14. These financial
statements and schedule are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the financial statements of
Brunswick Village Limited Partnership for the years ended December 31, 1995 and
1994, and Brunswick Village Limited Partnership, Galion Limited Partnership,
Indian Valley I Limited Partnership, Indian Valley II Limited Partnership,
Indian Valley III Limited Partnership, and Newton Hill Limited Partnership
(investees of the Partnership) for the year ended December 31, 1993. The
Partnership's equity in the net assets of these investees has been reduced to
zero at December 31, 1995 and 1994 in accordance with the equity method of
accounting. The Partnership's share of net losses of these investees in the
amounts of $13,066 and $47,504 for the years ended December 31, 1994 and 1993,
respectively, are included in the accompanying financial statements. The
financial statements of these investees were audited by other auditors whose
reports thereon have been furnished to us, and our opinion, insofar as it
relates to amounts included for these investees, 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 and the reports of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, such
financial statements present fairly, in all material respects, the financial
position of the Partnership as of December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles, and the schedule referred to above presents fairly, in all material
respects, when read in conjunction with the related financial statements, the
information therein set forth.
Deloitte & Touche LLP
March 15, 1996
Washington, D. C.
11
<PAGE> 13
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 2) $ 164,374 $ 173,836
Interest receivable - 2,747
Investments in and advances to Local Limited
Partnerships (Note 3) - -
------- --------
$ 164,374 $ 176,583
======== ========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Administrative and reporting fees payable to
General Partner (Note 4) $ 447,489 $ 361,241
Accrued expenses 41,710 37,350
Due to Partner - 1,518
Accrued interest on partner loans - 452
-------- --------
489,199 400,561
-------- --------
Partners' deficit:
General Partner - The National Housing Partnership (NHP) (98,498) (97,490)
Original Limited Partner - 1133 Fifteenth Street
Three Associates (103,398) (102,390)
Other Limited Partners - 11,500 investment units (122,929) (24,098)
-------- --------
(324,825) (223,978)
-------- --------
$ 164,374 $ 176,583
======== ========
</TABLE>
See notes to financial statements.
12
<PAGE> 14
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Interest income $ 6,057 $ 7,185 $ 32,783
Distributions in excess of
investment in Local Limited
Partnerships (Note 3) 28,528 24,527 23,846
--------- --------- ---------
34,585 31,712 56,629
--------- --------- ---------
COSTS AND EXPENSES:
Loss on investment in Local Limited
Partnerships (Note 3) - 10,641 527,829
Share of losses from Local Limited
Partnerships (Note 3) - 13,066 47,504
Administrative and reporting fees to
General Partner (Note 4) 86,248 86,248 78,920
Other operating expenses 49,184 53,436 47,691
-------- -------- --------
135,432 163,391 701,944
-------- -------- --------
NET LOSS $(100,847) $(131,679) $(645,315)
======== ======== ========
ALLOCATION OF NET LOSS:
General Partner - NHP $ (1,008) $ (1,317) $ (6,453)
Original Limited Partner - 1133
Fifteenth Street Three Associates (1,008) (1,317) (6,453)
Other Limited Partners - 11,500
investment units (98,831) (129,045) (632,409)
-------- -------- --------
$(100,847) $(131,679) $(645,315)
======== ======== ========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 3) $ (9) $ (11) $ (56)
======== ======== ========
</TABLE>
See notes to financial statements.
13
<PAGE> 15
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
The 1133
National Fifteenth
Housing Street Other
Partnership Three Limited
(NHP) Associates Partners Total
----- ---------- -------- -----
<S> <C> <C> <C> <C>
Equity (deficit) at January 1, 1993 $(89,720) $ (94,620) $ 737,356 $ 553,016
Net loss (6,453) (6,453) (632,409) (645,315)
------- -------- -------- --------
Equity (deficit) at December 31, 1993 (96,173) (101,073) 104,947 (92,299)
Net loss (1,317) (1,317) (129,045) (131,679)
------- -------- -------- --------
Deficit at December 31, 1994 (97,490) (102,390) (24,098) (223,978)
Net loss (1,008) (1,008) (98,831) (100,847)
------- -------- -------- --------
Deficit at December 31, 1995 $(98,498) $(103,398) $(122,929) $(324,825)
======= ======== ======== ========
Percentage interest at
December 31, 1993, 1994,
and 1995 1% 1% 98%
======= ======== ========
(A) (B) (C)
======= ======== ========
</TABLE>
(A) General Partner
(B) Original Limited Partner
(C) Consists of 11,500 investment units of .008522% held by 919 investors.
See notes to financial statements.
14
<PAGE> 16
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Distributions from Local Limited Partnerships $ - $ - $ 742
Distributions received in excess of
investment in Local Limited Partnerships 28,528 24,526 19,574
Interest received 8,804 4,438 32,609
Operating expenses paid (45,276) (46,661) (44,802)
Administrative and reporting fees paid to General Partner - - (57,966)
-------- -------- --------
Net cash used in operating activities (7,994) (17,697) (49,843)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Local Limited Partnerships - - (22,200)
Expenses paid on behalf of Local Limited Partnerships - (10,641) (13,854)
Other receivable - 7,145 (7,145)
-------- -------- --------
Net cash used in investing activities - (3,496) (43,199)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES -
Repayment of loans from General Partner (1,518) - -
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,462) (21,193) (93,042)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 173,836 195,029 288,071
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 164,374 $ 173,836 $ 195,029
======== ======== ========
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net loss $(100,847) $(131,679) $(645,315)
-------- -------- --------
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on investment in Local Limited Partnerships - 13,066 527,829
Decrease (increase) in interest receivable 2,747 (2,747) -
Share of losses from Local Limited Partnerships - 10,641 47,504
Distributions from Local Limited Partnerships - - 742
Increase in administrative and reporting fees
payable to the General Partner 86,248 86,248 20,953
Increase in payables 3,908 6,774 2,888
Other - - (4,444)
-------- -------- --------
Total adjustments 92,903 113,982 595,472
-------- -------- --------
Net cash used in operating activities $ (7,944) $ (17,697) $ (49,843)
======== ======== ========
</TABLE>
See notes to financial statements.
15
<PAGE> 17
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING
POLICIES
Organization
National Housing Partnership Realty Fund III (the Partnership) is a
limited partnership organized under the Maryland Revised Uniform Limited
Partnership Act on May 10, 1985. The Partnership was formed for the purpose of
raising capital by offering and selling limited partnership interests and then
investing in Local Limited Partnerships, each of which either owns and operates
an existing rental housing project or has acquired limited partnership
interests in partnerships which own and operate one or two existing rental
housing projects. All such rental housing projects are financed and/or operated
with one or more forms of rental assistance or financial assistance from the
U.S. Department of Housing and Urban Development (HUD). On June 30, 1985,
inception of operations, the Partnership began raising capital and acquiring
interests in Local Limited Partnerships.
The General Partner was authorized to raise capital for the
Partnership by offering and selling to additional limited partners not more
than 11,500 interests at a price of $1,000 per interest. During 1985, the sale
of interests was terminated after the sale of all 11,500 interests.
During 1985, the Partnership acquired limited partnership interests
ranging from 94.5% to 99% in twelve limited partnerships (Local Limited
Partnerships), which were organized in 1984 to directly or indirectly own and
operate existing rental housing projects.
Significant Accounting Policies
The financial statements of the Partnership are prepared on the
accrual basis of accounting. Direct costs of acquisition, including acquisition
fees and reimbursable acquisition expenses paid to the General Partner, have
been capitalized as investments in the Local Limited Partnerships. Other fees
and expenditures of the Partnership are recognized as expenses in the period
the related services are performed.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in Local Limited Partnerships are accounted for using the
equity method and thus are carried at cost less the Partnership's share of the
Local Limited Partnerships' losses and distributions (see Note 3). An
investment account is maintained for each of the Local Limited Partnership
investments and losses are not recognized once an investment account has
decreased to zero. Cash distributions are limited by the Regulatory Agreements
between the Local Limited Partnerships and HUD to the extent of surplus cash as
defined by HUD. Distributions received from Local Limited Partnerships in which
the Partnership's investment account has decreased to zero are recorded as
revenue in the year they are received. Advances to Local Limited Partnerships
are included with Investments in Local Limited Partnerships to the extent that
the advances are not temporary advances of working capital.
For purposes of the statements of cash flows, the Partnership
considers all highly liquid debt instruments purchased with initial maturities
of three months or less to be cash equivalents.
16
<PAGE> 18
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash in demand accounts $ 467 $ 375
Money market account 163,907 173,461
------- -------
$164,374 $173,836
======= =======
</TABLE>
3. INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS
During 1985, the Partnership acquired a 99% limited partnership
interest in Brunswick Village Limited Partnership and 94.5% limited partnership
interests (98% with respect to allocation of losses) in nine Local Limited
Partnerships: Edmond Estates Limited Partnership, Elden Limited Partnership,
Galion Limited Partnership, Indian Valley I Limited Partnership, Indian Valley
II Limited Partnership, Indian Valley III Limited Partnership, Kimberly
Associates Limited Partnership, Newton Hill Limited Partnership and Woodmark
Limited Partnership. The Partnership also acquired a 99% limited partnership
interest in Meadowood Townhouses I Limited Partnership and Meadowood Townhouses
III Limited Partnership. Those two Local Limited Partnerships each own a 99%
limited partnership interest in an operating limited partnership which holds
title to two and one rental housing properties, respectively. The
Partnership's effective interest in these operating limited partnerships is
98.01%.
Since the Partnership does not exercise control over the activities of
the Local Limited Partnerships in accordance with the partnership agreements,
the Partnership's investments are accounted for using the equity method. Thus,
the investments are carried at cost less the Partnership's share of the Local
Limited Partnerships' losses and distributions. However, since the Partnership
is neither legally liable for the obligations of the Local Limited
Partnerships, nor otherwise committed to provide additional support to them, it
does not recognize losses once its investment, reduced for its share of losses
and cash distributions, reaches zero in each of the individual Local Limited
Partnerships. As a result, the Partnership did not recognize $936,943,
$3,803,923 and $2,859,089 of its allocated share of losses from twelve, twelve
and eleven Local Limited Partnerships during 1995, 1994 and 1993, respectively.
As of December 31, 1995 and 1994, the Partnership had not recognized
$12,605,989 and $11,669,046, respectively, of its allocated share of cumulative
losses from the twelve and eleven Local Limited Partnerships in which its
investment is zero.
In 1994, the Partnership advanced $10,641 to four Local Limited
Partnerships by paying expenses on behalf of the Local Limited Partnerships. No
advances were repaid to the Partnership during 1995 and 1994. During 1993, the
Partnership re-evaluated the collectibility of the total outstanding advances
made to the Local Limited Partnerships and determined, based on the Local
Limited Partnerships' current operations, that such advances are not likely to
be collected currently. The Partnership treated the advances balance as
additional "Investment in Limited Partnerships" for accounting purposes. The
balance was then reduced to zero, with corresponding charges to operations or
the investment balance for the individual Local Limited Partnerships. The
charge to operations in 1994 reduced the Partnership's investment in Local
Limited Partnerships to zero.
17
<PAGE> 19
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
These advances plus accrued interest remain due and payable to the
Partnership. As of December 31, 1995, the balance of such advances was
$538,468. Interest is calculated at the Chase Manhattan Bank prime rate plus
2%. Payment of principal and interest is contingent upon the Local Limited
Partnerships having available surplus cash, as defined by HUD regulations, from
operations, or from refinancing or sale of the Local Limited Partnership
properties. Any future repayment of advances or interest will be reflected as
Partnership income when received.
Summaries of the combined financial position of the aforementioned
Local Limited Partnerships as of December 31, 1995 and 1994, and the combined
results of operations for the years ended December 31, 1995, 1994 and 1993 are
as follows:
COMBINED FINANCIAL POSITION
OF THE LOCAL LIMITED PARTNERSHIPS
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1994
---- ----
<S> <C> <C>
Assets:
Land $ 2,992,600 $ 2,992,600
Buildings and improvements,
net of accumulated depreciation
of $12,743,988 and $11,491,517 and reduction
of carrying value of $3,900,000 29,312,581 29,503,104
Other assets 4,842,167 4,390,435
----------- -----------
$ 37,147,348 $ 36,886,139
=========== ===========
Liabilities and partners' deficit:
Liabilities:
Mortgage notes payable $ 17,892,400 $ 18,431,172
Acquisition notes payable 14,683,867 14,683,867
Other liabilities 19,418,730 17,641,435
----------- -----------
51,994,997 50,756,474
Partners' deficit:
National Housing Partnership Realty Fund III (13,369,178) (12,427,679)
Other partners (1,478,471) (1,442,656)
----------- -----------
$ 37,147,348 $ 36,886,139
=========== ===========
</TABLE>
18
<PAGE> 20
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
COMBINED RESULTS OF OPERATIONS
OF THE LOCAL LIMITED PARTNERSHIPS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue $ 8,997,266 $ 8,635,033 $ 8,155,036
---------- ---------- ----------
Expenses:
Operating expenses 6,661,387 6,875,590 7,280,285
Financial expenses - primarily interest 640,359 552,011 361,845
Interest on acquisition notes 1,379,901 1,379,286 1,392,190
Depreciation and amortization 1,262,745 1,240,869 1,219,259
Loss on reduction of carrying value of
rental property - 2,500,000 1,400,000
---------- ---------- ----------
Total expenses 9,944,392 12,547,756 11,653,579
---------- ---------- ----------
Net loss $ (947,126) $(3,912,723) $(3,498,543)
========== ========== ==========
</TABLE>
The combined financial statements of the Local Limited Partnerships
are prepared on the accrual basis of accounting. The twelve Local Limited
Partnerships were formed during 1984 for the purpose of directly or indirectly
operating thirteen rental housing projects. Eleven of the projects receive a
substantial amount of rental assistance from HUD.
Depreciation of the buildings and improvements for eleven of the Local
Limited Partnerships is computed on a straight-line method, assuming a 50-year
life from the date of initial occupancy at the time of construction or after
substantial rehabilitation of the building, whereas depreciation for one of the
Local Limited Partnerships is computed using the straight-line method, assuming
a 30-year life and a 30% salvage value. Depreciation of equipment is calculated
using accelerated methods over estimated useful lives of 5 to 27 years.
The mortgage notes payable are insured by the Federal Housing
Administration (FHA) and are collateralized by first deeds of trust on the
rental properties. The notes bear interest at rates ranging from 3% to 8.5% per
annum. For the eleven rental housing projects insured under Section 236, the
FHA makes subsidy payments directly to the mortgage lender reducing the monthly
principal and interest payments of the project owner to an effective interest
rate of 1% over the forty-year term of the notes. The liability of the Local
Limited Partnerships under the mortgage notes is limited to the underlying
value of the real estate collateral plus other amounts deposited with the
lenders.
Deferred acquisition notes of $14,683,867 at December 31, 1995 bear
simple interest at rates of 9% or 10% per annum. These notes are collateralized
by partnership interests in all of the Local Limited Partnerships. Neither
principal nor interest are payable currently; all principal and accrued
interest are payable upon the earlier of the sale, transfer, or refinancing of
the project or dates ranging from 1996 to 1999 with extensions ranging up to
five years. In both 1994 and 1993, one of the Local Limited Partnerships
exercised its unilateral option to extend the maturity date of its notes
originally due in 1994 and 1993. A fee equal to 1% of the original principal
amount was added to the principal due.
19
<PAGE> 21
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
There is substantial doubt as to the ability of two of the Local
Limited Partnerships, Meadowoods Townhouses I and III, ability to continue as a
going concern. Both Local Limited Partnerships have minimal cash balances at
December 31, 1995. Additionally, Meadowoods Townhouses I has a deferred
acquisition note and related interest in the total amount of $5,853,115 as of
December 31, 1995, which is due during 1996. Resources available to the
Partnership, primarily in the form of distributions, would be reduced if the
Partnership were to lose its interest in a Local Limited Partnership. Should
the Partnership lose its interest in a Local Limited Partnership, partners in
the Partnership may incur adverse tax consequences. NHP's intentions are to
continue to manage the properties prudently so that the properties can maximize
their cash flow.
For operating real estate property, generally accepted accounting
principles (GAAP) require that the Local Limited Partnership evaluate whether
it is probable that the estimated undiscounted future cash flows of each of its
property, plus cash projected to be received upon an assumed sale of the
property (Net Realizable Value) is less than the net carrying value of the
property. If such a shortfall exists, is material and is deemed to be other
than temporary in nature, then a write-down equal to the shortfall would be
warranted. The Local Limited Partnerships perform such evaluations on an
ongoing basis.
During 1994 and 1993, using a methodology consistent with GAAP, two of
the Local Limited Partnerships (one in each year) determined that the book
value of the rental property exceeded the rental property's estimated net
realizable value. As required by GAAP, the Local Limited Partnerships have
recorded an adjustment of $2,500,000 and $1,400,000 to reduce the carrying
value of the rental property to its estimated net realizable value for the
years ended December 31, 1994 and 1993, respectively. Similar write-downs were
not required in 1995.
Additionally, regardless of whether a write-down of an individual
property has been recorded or not, the carrying value of each of these
properties may still exceed their fair market value as of December 31, 1995.
Should a Local Limited Partnership be forced to dispose of any of its
properties, it could incur a loss.
In March 1995, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting For The
Impairment of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of"
(the "Statement") effective for financial statements for fiscal years beginning
after December 15, 1996. Adoption of this Statement during the year ending
December 31, 1996 will require an impairment loss to be recognized if the sum
of estimated future cash flows (undiscounted and without interest charges) is
less than the carrying amount of rental property. The impairment loss would be
the amount by which the carrying value exceeds the fair value of the rental
property. If the rental property is to be disposed of, fair value is calculated
net of costs to sell. The Local Limited Partnerships have not estimated the
effect of implementing the Statement. Adoption of the Statement for the year
ending December 31, 1996 will not have a significant impact on the results of
operations and financial position of the Partnership because its investment in
each Local Limited Partnership has been reduced to zero.
4. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL
PARTNER
The General Partner of the Partnership is The National Housing
Partnership (NHP). National Corporation for Housing Partnerships (NCHP) is the
sole General Partner of NHP. NHP Partners Two, LP, is the sole limited partner
of NHP. The Original Limited Partner of the Partnership, 1133 Fifteenth Street
Three Associates, is comprised of individuals who were key employees of NCHP at
the time the Partnership was formed.
20
<PAGE> 22
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Partnership accrued Administrative and Reporting Fees payable to
the General Partner of $86,248 in 1995 and 1994 and $78,920 during 1993.
Payments of $57,966 were made to the General Partner in 1993. No payments were
made in 1995 and 1994.
An affiliate of the General Partner, NHP Management Company (NHPMC),
is the project management agent for the projects operated by four of the Local
Limited Partnerships. NHPMC and other affiliates of NCHP earned $583,446,
$568,801 and $484,663 from the Local Limited Partnerships for management fees
and other services provided to the Local Limited Partnerships during 1995, 1994
and 1993, respectively.
Personnel working at the project sites which are managed by NHPMC were
NCHP employees and, therefore, the projects reimbursed NCHP for the actual
salaries and related benefits. Beginning January 1, 1996, project employees
became employees of NHP Incorporated. Total reimbursements earned for salaries
and benefits for the years ended December 31, 1995, 1994 and 1993, were
approximately $739,000, $704,000 and $689,000, respectively.
5. INCOME TAXES
The Partnership is not taxed on its income. The partners are taxed in
their individual capacities upon their distributive share of the Partnership's
taxable income and are allowed the benefits to be derived from off-setting
their distributive share of the tax losses against taxable income from other
sources, subject to passive loss rule limitations. The taxable income or loss
differs from amounts included in the statements of operations because of
different methods used in determining the losses of the Local Limited
Partnerships. The tax loss is allocated to the partner groups in accordance
with Section 704(b) of the Internal Revenue Code and therefore is not
necessarily proportionate to the percentage interest owned.
For Federal income tax purposes, the twelve Local Limited Partnerships
compute depreciation of the buildings and improvements using the Accelerated
Cost Recovery System (ACRS) and the Modified Accelerated Cost Recovery System
(MACRS), while for financial statements purposes, depreciation is computed
using the straight-line method, assuming a 30-year life and a 30% salvage value
or a 50-year life. Rent received in advance is included as income in
determining the taxable income or loss for Federal income tax purposes; while
for financial statement purposes it is considered a liability. In addition,
interest expense on the acquisition notes payable by the Local Limited
Partnerships is computed for Federal income tax purposes using the economic
accrual method; while for financial statement purposes, interest is computed
using a simple interest rate. The Partnership's share of losses from the Local
Limited Partnerships is not recognized for financial statement purposes once
its investment account is decreased to zero; while, for income tax purposes,
losses continue to be recognized. Other differences result from the allocation
of tax losses in accordance with Section 704(b) of the Internal Revenue Code.
21
<PAGE> 23
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
A reconciliation follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net loss per financial statements $ (100,847) $ (131,679) $ (645,315)
Timing differences in determining
losses of local limited partnerships:
Depreciation (1,045,037) (1,026,469) (985,919)
Interest on acquisition notes payable (136,036) (66,114) (27,687)
Losses taken in excess of financial statement
investment account (962,475) (3,841,344) (1,533,851)
Accrued interest on partner loans 208,654 15,867 640,725
Loss on reduction of carrying value of rental property - 2,496,082 -
Other 225,733 255,506 1,181
---------- ---------- ----------
Loss per tax return $(1,810,008) $(2,298,151) $(2,550,866)
========== ========== ==========
</TABLE>
As discussed in Note 3, there is substantial doubt as to the ability
of two of the Local Limited Partnerships, Meadowood Townhouses I and III,
ability to continue as a going concern. Should the Partnership lose its
interest in a Local Limited Partnership, partners in the Partnership may incur
adverse tax consequences. The impact of the tax consequences is dependent upon
each partner's individual tax situation.
6. ALLOCATION OF RESULTS OF OPERATIONS, CASH DISTRIBUTIONS AND GAINS AND
LOSSES FROM SALES OR REFINANCING
Net income or loss from operations is allocated 98% to the Limited
Partners, 1% to the General Partner and 1% to the Original Limited Partner.
Cash distributions from operations, after payment of certain obligations
including reimbursement on a cumulative basis of direct expenses incurred by
the General Partner or its affiliates in managing the properties and payment of
annual cumulative administrative and reporting fees, is distributed 98% to the
Limited Partners, 1% to the General Partner and 1% to the Original Limited
Partner.
Cash received from the sale or refinancing of any underlying property
of the Local Limited Partnerships, after payment of the applicable mortgage
debt and the payment of all expenses related to the transaction, is to be
distributed in the following manner:
First, to the General Partner for any unrepaid loans to the
Partnership and any unpaid fees (other than disposition and
refinancing fees);
Second, to the Limited Partners until the Limited Partners have
received a return of their capital contributions, after deduction for
prior cash distributions from sales or refinancing, but without
deduction for prior cash distribution from operations;
Third, to the Limited Partners, until each Limited Partner has
received an amount equal to a cumulative noncompounded 12% annual
return on its capital contribution, after deduction of (a) an amount
equal to 50%
22
<PAGE> 24
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
of the tax losses allocated to the Limited Partner and (b) prior cash
distributions from operations and prior cash distributions from sales
or refinancing;
Fourth, to the General Partner until the General Partner has received
a return of its capital contributions, after deduction for prior cash
distributions from sales or refinancing, but without deduction for
prior cash distributions from operations;
Fifth, to the General Partner for disposition and refinancing fees,
including prior disposition and refinancing fees which have been
accrued but are unpaid;
Sixth, to the partners with positive capital accounts to bring such
accounts to zero; and
Finally, 85% of the remaining sales proceeds to the Limited Partners
and 15% to the General Partner.
Gain for Federal income tax purposes realized in the event of
dissolution of the Partnership or upon sale of interests in a Local Limited
Partnership or underlying property will be allocated in the following manner:
First, to the Limited Partners in an amount up to the negative
balances of the capital accounts of Limited Partners in the same
proportion as each Limited Partner's negative capital account bears to
such aggregate negative capital accounts;
Second, to the General Partner in an amount up to the General
Partner's negative capital account, if any;
Third, to the Limited Partners, up to the aggregate amount of capital
contributions of the Limited Partners, after deduction for prior cash
distributions from sales or refinancing, but without deduction for
prior cash distributions from operations, in the same proportion that
each Limited Partner's capital contribution bears to the aggregate of
all Limited Partners' capital contributions;
Fourth, to the Limited Partners, until each Limited Partner has been
allocated in such an amount equal to a cumulative noncompounded 12%
annual return on its capital contribution, after deduction of (a) an
amount equal to 50% of the tax losses allocated to the Limited Partner
and (b) prior cash distributions from operations and prior cash
distributions from sales or refinancing;
Fifth, to the General Partner up to the aggregate amount of capital
contributions made by the General Partner, after deduction for prior
cash distributions from sales or refinancing, but without deduction
for prior cash distributions from operations; and
Finally, 85% of the remaining gain to the Limited Partners and 15% to
the General Partner.
Losses for Federal income tax purposes realized in the event of
dissolution of the Partnership or upon sale of interests in a Local Limited
Partnership or underlying property will be allocated 85% to the Limited
Partners and 15% to the General Partner.
23
<PAGE> 25
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION OF
LOCAL LIMITED PARTNERSHIPS IN WHICH NHP REALTY FUND III HAS INVESTED
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Initial Cost Capitalized
Cost to Local Subsequent
Limited Partnership to Acquisition
------------------------------ --------------------------------
Buildings Carrying
and Cost
Partnership Name Encumbrances Land Improvements Improvements Adjustments
- --------------------------- ---------------- ------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Brunswick Village
Limited Partnership (1) $ 275,000 $ 2,109,506 $ 384,216 $ -
Edmond Estates
Limited Partnership (1) 150,000 2,470,329 172,732 (1,400,000)
Elden
Limited Partnership (1) 338,000 4,355,651 941,788 -
Galion
Limited Partnership (1) 60,000 1,308,947 113,594 -
Indian Valley I
Limited Partnership (1) 120,000 2,764,506 138,619 -
Indian Valley II
Limited Partnership (1) 108,000 2,278,088 149,705 -
Indian Valley III
Limited Partnership (1) 117,600 2,782,409 158,328 -
Kimberly Associates
Limited Partnership (1) 294,000 4,259,949 1,544,132 -
Meadowood Townhouses I
Limited Partnership (1) 582,000 6,495,229 898,625 -
Meadowood Townhouses II
Limited Partnership (1) 566,000 6,285,999 744,506 (2,500,000)
Newton Hill
Limited Partnership (1) 60,000 1,015,475 69,566 -
Woodmark
Limited Partnership (1) 322,000 3,882,930 631,740 -
----------- ----------- ---------- ------------
Total, December 31, 1995 $2,992,600 $40,009,018 $5,947,551 $(3,900,000)
=========== =========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried
at Close of Period
--------------------------------------------
Life upon which
depreciation
in latest
statement of
Buildings Accumulated operations is
and Total Depreciation Date of Date computed
Partnership Name Land Improvements (2) (3) (3) Construction Acquired (years)
- --------------------------- ----------- ---------------- ------------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Brunswick Village
Limited Partnership $ 275,000 $ 2,493,722 $ 2,768,722 $ 686,173 1971 6/85 5-30
Edmond Estates
Limited Partnership 150,000 1,243,061 1,393,061 613,072 1972 6/85 5-50
Elden
Limited Partnership 338,000 5,297,439 5,635,439 1,566,539 1970 6/85 5-50
Galion
Limited Partnership 60,000 1,422,541 1,482,541 402,141 1972 7/85 5-50
Indian Valley I
Limited Partnership 120,000 2,903,125 3,023,125 803,515 1972 6/85 5-50
Indian Valley II
Limited Partnership 108,000 2,427,793 2,535,793 665,477 1972 6/85 5-50
Indian Valley III
Limited Partnership 117,600 2,940,737 3,058,337 797,460 1972 6/85 5-50
Kimberly Associates
Limited Partnership 294,000 5,804,081 6,098,081 1,757,450 1971 6/85 5-50
Meadowood Townhouses I
Limited Partnership 582,000 7,393,854 7,975,854 1,910,183 1972 6/85 5-50
Meadowood Townhouses II
Limited Partnership 566,000 4,530,505 5,096,505 1,888,343 1972 6/85 5-50
Newton Hill
Limited Partnership 60,000 1,085,041 1,145,041 317,256 1972 7/85 5-50
Woodmark
Limited Partnership 322,000 4,514,670 4,836,670 1,336,379 1971 6/85 5-50
---------- ----------- ----------- -----------
Total, December 31, 1995 $2,992,600 $42,056,569 $45,049,169 $12,743,988
========== =========== =========== ===========
</TABLE>
See notes to Schedule XI.
24
<PAGE> 26
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO SCHEDULE XI - REAL ESTATE AND
ACCUMULATED DEPRECIATION OF LOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND III HAS INVESTED
DECEMBER 31, 1995
(1) Schedule of Encumbrances
<TABLE>
<CAPTION>
Deferred
Acquisition
Notes and
Mortgage Accrued
Partnership Name Notes Interest Total
---------------- ----- -------- -----
<S> <C> <C> <C>
Brunswick Village Limited Partnership $ 718,929 $ 1,993,520 $ 2,712,449
Edmond Estates Limited Partnership 1,067,602 1,949,215 3,016,817
Elden Limited Partnership 1,958,990 3,271,354 5,230,344
Galion Limited Partnership 554,267 960,568 1,514,835
Indian Valley I Limited Partnership 1,177,444 1,919,940 3,097,384
Indian Valley II Limited Partnership 1,160,754 1,246,330 2,407,084
Indian Valley III Limited Partnership 1,292,912 1,744,171 3,037,083
Kimberly Associates Limited Partnership 2,065,005 2,793,753 4,858,758
Meadowood Townhouses I Limited
Partnership 2,729,143 5,853,115 8,582,258
Meadowood Townhouses III Limited
Partnership 3,114,494 4,564,465 7,678,959
Newton Hill Limited Partnership 468,209 655,122 1,123,331
Woodmark Limited Partnership 1,584,651 3,095,548 4,680,199
---------- ---------- ----------
TOTAL $17,892,400 $30,047,101 $47,939,501
========== ========== ==========
</TABLE>
(2) The aggregate cost of land for Federal income tax purposes is
$2,992,600, and the aggregate costs of buildings and improvements for
Federal income tax purposes is $46,263,977. The total of the
above-mentioned items is $49,256,577.
<PAGE> 27
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO SCHEDULE XI-REAL ESTATE AND
ACCUMULATED DEPRECIATION OF LOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND III HAS INVESTED
DECEMBER 31, 1995
(CONTINUED)
(3) Reconciliation of real estate
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $43,987,221 $45,626,140 $46,557,885
Improvements during the period 1,061,948 861,081 468,255
Reduction of carrying value of rental property - (2,500,000) (1,400,000)
---------- ---------- ----------
Balance at end of period $45,049,169 $43,987,221 $45,626,140
========== ========== ==========
</TABLE>
Reconciliation of accumulated depreciation
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $11,491,517 $10,260,366 $ 9,041,107
Depreciation expense for the period 1,252,471 1,231,151 1,219,259
---------- ---------- ----------
Balance at end of period $12,743,988 $11,491,517 $10,260,366
========== ========== ==========
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
26
<PAGE> 28
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), (e) and (f). The names, ages, business experience and
involvement in legal proceedings of the directors and executive
officers of National Corporation for Housing Partnerships (NCHP), the
sole general partner of The National Housing Partnership, the sole
general partner of the Partnership, and certain of its affiliates, are
as follows:
Directors of NCHP
Seven individuals comprise the Board of Directors of NCHP. Three
directors were appointed by the President of the United States, by and with the
advice and consent of the Senate.
J. Roderick Heller, III (age 58) was elected President, Chief
Operating Officer and a Director of NCHP in 1985, Chief Executive Officer of
NCHP in 1986 and Chairman in 1988. He currently serves as Chairman, President
and Chief Executive Officer of NHP Incorporated and NCHP and their affiliate,
NHP Real Estate Corporation. Mr. Heller also serves as Chairman and Chief
Executive Officer of NHP Management Company, another principal affiliate of
NCHP. He had been President and Chief Executive Officer of Bristol Compressors,
Inc., Bristol, Virginia, a manufacturer of air conditioning compressors, from
1982 until 1985. Prior to that, he was a partner in the Washington, D.C. law
firm of Wilmer, Cutler & Pickering from 1971 until 1982, and while there,
represented NCHP on legal matters from its organization in 1970. He serves on
the boards of directors of Auto-Trol Technology Corporation and a number of
nonprofit organizations, including the National Trust for Historic
Preservation. Mr. Heller was re-elected to the Board of Directors in 1992 and
continues to serve.
Susan R. Baron (age 44) is an attorney specializing in conventional
and government-assisted real estate development and finance in the residential
and commercial markets. From 1978 to 1993 she was with the Washington, D.C. law
firm of Dunnells, Duvall & Porter. Ms. Baron serves on the board of directors
of Seeds of Peace and is a past president of the National Leased Housing
Association. She was appointed to the Board of Directors by the President of
the United States in September 1994 to complete a term expiring in October 1994
and continues to serve until the appointment of a successor.
Danny K. Davis (age 54) has been a Commissioner on the Cook County
Board of Commissioners since November 1990. Prior to his service on the Cook
County Board, he served as an Alderman on the Chicago City Council for 11
years. Mr. Davis is also a member of numerous civic and professional
organizations. He was appointed to the Board of Directors by the President of
the United States in September 1994 for a term to expire on October 27, 1996.
Alan A. Diamonstein (age 64) has been a member of the Virginia House
of Delegates since 1967, currently serving as Chairman of the General Laws
Committee and a member of the standing committees on Appropriations, Education
and Rules. He is chairman of the Virginia Housing Study Commission and is a
member of the Peninsula Board of Advisors for Signet Bank, the
Jamestown-Yorktown Board of Trustees, as well as a number of educational and
civic organizations. Mr. Diamonstein is the senior partner in the law firm of
Diamonstein, Becker and Staley. He was appointed to the Board of Directors by
the President of the United States in October 1994 and continues to serve until
the appointment of a successor.
Michael R. Eisenson (age 40) is the President and Chief Executive
Officer of Harvard Private Capital Group, Inc., the wholly-owned subsidiary of
Harvard Management Company, Inc. which manages the direct investment and
27
<PAGE> 29
private equity portfolio of the Harvard University endowment fund. Between 1981
and 1986, Mr. Eisenson was a principal with the Boston Consulting Group. Mr.
Eisenson serves on the boards of directors of Harken Energy Corporation,
ImmunoGen, Inc. and Somatix Therapy Corporation, as well as a number of private
companies. Under a Shareholders Agreement between NHP Incorporated, Demeter
Holdings Corporation and Capricorn Investors, L.P. (see Item 1, above), Demeter
is entitled to elect two members of the NCHP Board of Directors. Pursuant to
this agreement, Mr. Eisenson was re-elected to the Board of Directors in 1992
and continues to serve.
Tim R. Palmer (age 38) is a Managing Director of Harvard Private
Capital Group, the wholly-owned subsidiary of Harvard Management Company, Inc.
which manages the direct investment and private equity portfolio of the Harvard
University endowment fund. Prior to joining Harvard Private Capital in 1990,
Mr. Palmer was a manager of business development at The Field Corporation and
an attorney with Sidley & Austin. Mr. Palmer serves on the board of directors
of PriCellular Corporation, as well as on the boards of several private
companies. Under a Shareholders Agreement between NHP Incorporated, Demeter
Holdings Corporation and Capricorn Investors, L.P. (see Item 1, above), Demeter
is entitled to elect two members of the NCHP Board of Directors. Pursuant to
this agreement, Mr. Palmer was re-elected to the Board of Directors in June
1994, for a term to expire in 1997.
Herbert S. Winokur, Jr. (age 52) has been the President of Winokur &
Associates, Inc. and Winokur Holdings, Inc., and the Managing General Partner of
Capricorn Investors, L.P. since 1987. Mr. Winokur is the Chairman of DynCorp
and serves on the boards of directors of Enron Corporation, Marine Drilling
Companies, Inc. and NacRe Corporation. Under a Shareholders Agreement between
NHP Incorporated, Demeter Holdings Corporation and Capricorn Investors, L.P.
(see Item 1, above), Capricorn is entitled to elect one member of the NCHP
Board of Directors. Pursuant to this agreement, Mr. Winokur was re-elected to
the Board of Directors in 1994, for a term to expire in 1997.
EXECUTIVE OFFICERS
The current executive officers of NCHP and a description of their
principal occupations in recent years are listed below. Also listed and
described are certain of the executive officers of NHP Incorporated, NCHP's
parent company, and both NHP Real Estate Corporation (Realco) and NHP
Management Company (NHP Management), two principal affiliates of NCHP.
References below to "NHP" are intended to include NCHP and its principal
affiliates, as appropriate.
J. Roderick Heller, III (age 58). See "Directors of NCHP."
Ann Torre Grant (age 38) has served as Executive Vice President, Chief
Financial Officer and Treasurer of NHP since February 1995. She was Vice
President and Treasurer of USAir, Inc. and USAir Group, Inc. from 1991 through
January 1995, and held other finance positions at the airline between 1988 and
1991. From 1983 to 1988, she held various finance positions with American
Airlines, Inc. Ms. Grant is a graduate of the University of Notre Dame and has
a Masters of Business from Cornell University. Ms. Grant serves as a director
of the Mutual Series Funds.
Linda J. Brower (age 44) has served as Executive Vice President of NHP
since March 1994 and served as Senior Vice President of NCHP from February 1992
to March 1994. Ms. Brower is responsible for asset management of the
multifamily portfolio. From 1984 to 1991, Ms. Brower was Vice President and
Area Director for the Orange County, California and Washington, D.C. offices of
Citicorp Real Estate and was responsible for analyzing investment proposals,
asset management and restructuring. She is a graduate of UCLA, holds a Masters
degree in finance from the University of Texas and is a licensed real estate
broker.
Linda G. Davenport (age 46) has served as Executive Vice President of
the Company since March 1994. She is primarily responsible for corporate and
portfolio. Ms. Davenport served as Executive Vice President and Chief Operating
Officer of NCHP from 1990 to January 1994 and as General Counsel and Senior
Vice President of the Company from 1986 to 1989. Prior to joining NCHP in 1979
as Assistant General Counsel, Ms. Davenport was
28
<PAGE> 30
employed in the Office of the General Counsel of the Federal Deposit Insurance
Corporation. She is a graduate of Michigan State University and holds J.D.
degree form California Western School of Law.
Robert M. Greenfield (age 48) has served as Executive Vice President
of NHP since March 1994. He joined NCHP in October 1991 as Senior Vice
President. Mr. Greenfield is primarily responsible for corporate and portfolio
acquisitions. From 1978 to 1984, and from 1990 to 1991, Mr. Greenfield was a
consultant in corporate strategy for the Boston Consulting Group, providing
analyses and recommendations to clients in the areas of corporate strategy,
business development and diverstiture. From 1984 to 1991, he was a principal in
Schindler Greenfield, Inc. and OCC, Inc., closely held real estate development
firms. In February of 1992, Mr. Greenfield and his wife filed for protection
under Chapter 7 of the United States Bankruptcy Code as a result of their
inability to meet certain direct and guaranteed obligations on borrowings by or
on behalf of Schindler Greenfield, Inc. and its affiliates. Mr. Greenfield
graduated with honors from the University of Chicago and holds a Masters of
Business Administration with honors from Harvard Business School.
J. Robert Hiner (age 44) has served as Executive Vice President of NHP
Management Co. since October 1993. He previously served as Senior Vice
President of NHP Management Co. from 1991 to 1993. During 1990, Mr. Hiner
served as President of Shadwell-Jefferson Property Management, Inc., a retail
property management company formed to manage 71 shopping centers in the
midwestern and southern United States. From 1986 to 1990, he served as
President of Cardinal Apartment Management Group, Inc., which was responsible
for the management of 55,000 apartment units. Mr. Hiner is a graduate of the
University of Virginia and holds a Masters of Business Administration from
Capital University.
Joel F. Bonder (age 47) has served as Senior Vice President and
General Counsel of the Company since April 1994. Mr. Bonder also served as Vice
President and Deputy General Counsel from June 1991 to March 1994, as Associate
General Counsel from 1986 to 1991, and as Assistant General Counsel of the
Company from 1985 to 1986. From 1983 to 1985, he was with the Washington, D.C.
law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the
Chicago law firm of Ross and Hardies. He is a graduate of the University of
Rochester and received a J.D. degree from the Washington University School of
Law.
Charles S. Wilkins, Jr. (age 45) has served as Senior Vice President
of NCHP since September 1988 and is currently responsible for legislative and
regulatory affairs. He was formerly responsible for asset and property
management of the affordable multifamily portfolio. Prior to joining NCHP, Mr.
Wilkins was Senior Vice President of Westminster Company, a regional real
estate development firm where he was responsible for the property management of
a diverse portfolio of properties. Mr. Wilkins is immediate past-president of
the National Assisted Housing Management Association and is a director of the
National Leased Housing Association, as well as various regulatory committees,
including the Executive Committee of the HUD Occupancy Task Force. He graduated
with honors from the University of North Carolina at Chapel Hill, is a
Certified Property Manager and a licensed real estate broker.
Jeffrey J. Ochs (age 38) has served as Vice President and Chief
Accounting Officer of NHP since September 1995. From 1994 until September
1995, Mr. Ochs was Assistant Controller of USAir, Inc. From 1987 to 1994, he
held various accounting positions with USAir, Inc. Mr. Ochs is a CPA and has a
Masters of Business Administration from Clarion University of Pennsylvania,
where he also earned a B.S. in Business Administration.
Eugene H. Goodsell (age 42) serves as Vice President and Controller of
NHP Incorporated, NCHP, Realco and NHP Management. He has been with NCHP since
1983. Prior to joining NHP, Mr. Goodsell, a CPA, was an audit manager with the
public accounting firm of Arthur Andersen LLP.
(d) There is no family relationship between any of the foregoing
directors and executive officers.
29
<PAGE> 31
Item 11. Executive Compensation
National Housing Partnership Realty Fund III has no officers or
directors. However, as outlined in the prospectus, various fees and
reimbursements are paid to the General Partner and its affiliates. Following is
a summary of such fees paid or accrued during the year ended December 31, 1995:
(i) The Partnership accrued $86,248 for administrative and
reporting fees for managing the affairs of the Partnership and
for investor services during 1995. No payments were made in
1995.
(ii) Annual partnership administration fees of $97,500 are payable,
but not yet paid, to the General Partner for its services as
General Partner of the Local Limited Partnerships. During
1995, the Local Limited Partnerships made payments of $145,013
for previous years' annual partnership administrative fees.
(iii) An affiliate of the General Partner, NHP Management Company
(NHPMC), is the project management agent for the projects
operated by four of the Local Limited Partnerships. During
1995, NHPMC and other affiliates of NCHP earned $583,446 for
management fees and other services provided to the Local
Limited Partnerships.
(iv) In 1995, personnel working at the project sites which were
managed by NHPMC were NCHP employees, and therefore the
project reimbursed NCHP for their actual salaries and related
benefits. Total reimbursements for salaries and benefits
earned for the year ended December 31, 1995, was approximately
$739,000. At December 31, 1995 trade payables include $1,627
due to NCHP.
Item 12. Security Ownership of Certain Beneficial Owners and Management
1133 Fifteenth Street Three Associates, a Maryland Limited
Partnership, whose general partner is NHP and whose limited partners were key
employees of NCHP at the time the Partnership was formed, owns a 1% interest in
the Partnership.
NHP is also the sole general partner of NHP Investment Partners I. NHP
Investment Partners I holds 4.5% limited partnership interest (1% with respect
to allocation of losses) in nine of the Local Limited Partnerships. NHP
Investment Partners I held a 1% general partnership interest and a 98% limited
partnership interest in these Local Limited Partnerships prior to admittance of
the Partnership. A former employee of NCHP (a New Jersey resident) holds a
0.01% limited partnership interest in one Local Limited Partnership to meet
that state's legal requirements.
Item 13. Certain Relationships and Related Transactions
The Partnership had no material transactions or business relationships
with NHP or its affiliates except as described in Items 8, 10, and 11, above.
30
<PAGE> 32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as a part of this report:
1. Financial Statements
The financial statements, notes, and reports listed below are
included herein:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 11
Statements of Financial Position,
December 31, 1995 and 1994 12
Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993 13
Statements of Partners' Deficit for the Years
Ended December 31, 1995, 1994 and 1993 14
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 15
Notes to Financial Statements 16
Schedule XI - Real Estate and
Accumulated Depreciation of the Local Limited
Partnerships in which NHP Realty Fund III has
invested, December 31, 1995 24
</TABLE>
2. Financial Statement Schedules
Financial statement schedules for the Registrant:
Schedule XI is included in the financial statements
listed under Item 14(a)(1) above. All other schedules
have been omitted as the required information is
inapplicable or the information is presented in the
financial statements or notes thereto.
Financial statements required by Regulation S-X which
are excluded from the annual report to shareholders
by Rule 14a-3(b): See 3 below.
31
<PAGE> 33
3. Exhibits
The following combined financial statements of the
Local Limited Partnerships in which the Partnership
has invested funds are included as an exhibit to this
report and are incorporated herein:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports 35
Combined Statements of Financial
Position, December 31, 1995 and 1994 44
Combined Statements of Operations
for the Years Ended December 31, 1995,
1994, and 1993 45
Combined Statements of Partners'
Deficit for the Years Ended
December 31, 1995, 1994 and 1993 46
Combined Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993 47
Notes to Combined Financial
Statements 50
</TABLE>
(b) Reports on Form 8-K.
None.
32
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
National Housing Partnership Realty Fund III
By: The National Housing Partnership, its sole general partner
By: National Corporation for Housing Partnerships, its sole general partner
March 28, 1996 /s/ J. Roderick Heller, III
- -------------- ----------------------------------------------
Date J. Roderick Heller, III, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
March 28, 1996 /s/ J. Roderick Heller, III
- -------------- ----------------------------------------------
Date J. Roderick Heller, III
Chairman, President, Chief Executive
Officer and Director
March 28, 1996 /s/ Ann Torre Grant
- -------------- ----------------------------------------------
Date Ann Torre Grant
Executive Vice President, Chief Financial Officer
and Treasurer
March 28, 1996 /s/ Jeffrey J. Ochs
- -------------- ----------------------------------------------
Date Jeffrey J. Ochs
Vice President and Chief Accounting Officer
33
<PAGE> 35
March 28, 1996 *
- -------------- ----------------------------------------------
Date Susan R. Baron, Director
March 28, 1996 *
- -------------- ----------------------------------------------
Date Michael R. Eisenson, Director
March 28, 1996 *
- -------------- ----------------------------------------------
Date Danny K. Davis, Director
March 28, 1996 *
- -------------- ----------------------------------------------
Date Tim R. Palmer, Director
March 28, 1996 *
- -------------- ----------------------------------------------
Date Alan A. Diamonstein, Director
March 28, 1996 *
- -------------- ----------------------------------------------
Date Herbert S. Winokur, Jr., Director
This registrant is a limited partnership whose sole general partner,
The National Housing Partnership, is also a limited partnership. The sole
general partner of The National Housing Partnership is National Corporation for
Housing Partnerships. The persons indicated are Directors of National
Corporation for Housing Partnerships. Powers of Attorney are on file in
Registration Statement No. 33-1141 and as Exhibit 25 to the Partnership's Form
10-K for the fiscal years ended December 31, 1987, December 31, 1988, December
31, 1990 and December 31, 1991. Other than the Form 10-K report, no annual
report or proxy materials have been sent to security holders.
*By J. Roderick Heller, III pursuant to Power of Attorney.
/s/ J. Roderick Heller, III
---------------------------
34
<PAGE> 36
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund III
Washington, D.C.
We have audited the accompanying combined statements of financial position of
the Local Limited Partnerships in which National Housing Partnership Realty
Fund III (the Partnership) holds a limited partnership interest as of December
31, 1995 and 1994, and the related combined statements of operations, partners'
deficit, and cash flows for each of the three years in the period ended
December 31, 1995. 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 of Brunswick Village Limited Partnership for the years ended
December 31, 1995, 1994 and 1993. We did not audit the financial statements of
Galion Limited Partnership, Indian Valley I Limited Partnership, Indian Valley
II Limited Partnership, Indian Valley III Limited Partnership, and Newton Hill
Limited Partnership (investees of the Partnership) for the year ended December
31, 1993. These investees' statements of financial position represent total
assets constituting 7% of combined total assets at December 31, 1995 and 1994,
and net losses constituting 8%, 2% and 13% of combined net loss for each of the
three years in the period ended December 31, 1995. The financial statements of
these investees were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to amounts included for
these investees, is based solely on the reports of such 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 and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, such
financial statements present fairly, in all material respects, the combined
financial position of the Local Limited Partnerships in which the Partnership
holds a limited partnership interest as of December 31, 1995 and 1994, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
March 15, 1996
Washington, D. C.
35
<PAGE> 37
Independent Auditors' Report
The Partners
Brunswick Village Limited Partnership
Washington, D.C.
We have audited the accompanying balance sheet of BRUNSWICK VILLAGE
LIMITED PARTNERSHIP, HUD Project No. 031-55075-LDP, as of December 31, 1995,
and the related statements of profit and loss (on HUD Form No. 92410), of
partners' deficiency and of cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of BRUNSWICK VILLAGE
LIMITED PARTNERSHIP as of December 31, 1995, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The accompanying supplementary
information shown on pages 14 to 21 is presented for purposes of additional
analysis and is not a required part of the basic financial statements of the
Partnership. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated, in all material respects, in relation to the basic financial
statements taken as a whole.
Goldenberg Rosenthal Friedlander
January 25, 1996
36
<PAGE> 38
Independent Auditors' Report
The Partners
Brunswick Village Limited Partnership
Washington, D.C.
We have audited the accompanying balance sheet of BRUNSWICK VILLAGE
LIMITED PARTNERSHIP, HUD Project No. 031-55075-LDP, as of December 31, 1994,
and the related statements of profit and loss (on HUD Form No. 92410), of
partners' deficiency and of cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of BRUNSWICK VILLAGE
LIMITED PARTNERSHIP as of December 31, 1994, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
Goldenberg Rosenthal Friedlander
January 23, 1995
37
<PAGE> 39
Independent Auditors' Report
The Partners
Brunswick Village Limited Partnership
Washington, D.C.
We have audited the accompanying statement of financial position of Brunswick
Village Limited Partnership, HUD Project No. 031-55075-LDP, as of December 31,
1993, and the related statements of profit and loss (on HUD Form No. 92410),
partners' equity (deficit), and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the Partnership's management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brunswick Village Limited
Partnership, at December 31, 1993, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Friedlander, Dunn & Company
February 1, 1994
38
<PAGE> 40
Independent Auditor's Report
Partners
Galion Limited Partnership
Reston, VA
We have audited the accompanying statement of financial position of Galion
Limited Partnership, A Limited Partnership, FHA Project No. 042-35068-LDP-SUP,
as of December 31, 1993, and the related statements of profit and loss (on HUD
Form No. 92410), changes in partners' equity (deficit), and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Galion Limited Partnership, A
Limited Partnership, at December 31, 1993, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information, as referred
to in the Table of Contents, is presented for purposes of additional analysis
and is not a required part of the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
Russell, Thompson, Butler & Houston
Mobile, Alabama
January 22, 1994
39
<PAGE> 41
Independent Auditor's Report
Partners
Indian Valley I Limited Partnership -
Reston, VA
We have audited the accompanying statement of financial position of Indian
Valley I Limited Partnership, A Limited Partnership, FHA Project No.
042-44028-LD-SUP, as of December 31, 1993, and the related statements of profit
and loss (on HUD Form No. 92410), changes in partners' equity (deficit), and
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Indian Valley I Limited
Partnership, A Limited Partnership, at December 31, 1993, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information, as referred
to in the Table of Contents, is presented for purposes of additional analysis
and is not a required part of the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
Russell, Thompson, Butler & Houston
Mobile, Alabama
January 22, 1994
40
<PAGE> 42
Independent Auditor's Report
Partners
Indian Valley II Limited Partnership -
Reston, VA
We have audited the accompanying statement of financial position of Indian
Valley II Limited Partnership, A Limited Partnership, FHA Project No.
042-44079-LDP, as of December 31, 1993, and the related statements of profit
and loss (on HUD Form No. 92410), changes in partners' equity (deficit), and
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Indian Valley II Limited
Partnership, A Limited Partnership, at December 31, 1993, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information, as referred
to in the Table of Contents, is presented for purposes of additional analysis
and is not a required part of the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
Russell, Thompson, Butler & Houston
Mobile, Alabama
January 22, 1994
41
<PAGE> 43
Independent Auditor's Report
Partners
Indian Valley III Limited Partnership -
Reston, VA
We have audited the accompanying statement of financial position of Indian
Valley III Limited Partnership, A Limited Partnership, FHA Project No.
042-44164-LDP, as of December 31, 1993, and the related statements of profit
and loss (on HUD Form No. 92410), changes in partners' equity (deficit), and
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Indian Valley III Limited
Partnership, A Limited Partnership, at December 31, 1993, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information, as referred
to in the Table of Contents, is presented for purposes of additional analysis
and is not a required part of the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
Russell, Thompson, Butler & Houston
Mobile, Alabama
January 22, 1994
42
<PAGE> 44
Independent Auditor's Report
Partners
Newton Hill Limited Partnership -
Reston, VA
We have audited the accompanying statement of financial position of Newton Hill
Limited Partnership, A Limited Partnership, FHA Project No. 042-44094-LDP, as
of December 31, 1993, and the related statements of profit and loss (on HUD
Form No. 92410), changes in partners' equity (deficit), and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Newton Hill Limited
Partnership, A Limited Partnership, at December 31, 1993, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information, as referred
to in the Table of Contents, is presented for purposes of additional analysis
and is not a required part of the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
Russell, Thompson, Butler & Houston
Mobile, Alabama
January 22, 1994
43
<PAGE> 45
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 748,359 $ 636,591
Accounts receivable (Note 3) 422,422 178,133
Tenants' security deposits
held in trust funds 469,034 488,208
Prepaid taxes and insurance 167,878 182,013
Deferred finance costs 163,992 183,731
Mortgage escrow deposits (Note 6) 2,870,482 2,721,759
Rental property, net (Notes 2, 5 and 12) 32,305,181 32,495,704
----------- -----------
$ 37,147,348 $ 36,886,139
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses:
Accounts payable (Note 10) $ 763,213 $ 643,215
Accrued real estate taxes 125,523 126,754
Due to management agent (NHPMC) (Note 10) 48,458 52,307
Accrued interest on mortgage notes 14,580 17,907
Due to partners (Note 8) 1,586,491 1,516,486
Accrued interest on partner loans 991,787 775,377
----------- -----------
3,530,052 3,132,046
Tenants' security deposits payable 477,530 500,047
Deferred income 47,914 26,009
Deferred acquisition notes payable (Note 7) 14,683,867 14,683,867
Accrued interest on deferred
acquisition notes (Note 7) 15,363,234 13,983,333
Mortgage notes payable (Note 6) 17,892,400 18,431,172
Partners' deficit (14,847,649) (13,870,335)
----------- -----------
$ 37,147,348 $ 36,886,139
=========== ===========
</TABLE>
See notes to combined financial statements.
44
<PAGE> 46
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Rental income (Note 4) $8,589,996 $ 8,244,550 $ 7,881,505
Interest income 144,838 95,991 56,232
Other income 262,432 294,492 217,299
--------- ---------- ----------
8,997,266 8,635,033 8,155,036
--------- ---------- ----------
EXPENSES:
Administrative expenses 971,059 1,020,348 1,059,097
Operating and maintenance expenses 3,268,140 3,496,289 3,224,496
Management and other services from
related party (Note 10) 583,446 568,801 484,663
Salaries and related benefits to
related party (Note 10) 739,044 703,878 688,863
Depreciation and amortization 1,262,745 1,240,869 1,219,259
Taxes and insurance 1,002,198 988,774 977,941
Financial expenses - primarily interest (Note 6) 510,436 514,575 361,845
Interest on acquisition notes (Note 7) 1,379,901 1,379,286 1,392,190
Other entity expenses 129,923 37,436 747,725
Loss on reduction of carrying value of rental property
(Note 12) - 2,500,000 1,400,000
Annual partnership administrative
fees to General Partner (Note 8) 97,500 97,500 97,500
--------- ---------- ----------
9,944,392 12,547,756 11,653,579
--------- ---------- ----------
NET LOSS $ (947,126) $(3,912,723) $(3,498,543)
========= ========== ==========
</TABLE>
See notes to combined financial statements.
45
<PAGE> 47
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
National
Housing The
Partnership National NHP Other
Realty Fund Housing Investment Limited
III Partnership Partners I Partner Total
----------------- ----------- ---------- ------- -----
<S> <C> <C> <C> <C> <C>
Deficit at
January 1, 1993 $ (5,083,383) $ (968,129) $(359,957) $(183) $ (6,411,652)
Distributions (20,316) (215) (932) - (21,463)
Net loss (3,435,121) (34,985) (28,437) - (3,498,543)
------------ ----------- -------- ---- -----------
Deficit at
December 31, 1993 (8,538,820) (1,003,329) (389,326) (183) (9,931,658)
Distributions (24,527) (259) (1,168) - (25,954)
Net loss (3,864,332) (39,129) (9,262) - (3,912,723)
------------ ------------ -------- ---- -----------
Deficit at
December 31, 1994 (12,427,679) (1,042,717) (399,756) (183) (13,870,335)
Reclassification 23,972 (23,972) - - -
Distributions (28,528) (302) (1,358) - (30,188)
Net loss (936,943) (6,366) (3,817) - (947,126)
------------ ----------- -------- ---- -----------
Deficit at
December 31, 1995 $(13,369,178) $(1,073,357) $(404,931) $(183) $(14,847,649)
=========== ========== ======== ==== ===========
Percentage interest
at December 31, 1993,
1994 and 1995 (A) (B) (C) (D)
=========== ========== ======== ====
</TABLE>
(A) Holds a 94.5% limited partnership interest (98% with respect to
allocation of losses) in nine local limited partnerships and 99%
limited partnership interest in three local limited partnerships.
(B) Holds a 1% general partnership interest in eleven local limited
partnerships and a .99% general partnership interest (1% with respect
to allocation of losses) in Brunswick Village Limited Partnership.
(C) Holds a 4.5% limited partnership interest (1% with respect to
allocation of losses) in nine local limited partnerships.
(D) A former employee of NCHP holds a .01% limited partnership interest
(0% with respect to allocation of losses) in Brunswick Village Limited
Partnership.
See notes to combined financial statements.
46
<PAGE> 48
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Rental receipts $8,421,418 $ 8,120,041 $ 7,604,344
Interest receipts 135,559 80,609 55,823
Other receipts 287,946 275,094 230,258
Administrative expenses paid (367,535) (361,251) (347,096)
Administrative salaries paid (405,924) (401,627) (398,989)
Management fees paid (749,700) (731,656) (643,258)
Computer and accounting fees paid (89,369) (91,668) (95,736)
Utilities paid (1,262,837) (1,386,611) (1,414,439)
Operating and maintenance expenses paid (1,659,768) (1,935,297) (1,527,505)
Operating and maintenance payroll paid (775,432) (755,468) (714,841)
Real estate taxes paid (492,260) (504,797) (505,611)
Payroll taxes paid (108,668) (107,656) (104,532)
Miscellaneous taxes paid (18,306) (22,243) (29,854)
Property insurance paid (208,310) (184,614) (183,735)
Miscellaneous insurance paid (174,904) (144,074) (171,153)
Interest on mortgage notes paid (191,834) (227,531) (260,727)
Interest on partner loans paid to General Partner (10,852) (72,088) (59,892)
Mortgage insurance premium paid (85,974) (88,694) (90,993)
Miscellaneous financial expenses paid (747) (1,095) (2,882)
Payment of partnership administrative fee
to General Partner (145,013) (107,889) (45,913)
Payment of other entity expense (14,520) (4,418) -
---------- ------------ -----------
Decrease (increase) in tenants' security deposits
held in trust fund 19,174 313 (3,660)
(Decrease) increase in tenants' security deposits payable (22,517) 20,319 26,184
---------- ----------- -----------
Net cash provided by operating activities 2,079,627 1,367,699 1,315,793
---------- ----------- -----------
</TABLE>
See notes to combined financial statements.
47
<PAGE> 49
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment purchases $(1,044,889) $ (887,956) $ (431,300)
Payment of deferred costs - 17,873 -
Payments to mortgage escrow deposits (1,539,584) (1,509,139) (1,647,787)
Disbursements from mortgage escrow deposits 1,480,302 1,510,697 1,445,760
Interest earned on mortgage escrow deposits (89,442) (57,456) (25,843)
Interest withdrawn from mortgage escrow deposits - - 23,808
(Increase) decrease in receivable from mortgagee (208,443) 51,974 13,832
---------- ----------- -----------
Net cash used in investing activities (1,402,056) (874,007) (621,530)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal on mortgage notes (538,772) (500,553) (465,613)
Distributions to partners (30,188) (25,954) (21,463)
Payment of deferred costs - - (18,429)
Loans from partners 5,549 8,038 28,619
Repayment of loans from partners in lieu of distributions (2,392) (405) -
---------- ----------- -----------
Net cash used in financing activities (565,803) (518,874) (476,886)
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 111,768 (25,182) 217,377
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 636,591 661,773 444,396
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 748,359 $ 636,591 $ 661,773
========== =========== ===========
</TABLE>
See notes to combined financial statements.
48
<PAGE> 50
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (947,126) $(3,912,723) $(3,498,543)
---------- ---------- ----------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 1,262,745 1,240,869 1,228,977
Loss on reduction of carrying value of rental property - 2,500,000 1,400,000
Mortgagor entity expenses 1,833,545 1,707,124 2,238,153
Decrease (increase) in receivable from tenants, net 7,591 77,695 (30,428)
Decrease (increase) in other receivable 59 (16) 26,502
(Increase) decrease in receivable from FHA subsidy (2,933) 16,220 8,383
Increase in insurance proceeds receivable (39,713) (13,569) (18,510)
(Increase) decrease in interest receivable (850) (9,247) 6,637
Decrease in prepaid taxes and insurance 14,135 11,085 63
Increase (decrease) in accounts payable 88,207 (71,781) 55,991
Decrease in accrued interest on mortgage note (3,327) (2,576) (2,216)
Decrease in accrued real estate taxes (563) (71) (16,896)
Increase (decrease) in deferred income 29,614 4,580 (33,291)
Increase (decrease) in management fee payable 2,506 (6,653) 34,252
Payment of interest on partner loans (10,852) (72,088) (59,892)
Payment of partnership administrative fee to
General Partner (145,013) (107,899) (45,913)
Payment of other entity expense (14,520) (4,418) -
Decrease (increase) in deferred costs 9,465 (9,465) -
Decrease (increase) in tenants' security deposits
held in trust fund 19,174 313 (3,660)
(Decrease) increase in tenants' security deposits payable (22,517) 20,319 26,184
---------- ---------- ----------
Total adjustments 3,026,753 5,280,422 4,814,336
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,079,627 $ 1,367,699 $ 1,315,793
========== ========== ==========
</TABLE>
See notes to combined financial statements.
49
<PAGE> 51
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF PARTNERSHIP ORGANIZATION, BASIS OF COMBINATION, AND
SIGNIFICANT ACCOUNTING POLICIES
Organization
National Housing Partnership Realty Fund III (the Partnership) is a
limited partnership organized under the Maryland Revised Uniform Limited
Partnership Act on May 10, 1985. The Partnership was formed for the purpose of
raising capital by offering and selling limited partnership interests and then
investing in Local Limited Partnerships, each of which either owns and operates
an existing rental housing project or has acquired limited partnership
interests in partnerships which own and operate one or two existing rental
housing projects. All such rental housing projects are financed and/or operated
with one or more forms of rental assistance or financial assistance from the
U.S. Department of Housing and Urban Development (HUD). A substantial portion
of each Local Limited Partnership revenue is received from the housing
assistance agreements discussed in Note 4 below. On June 30, 1985, inception of
operations, the Partnership began raising capital and acquiring interests in
Local Limited Partnerships.
During 1985, the Partnership invested in twelve Local Limited
Partnerships which directly or indirectly own and operate thirteen rental
housing projects. The Partnership acquired 94.5% limited partnership interests
(98% with respect to allocation of losses) in nine Local Limited Partnerships
and a 99% limited partnership interest in one Local Limited Partnership. In
addition, the Partnership acquired 99% interests in two Local Limited
Partnerships, which each own a 99% limited partnership interest in an operating
limited partnership. The operating Partnership holds title to one and two
rental housing properties, respectively. The Partnership's effective interest
in these operating limited partnerships is 98.01%.
Eleven of the rental housing projects were originally organized under
Section 236 of the National Housing Act. The remaining two rental housing
projects were organized under Section 221(d)(3) of the National Housing Act. As
a limited partner, in accordance with the partnership agreements, the
Partnership does not exercise control over the activities of the Local Limited
Partnerships.
Basis of Combination
The combined financial statements include the accounts of the
following twelve Local Limited Partnerships in which the Partnership holds a
limited partnership interest:
Brunswick Village Limited Partnership;
Edmond Estates Limited Partnership;
Elden Limited Partnership;
Galion Limited Partnership;
Indian Valley I Limited Partnership;
Indian Valley II Limited Partnership;
Indian Valley III Limited Partnership;
Kimberly Associates Limited Partnership;
(a)Meadowood Townhouses I Limited Partnership;
(b)Meadowood Townhouses III Limited Partnership;
Newton Hill Limited Partnership; and
Woodmark Limited Partnership.
(a)Owns a 99% limited partnership interest in two operating limited
partnerships.
(b)Owns a 99% limited partnership interest in one operating limited
partnership.
50
<PAGE> 52
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Significant Accounting Policies
The financial statements of the Local Limited Partnerships are
prepared on the accrual basis of accounting. For eleven of the Local Limited
Partnerships, depreciation of the buildings and improvements is computed using
the straight-line method, assuming a 50-year life from the date of initial
occupancy, whereas, for one of the Local Limited Partnerships, depreciation of
the buildings and improvements is computed using the straight-line method,
assuming a 30-year life and a 30% salvage value. Depreciation of equipment is
calculated using accelerated methods over estimated useful lives of 5 to 27
years. Cash distributions are limited by the Regulatory Agreements between the
rental projects and HUD to the extent of surplus cash as defined by HUD.
Undistributed amounts are cumulative and may be distributed in subsequent years
if future operations provide surplus cash in excess of current requirements.
Deferred finance costs are amortized over the appropriate loan period on a
straight-line basis. Organization costs are amortized over a 60 month period on
a straight-line basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
For purposes of the statements of cash flows, the Local Limited
Partnerships consider all highly liquid debt instruments purchased with initial
maturities of three months or less to be cash equivalents.
2. CHANGE IN ESTIMATE
During 1993, depreciation of the building for eleven of the Local
Limited Partnerships has been computed using the straight-line method, assuming
a 50-year life from the date of initial occupancy after construction or
substantial rehabilitation of the building. Depreciation of the building in
prior years was computed using the straight-line method, assuming a 30-year
life and 30% salvage value. This change in the estimate of the life and salvage
value of the building increased the combined net loss in 1993 by $31,541.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1994
---- ----
<S> <C> <C>
Due from tenants $ 94,965 $108,913
Due from mortgagee 257,263 48,820
Interest 25,352 24,502
Insurance proceeds 71,792 32,079
Other 11,155 8,281
------- -------
460,527 222,595
Less allowance for doubtful accounts (38,105) (44,462)
------- -------
Net accounts receivable $422,422 $178,133
======= =======
</TABLE>
51
<PAGE> 53
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
4. HOUSING ASSISTANCE AGREEMENTS
The Federal Housing Administration (FHA) has contracted with eleven
rental projects under Section 8 of Title II of the Housing and Community
Development Act of 1974, to make housing assistance payments to the Partnership
on behalf of qualified tenants. The terms of the agreements are five years with
one or two five-year renewal options. The agreements expire at various dates
through 1998. Ten Local Limited Partnerships have agreements in effect during
1996. The Local Limited Partnerships received a total of $1,999,593, $1,778,617
and $1,159,028 in the form of housing assistance payments during 1995, 1994 and
1993, respectively, which is included in "Rental income" on the combined
statements of operations.
5. RENTAL PROPERTY
Rental property consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1995 1994
---- ----
<S> <C> <C>
Land $ 2,992,600 $ 2,992,600
Building and improvements 36,808,530 36,798,530
Furniture and equipment 5,248,039 4,196,091
----------- -----------
45,049,169 43,987,221
Less accumulated depreciation (12,743,988) (11,491,517)
----------- -----------
Net rental property $ 32,305,181 $ 32,495,704
=========== ===========
</TABLE>
6. MORTGAGE NOTES PAYABLE
The mortgage notes payable are insured by FHA and collateralized by
first deeds of trust on the rental properties. The notes bear interest at rates
ranging from 3% to 8.5% per annum. FHA, under an interest reduction contract
with the eleven Section 236 properties, makes subsidy payments directly to the
mortgage lender reducing the monthly principal and interest payments of the
project owner to an effective interest rate of 1% over the 40-year terms of the
notes. The liability of the Local Limited Partnerships under the mortgage notes
is limited to the underlying value of the real estate collateral, plus other
amounts deposited with the lenders.
Under agreements with the mortgage lenders and FHA, the Local Limited
Partnerships are required to make monthly escrow deposits for taxes, insurance
and a reserve for the replacement of project assets, and are subject to
restrictions as to operating policies, rental charges, operating expenditures
and distributions to partners.
52
<PAGE> 54
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Approximate maturities of mortgage notes payable for the next five
years are as follows:
<TABLE>
<S> <C>
1996 $578,000
1997 $622,000
1998 $669,000
1999 $720,000
2000 $775,000
</TABLE>
7. DEFERRED ACQUISITION NOTES PAYABLE
The deferred acquisition notes bear simple interest at rates of 9% or
10% per annum. These notes are nonrecourse and are collateralized by
partnership interests in all of the Local Limited Partnerships. Principal and
accrued interest are payable upon the earlier of the sale, transfer, or
refinancing of the project or maturity dates ranging from 1996 to 1999. The
notes may be extended for periods ranging from three to five years. The notes
may be prepaid in whole or in part at any time without penalty.
In connection with the acquisition of the Meadowood properties, the
two Meadowood Local Limited Partnerships have granted the former owners an
option to repurchase the properties at the due date of the deferred acquisition
notes, at a price equal to the greater of the fair market value of the projects
at that date or the combined amount of the unpaid principal and accrued
interest on the deferred acquisition notes.
8. PAYABLES DUE PARTNERS
The Local Limited Partnerships accrued annual partnership
administration fees payable to the General Partner, The National Housing
Partnership (NHP), of $97,500 during 1995, 1994 and 1993, respectively.
Payments of these fees are made to NHP without interest from surplus cash
available for distribution to partners pursuant to HUD regulations. During
1995, 1994 and 1993, the Local Limited Partnerships paid $145,013, $107,889 and
$45,913 for such fees, respectively. The balances owed to NHP for these fees
were $377,445 and $424,958 at December 31, 1995 and 1994, respectively.
During 1995 and 1994, NHP advanced $120,952 and $29,629 to ten of the
Local Limited Partnerships for expenses incurred relating to potential sales or
refinancing under the LIHPRHA program. During 1995 and 1994, loans of $2,392
and $1,800, respectively, were repaid by four and one Local Limited
Partnerships. The balance owed to NHP by Local Limited Partnerships at December
31, 1995 and 1994, was $674,766 and $556,206, respectively. Interest is charged
at a rate equal to the Chase Manhattan Bank prime interest rate plus 2%.
During 1994, the Partnership paid expenses of $10,641 on behalf of
four Local Limited Partnerships. At December 31, 1995 and 1994, the amount owed
the Partnership totaled $534,280.
During 1993, the Local Limited Partnerships revised their estimate of
interest to be paid due to a trend in government initiatives providing economic
incentives to owners of subsidized multifamily housing, which may someday
result in refinancing opportunities and increased allowable distributions,
which would provide cash to pay interest. Accordingly, accrued interest of
$736,774 owed on the above loans was recorded. Of this amount, $606,477 relates
to periods prior to 1993 and $130,297 relates to 1993. During 1993, $59,892 of
interest relating to prior years
53
<PAGE> 55
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
was repaid to NHP. During 1995 and 1994, respectively, accrued interest of
$226,220 and $164,669 was recorded, and $10,852 and $72,088 of interest
relating to prior years was repaid to NHP.
All advances and accumulated interest will be paid in conformity with
HUD and/or other regulatory requirements and applicable partnership agreements.
9. FEDERAL AND STATE INCOME TAXES
The Local Limited Partnerships are not taxed on their income. The
partners are taxed in their individual capacities upon their distributive share
of the Local Limited Partnerships' taxable income and are allowed the benefits
to be derived from offsetting their distributive share of the tax losses
against taxable income from other sources subject to passive loss rule
limitations. The taxable income or loss differs from amounts included in the
statement of operations primarily because of different methods used in
determining depreciation expense for tax purposes. The tax loss is allocated to
the partner groups in accordance with Section 704(b) of the Internal Revenue
Code and therefore is not necessarily proportionate to the percentage interest
owned.
For Federal income tax purposes, the Local Limited Partnerships
compute depreciation of the buildings and improvements using the Accelerated
Cost Recovery System (ACRS) and the Modified Accelerated Cost Recovery System
(MACRS), while for financial statements purposes, depreciation is computed
using the straight-line method, assuming a 30-year life and a 30% salvage value
or a 50-year life. Rent received in advance is included as income in
determining the taxable income or loss for Federal income tax purposes; while
for financial statement purposes it is shown as a liability. In addition,
interest expense on the acquisition notes payable by the Local Limited
Partnerships is computed for Federal income tax purposes using the economic
accrual method; while for financial statement purposes, interest is computed
using a simple interest rate. Other differences result from the allocation of
tax losses in accordance with Section 704(b) of the Internal Revenue Code.
A reconciliation follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net loss per financial statements $ (947,126) $(3,912,723) $(3,498,543)
Depreciation and amortization (1,073,733) (1,043,012) (997,875)
Interest on acquisition notes payable (138,644) (67,500) (95,889)
Loss on reduction of carrying value of rental property - 2,500,000 1,400,000
Accrued interest on partner loans 212,738 16,166 653,802
Other 149,356 257,263 91,821
---------- ---------- ----------
Loss per tax returns $(1,797,409) $(2,249,806) $(2,446,684)
========== ========== ==========
</TABLE>
54
<PAGE> 56
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
10. RELATED PARTY TRANSACTIONS
The General Partner of the Partnership is NHP. National Corporation
for Housing Partnerships (NCHP) is the sole general partner of NHP. NHP is the
sole general partner of the Local Limited Partnerships. NHP is also the sole
general partner of NHP Investment Partners I. NHP Investment Partners I holds
4.5% limited partnership interest (1% with respect to losses) in nine of the
Local Limited Partnerships. NHP Investment Partners I held a 1% general
partnership interest and a 98% limited partnership interest in these Local
Limited Partnerships prior to admittance of the Partnership. A former employee
of NCHP (a New Jersey resident) holds a 0.01% limited partnership interest in
one Local Limited Partnership to meet that state's legal requirements.
An affiliate of the General Partner, NHP Management Company (NHPMC),
is the project management agent for the projects operated by four of the Local
Limited Partnerships. NHPMC and other affiliates of NCHP earned $583,446,
$568,801 and $484,663 for management fees and other services provided to the
Local Limited Partnerships during 1995, 1994 and 1993, respectively. At
December 31, 1995 and 1994, amounts due NHPMC and unpaid by the Local Limited
Partnerships amounted to $48,458 and $52,307, respectively.
Personnel working at the project sites which are managed by NHPMC are
NCHP employees, and therefore the projects reimburse NCHP for the actual
salaries and related benefits. Total reimbursements earned for salaries and
benefits for the years ended December 31, 1995, 1994 and 1993, were
approximately $739,000, $704,000 and $689,000, respectively. At December 31,
1995 and 1994, accounts payable include $1,627 and $32,035, respectively, due
to NCHP.
11. FUTURE OPERATIONS AND CASH FLOWS
Two of the Local Limited Partnerships' continued existence as a going
concern is dependent on maintaining a positive cash flow from operations
sufficient to cover debt service and required capital expenditures or obtaining
additional fundings from partners if necessary positive cash flows are not
maintained. NHP is under no obligation to provide fundings in the future.
NHP's intentions are to continue to manage the properties prudently
so that they can maximize their cash flow. Management believes that the
properties are capable of generating cash sufficient to sustain future
operations and meet their debt obligations.
The total assets, deficit, revenues, and net loss of Meadowoods
Townhouses I and III represent 11%, 43%, 3% and 21%, respectively, of the
applicable amounts included in the accompanying combined financial statements
as of December 31, 1995 and for the year then ended.
12. LOSS ON REDUCTION OF CARRYING VALUE OF RENTAL PROPERTY
For operating real estate property, generally accepted accounting
principles (GAAP) require that the Local Limited Partnership evaluate whether
it is probable that the estimated undiscounted future cash flows of its
property, plus cash projected to be received upon an assumed sale of the
property (Net Realizable Value) is less than the net carrying value of the
property. If such a shortfall exists, is material and is deemed to be other
than temporary in nature, then a write-down equal to the shortfall would be
warranted. The Local Limited Partnership performs such evaluations on an
ongoing basis.
55
<PAGE> 57
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
During 1994 and 1993, using a methodology consistent with generally
accepted accounting principles (GAAP), two of the Local Limited Partnerships
(one in each year) determined that the book value of the rental property
exceeded the rental property's estimated net realizable value. As required by
GAAP, the Local Limited Partnerships have recorded an adjustment of $2,500,000
and $1,400,000 to reduce the carrying value of the rental property to its
estimated net realizable value for the years ended December 31, 1994 and 1993,
respectively.
Additionally, regardless of whether a write-down of an individual
property has been recorded or not, the carrying value of each of these
properties may still exceed their fair market value as of December 31, 1995.
Should a Local Limited Partnership be forced to dispose of any of its
properties, it could incur a loss.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting For The
Impairment of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of"
(the "Statement") effective for financial statements for fiscal years beginning
after December 15, 1995. Adoption of this Statement during the year ending
December 31, 1996 will require an impairment loss to be recognized if the sum
of estimated future cash flows (undiscounted and without interest charges) is
less than the carrying amount of rental property. The impairment loss would be
the amount by which the carrying value exceeds the fair value of the rental
property. If rental property is to be disposed of, fair value is calculated net
of costs to sell. The Limited Partnerships have not estimated the effect of
implementing the Statement. Adoption of the Statement for the year ending
December 31, 1996 could have a significant impact (noncash) on the results of
operations and financial position.
13. NON-CASH INVESTING ACTIVITY
During 1995 and 1994, six and five of the Local Limited Partnerships
incurred costs of $72,257 and $56,498, respectively, for additions to rental
property which are included in accounts payable.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, when it is practicable to estimate that value. The mortgage notes
payable are insured by the FHA and are secured by the rental property. The
operations generated by the rental property are subject to various government
rules, regulations and restrictions which make it impracticable to obtain the
information to estimate the fair value of the mortgage notes and the partner
loans and related accrued interest. For the deferred acquisition notes payable
and related accrued interest, a reasonable estimate of fair value could not be
made without incurring excessive costs. The carrying amount of other assets and
liabilities reported on the statement of financial position that require such
disclosure approximates fair value.
56
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 164,374
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 164,374
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 164,374
<CURRENT-LIABILITIES> 489,199
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (324,825)
<TOTAL-LIABILITY-AND-EQUITY> 164,374
<SALES> 0
<TOTAL-REVENUES> 34,585
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 135,432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (100,847)
<INCOME-TAX> 0
<INCOME-CONTINUING> (100,847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,847)
<EPS-PRIMARY> (9)
<EPS-DILUTED> (9)
</TABLE>
