<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
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<S> <C>
For the fiscal year ended December 31, 1997............... Commission file number 0-14457
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</TABLE>
NATIONAL HOUSING PARTNERSHIP REALTY FUND III (A MARYLAND LIMITED PARTNERSHIP)
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 52-1394972
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9200 KEYSTONE CROSSING, SUITE 500 46240
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INDIANAPOLIS, INDIANA (Zip Code)
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(Address of principal executive offices)
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<S> <C>
Registrant's telephone number, including area code: (317) 817-7500
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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
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</TABLE>
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
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The registrant is a partnership. Accordingly, no voting stock is held by
non-affiliates of the registrant.
Documents incorporated by reference. NONE
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NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
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Page
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<S> <C> <C>
Item 1. Business 2
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
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Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 29
PART III
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Item 10. Directors and Executive Officers of the Registrant 30
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial
Owners and Management 33
Item 13. Certain Relationships and Related Transactions 33
PART IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 34
</TABLE>
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PART I
INTRODUCTION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
information included in this Report and other Partnership filings (collectively
"SEC Filings") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, including statements regarding the effect
of government regulations. Actual results may differ materially from those
described in the forward looking statements and will be affected by a variety
of factors including national and local economic conditions, the general level
of interest rates, terms of governmental regulations that affect the
Partnership and interpretations of those regulations, the competitive
environment in which the properties owned by the Local Limited Partnerships
operate, the availability of working capital and dispositions of properties
owned by the Partnership.
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.
On June 3, 1997, Apartment Investment and Management Company, a
Maryland corporation ("AIMCO" and, together with its subsidiaries and other
controlled entities, the "AIMCO Group"), acquired all of the issued and
outstanding capital stock of NHP Partners, Inc., a Delaware corporation ("NHP
Partners"), and the AIMCO Group acquired all of the outstanding interests in
NHP Partners Two Limited Partnership, a Delaware limited partnership ("NHP
Partners Two"). The acquisitions were made pursuant to a Real Estate
Acquisition Agreement, dated as of May 22, 1997 (the "Agreement"), by and among
AIMCO, AIMCO Properties, L.P., a Delaware limited partnership (the "Operating
Partnership"), Demeter Holdings Corporation, a Massachusetts corporation
("Demeter"), Phemus Corporation, a Massachusetts corporation ("Phemus"),
Capricorn Investors, L.P., a Delaware limited partnership ("Capricorn"), J.
Roderick Heller, III and NHP Partners Two LLC, a Delaware limited liability
company ("NHP Partners Two LLC"). NHP Partners owns all of the outstanding
capital stock of the National Corporation for Housing Partnerships, a District
of Columbia corporation ("NCHP"), which is the general partner of The National
Housing Partnership, a District of Columbia limited partnership ("NHP").
Together, NCHP and NHP Partners Two own all of the outstanding partnership
interests in NHP. NHP is the general partner of National Housing Partnership
Realty Fund III (a Maryland Limited Partnership) (the "Registrant" or
"Partnership"). As a result of these transactions, the AIMCO Group has acquired
control of the general partner of the Registrant and, therefore, may be deemed
to have acquired control of the Registrant.
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.
In October 1997, NHP received a subpoena from the Inspector General of
the United States Department of Housing and Urban Development ("HUD")
requesting documents relating to any arrangement whereby NHP or any of its
affiliates provides or has provided compensation to owners of HUD multifamily
projects in exchange for or in connection with property management of a HUD
project. AIMCO believes that other owners and managers of HUD projects have
received similar subpoenas. Documents relating to certain of NHP's acquisitions
of property management rights for HUD projects may be responsive to subpoenas.
AIMCO and NHP are in the process of complying with the subpoena and have
provided certain documents to the Inspector General, without conceding that
they are responsive to the subpoena. AIMCO believes that NHP's operations are
in compliance, in all material respects, with all laws, rules and regulations
relating to HUD-assisted or HUD-insured properties. Effective February 13,
1998, counsel for NHP and the U.S. Attorney for the Northern District of
California entered into a Tolling agreement related to certain civil claims the
government may have against NHP. Although no action has been initiated against
NHP or AIMCO or, to AIMCO's knowledge, any owner of a HUD property managed by
NHP or AIMCO, if any such action is taken in the future, it could ultimately
affect existing arrangements with respect to HUD projects or otherwise have a
material adverse affect on the results of operations of AIMCO.
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
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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.
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 Occupancy
Financed, Insured for Rental Percentage for the
Property Name, Location and Number and Subsidized Assistance Under Year Ended
Partnership Name of Units Under Section 8 (C) December 31, 1997
------------------------------------- -------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Brunswick Village 110 (B) 72 99%
Trenton, New Jersey
(Brunswick Village
Limited Partnership)
Edmond Estates 120 (A) 56 100%
Phoenix City, Alabama
(Edmond Estates
Limited Partnership)
Elden Terrace (D) (D) (D) (D)
Herndon, Virginia
(Elden Limited Partnership)
Galion East 60 (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)
</TABLE>
3
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<TABLE>
<CAPTION>
Units Authorized Occupancy
Financed, Insured for Rental Percentage for the
Property Name, Location and Number and Subsidized Assistance Under Year Ended
Partnership Name of Units Under Section 8 (C) December 31, 1997
------------------------------------- -------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Indian Valley III 98 (A) 39 99%
Kent, Ohio
(Indian Valley III
Limited Partnership)
Cherry Branch Townhomes 172 (A) 20 97%
Laurel, Maryland
(Kimberly Associates
Limited Partnership)
Meadowood Apartments I and II (D) (D) (D) (D)
Edgewood, Maryland
(Meadowood Townhouses I
Limited Partnership)
Meadowood Apartments 283 (A) 164 96%
Associates III
Edgewood, Maryland
(Meadowood Townhouses III
Limited Partnership)
Newton Hill 40 (A) 16 97%
Akron, Ohio
(Newton Hill
Limited Partnership)
Woodmark 150 (A) 0 97%
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.
(D) Property was sold during year ended December 31, 1997.
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.
All of the units (503 in total) receiving rent subsidies from Section
8 have their contracts expiring during the year ending December 31, 1998.
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Contracts for 285 of these units expire on or prior to September 30,
1998, and Congress has passed legislation which will provide a one-year renewal
contract to replace those contracts. Contracts covering the remaining 218 units
expire in October and November, 1998. It is uncertain whether the agreements
will be renewed, and if so, on what terms.
For the past several years, various proposals have been advanced by
the United States Department of Housing and Urban Development ("HUD"), Congress
and others proposing the restructuring of HUD's rental assistance programs
under Section 8 of the United States Housing Act of 1937 ("Section 8"), under
which 503 units, 41 percent of the total units owned by the properties in which
the Partnership has invested, receive rental subsidies. On October 27, 1997,
the President signed into law the Multifamily Assisted Housing Reform and
Affordability Act of 1997 (the "1997 Housing Act"). Under the 1997 Housing Act,
certain properties assisted under Section 8, with rents above market levels and
financed with HUD-insured mortgage loans, will be restructured by adjusting
subsidized rents to market levels, thereby potentially reducing rent subsidies,
and lowering required debt service costs as needed to ensure financial
viability at the reduced rents and rent subsidies. The 1997 Housing Act retains
project-based subsidies for most properties (properties in rental markets with
limited supply, properties serving the elderly, and certain other properties).
The 1997 Housing Act phases out project-based subsidies on selected properties
servicing families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy. Under a tenant-based
system, rent vouchers would be issued to qualified tenants who then could elect
to reside at properties of their choice, provided such tenants have the
financial ability to pay the difference between the selected properties'
monthly rent and the value of the vouchers, which would be established based on
HUD's regulated fair market rent for the relevant geographical areas. The 1997
Housing Act provides that properties will begin the restructuring process in
federal fiscal year 1999 (beginning October 1, 1998), and that HUD will issue
final regulations implementing 1997 Housing Act on or before October 27, 1998.
With respect to Housing Assistance Payments Contracts ("HAP Contracts")
expiring before October 1, 1998, Congress has elected to renew them for
one-year terms, generally at existing rents, so long as the properties remain
in compliance with the HAP Contracts. While the Partnership does not expect the
provisions of the 1997 Housing Act to result in a significant number of tenants
relocating from properties owned by the Local Limited Partnerships, there can
be no assurance that the provisions will not significantly affect the
operations of the properties of the Local Limited Partnerships. Furthermore,
there can be no assurance that other changes in Federal housing subsidy policy
will not occur. Any such changes could have an adverse effect on the operation
of the Partnership.
Operations at all of the properties were generally satisfactory during
the period.
National Corporation for Housing Partnerships was a significant
participant in the drafting and passage of the Low Income Housing Preservation
and Resident Homeownership Act of 1990 ("LIHPRHA"). LIHPRHA created 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. The
appropriation for the Department of Housing and Urban Development (which
administers LIHPRHA) for the 1997 fiscal year was insufficient to meet program
demand. As part of this appropriation, Congress directed HUD to suspend
processing of any property which had not received approval of a sale or
refinancing under LIHPRHA as of the date of enactment of the appropriation,
which occurred on September 26, 1996. Brunswick Village and Meadowood
Apartments I, II and III all received approval to be sold under the program
within the requisite time frame. During the six months ended June 30, 1997,
funds were allocated for the sale of Meadowood Apartments I and II and on July
15, 1997, final settlement occurred, as further discussed below. However, funds
were not allocated for the sale of Brunswick Village and Meadowood Apartments
III, which was required so that these transactions could close. Congress did
not allocate any funds for LIHPRHA as part of the 1998 fiscal year Federal
budget and the General Partner does not expect LIHPRHA to receive any funding
from Congress in the future. The General Partner is currently investigating
other sale or refinancing opportunities for these properties, but there can be
no assurance that these efforts will be successful. If unsuccessful, this could
have a substantially negative impact on the Partnership's future available
capital resources.
On May 2, 1996, Meadowood Townhouses I Limited Partnership entered
into an Agreement of Sale with Community Preservation and Development
Corporation, to sell its two properties, Meadowood Apartments I and II pursuant
to the terms of LIHPRHA. The purchase price was based on the properties'
Transfer Preservation Value, as approved by HUD. During 1997 funding was
approved for the sale of Meadowood Apartments I and II, and final
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settlement occurred on July 15, 1997. Total LIHPRHA grant money received for
the properties was $3,336,387, comprised of $1,558,252 for Meadowood Apartments
I and $1,778,135 for Meadowood Apartments II. The holders of the deferred
acquisition notes were paid a portion of the LIHPRHA grant money in full
satisfaction of amounts due on their notes. Any unpaid balances were forgiven.
Meadowood Townhouses I Limited Partnership's gain from this transaction has
been recorded in the combined statements of operations for the year ended
December 31, 1997, as an extraordinary item - gain on extinguishment of debt of
$3,232,683. The Partnership's share of the gain from these sales, in excess of
cumulative losses not taken, in the amount of $764,234 has been recorded in the
accompanying statements of operations for the year ended December 31, 1997, as
an extraordinary item - gain on extinguishment of debt. During 1997, the
Partnership received net proceeds from the sale of $677,126, and at December
31, 1997, the Partnership's investment in the Local Limited Partnership was
$87,108. The sale generated taxable income to the Partnership's investors. The
specific impact of the tax consequences is dependent upon each specific
partner's individual tax situation.
During 1997, Elden Limited Partnership entered into an Agreement of
Sale with Southport Financial Services, Inc., to sell its property, Elden
Terrace Apartments. The purchase price for the sale was $5,746,892, which is
above the mortgage note of $1,866,667. In addition, Southport Financial
Services, Inc., assumed the deferred acquisition note and accrued interest
totaling $3,505,225 due to the note holders. Final settlement occurred on July
31, 1997. Elden Limited Partnership's gain of $1,093,975 has been recorded in
the combined statements of operations for the year ended December 31, 1997, as
a gain on disposal of rental property. The Partnership received net proceeds
from the sale of $348,862. The Partnership's share of the gain from this
transaction has been recorded in the accompanying statements of operations for
the year ended December 31, 1997, as the Partnership's share of profits from
Local Limited Partnerships. The sale generated taxable income to the
Partnership's investors. The specific impact of the tax consequences is
dependent upon each specific partner's individual tax situation.
As discussed above, the Partnership received $1,025,988 from the sales
of Meadowoods Apartments I and II and Elden Terrace Apartments. During 1997,
the Partnership paid $619,985 to the General Partner for administrative and
reporting fees using the cash proceeds. The remaining procedds of $406,003 will
be allocated in the manner required in the Partnership Agreement as discussed
in Note 6 to the Partnership's 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 related to Meadowood Townhouses III
reached final maturity in January 1998. All other notes will reach final
maturity during 1999. These notes are secured by both the Partnership's and the
General Partner's interests in the Local Limited Partnerships. In the event of
a default on the notes, the note holders would be able to assume the General
Partner's and the Partnership's interests in the Local Limited Partnerships.
There can be no assurance that the General Partner will be successful in
extending or restructuring the deferred acquisition notes as they mature.
On May 2, 1996, the Meadowood Townhouses III Limited Partnership
entered into Agreement of Sale with Community Preservation and Development
Corporation, pursuant to the terms of the LIHPRHA. The purchase price was to be
based on the project's Transfer Preservation Value, as approved by HUD.
Settlement was pending Congressional appropriation of LIHPRHA funds to HUD.
This appropriation did not transpire and therefore this sale opportunity
expired. In connection with the expired sale opportunity, a Forebearance
Agreement was executed, which extended the maturity date of the deferred
acquisition note in the amount of $4,995,980 including accrued interest at
December 31, 1997, made by the Meadowood Townhouses III Limited Partnership.
Under the terms of this agreement, the initial period of forebearance expired
on April 30, 1997. Such funding was not approved by April 30, 1997 and a
further extension of forebearance until January 2, 1998 was granted to permit
the General Partner to submit an alternative plan for payment of the note to
the note holders, and to negotiate and close such plan. The General Partner is
currently attempting to negotiate an extension of the due date of the deferred
acquisition note. If such an extension is not negotiated, the Partnership shall
cause title to the Partnership's interest in the Local Limited Partnership to
be conveyed to the note holders. There can be no assurance that the efforts
will be successful.
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
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encumbrance and acquisition notes and related accrued interest encumbrances on
each property for each of the Local Limited Partnerships as of December 31,
1997.
<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% $ 580,592 $ 640,592 $2,176,132
Edmond Estates, L.P. 94.5% 416,038 1,002,369 2,125,219
Elden, L.P. (A) 94.5% 876,011 - -
Galion, L.P. 94.5% 282,933 519,964 1,047,346
Indian Valley I, II and III, L.P.s 94.5% 1,456,232 3,371,133 5,353,988
Kimberly Associates, L.P. 94.5% 902,469 1,928,685 3,046,387
Meadowoods Townhouses
I (A) and III, L.P. 99.0% 2,998,424 2,929,314 4,995,980
Newton Hill, L.P. 94.5% 210,227 437,871 714,306
Woodmark, L.P. 94.5% 835,732 1,476,928 3,375,088
</TABLE>
(A) Property was sold during year ended December 31, 1997.
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, 1997, there were 927 registered holders of
limited partnership interests (in addition to 1133 Fifteenth
Street Three Associates - See Item 1).
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(c) No cash dividends or distributions have been declared from the
inception of the Partnership through December 31, 1997.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Share of profit (losses) from
Local Limited Partnership (A) $ 348,862 $ - $ - $ (13,066) $ (47,504)
Other revenue and expenses:
Interest income 11,093 8,073 6,057 7,185 32,783
Loss on investment in Local
Limited Partnerships - - - (10,641) (527,829)
Distributions in excess of investment
in Local Limited Partnerships 32,008 18,362 28,528 24,527 23,846
Partnership operating expenses (139,416) (133,660) (135,432) (139,684) (126,611)
---------- ---------- ---------- ---------- ----------
Net profit (loss) before extraordinary
item 252,547 (107,225) (100,847) (131,679) (645,315)
Extraordinary item - share of gain on
extinguishment of debt 764,234 - - - -
---------- ---------- ---------- ---------- ----------
Net profit (loss) $ 1,016,781 $ (107,225) $ (100,847) $ (131,679) $ (645,315)
========== ========== ========== ========== ==========
Profit (loss) per unit of limited
partnership interest based on units
outstanding during the period $ 87 $ (9) $ (9) $ (11) $ (56)
========== ========== ========== ========== ==========
Total assets, at December 31 $ 625,621 $ 140,782 $ 164,374 $ 176,583 $ 215,240
========== ========== ========== ========== ==========
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 1997, 1996, 1995, 1994
and 1993, $1,852,645, $1,690,487, $936,943, $3,803,923 and $2,859,089,
respectively, of losses from ten, eleven, twelve, twelve and eleven of
the Local Limited Partnerships have not been recognized by the
Partnership. During 1996, the Partnership's share of profits in Elden
Limited Partnership was $15,125 which was offset against prior year
losses not taken. As a result of the sales during 1997, $2,384,156 in
shares of profits and extraordinary gains from the extinguishment of
debt were offset against prior years losses not taken.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
information included in this Report and other Partnership filings (collectively
"SEC Filings") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, including statements regarding the effect
of government regulations. Actual results
8
<PAGE> 10
may differ materially from those described in the forward looking statements
and will be affected by a variety of factors including national and local
economic conditions, the general level of interest rates, terms of governmental
regulations that affect the Partnership and interpretations of those
regulations, the competitive environment in which the properties owned by the
Local Limited Partnerships operate, the availability of working capital and
dispositions of properties owned by the Partnership.
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.
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 related to Meadowood Townhouses III
Limited Partnership as discussed below, reached final maturity in January 1998.
All other notes will reach final maturity during 1999. These notes are secured
by both the Partnership's and the General Partner's interests in the Local
Limited Partnerships. In the event of a default on the notes, the note holders
would be able to assume the General Partner's and the Partnership's interests
in the Local Limited Partnerships. There can be no assurance that the General
Partner will be successful in extending or restructuring the deferred
acquisition notes as they mature.
On May 2, 1996, the Meadowood Townhouses III Limited Partnership
entered into Agreement of Sale with Community Preservation and Development
Corporation, pursuant to the terms of LIHPRHA. The purchase price was to be
based on the project's Transfer Preservation Value, as approved by HUD.
Settlement was pending Congressional appropriation of LIHPRHA funds to HUD.
This appropriation did not transpire and therefore this sale opportunity
expired. In connection with the expired sale opportunity, a Forebearance
Agreement was executed, which extended the maturity date of the deferred
acquisition note in the amount of $4,995,980 including accrued interest at
December 31, 1997, made by the Meadowood Townhouses III Limited Partnership.
Under the terms of this agreement, the initial period of forebearance expired
on April 30, 1997. Such funding was not approved by April 30, 1997 and a
further extension of forebearance until January 2, 1998 was granted to permit
the General Partner to submit an alternative plan to the note holders, and to
negotiate and close such plan. The General Partner is currently attempting to
negotiate an extension of the due date of the deferred acquisition note. If
such an extension is not negotiated, the Partnership shall cause title to the
Partnership's interest in the Local Limited Partnership to be conveyed to the
note holders. There can be no assurance that the efforts will be successful.
Also on May 2, 1996, Meadowood Townhouses I Limited Partnership
entered into an Agreement of Sale with Community Preservation and Development
Corporation, to sell its two properties, Meadowood Apartments I and II pursuant
to the terms of LIHPRHA. The purchase price was based on the properties'
Transfer Preservation Value, as approved by HUD. During 1997 funding was
approved for the sale of Meadowood Apartments I and II, and final settlement
occurred on July 15, 1997. Total LIHPRHA grant money received for the
properties was $3,336,387, comprised of $1,558,252 for Meadowoods Apartments I
and $1,778,135 for Meadowood Apartments II. The holders of the deferred
acquisition notes were paid a portion of the LIHPRHA grant money in full
satisfaction of amounts due on their notes. Any unpaid balances were forgiven.
Meadowood Townhouses I Limited Partnership's gain from this transaction has
been recorded in the combined statements of operations for the year ended
December 31, 1997 as an extraordinary item - gain on extinguishment of debt of
$3,232,683. The Partnership's share of the gain from these sales, in excess of
cumulative losses not taken, in the amount of $764,234 has been recorded in the
accompanying statements of operations for the year ended December 31, 1997 as
an extraordinary item - gain on extinguishment of debt. During 1997, the
Partnership received net proceeds from the sale of $677,126 and at December 31,
1997, the Partnership's investment in the Local Limited Partnership was
$87,108. The sale generated taxable income to the Partnership's investors. The
specific impact of the tax consequences is dependent upon each specific
partner's individual tax situation.
9
<PAGE> 11
During 1997, Elden Limited Partnership entered into an Agreement of
Sale with Southport Financial Services, Inc., to sell its property, Elden
Terrace Apartments. The purchase price for the sale was $5,746,892, which is
above the mortgage note of $1,866,667. In addition, Southport Financial
Services, Inc., assumed the deferred acquisition note and accrued interest
totaling $3,505,225 due to the note holders. Final settlement occurred on July
31, 1997. Elden Limited Partnership's gain of $1,093,975 has been recorded in
the combined statements of operations for the year ended December 31, 1997, as
a gain on disposal of rental property. The Partnership received net proceeds
from the sale of $348,862. The Partnership's share of the gain from this
transaction has been recorded in the accompanying statements of operations for
the year ended December 31, 1997, as the Partnership's share of profits from
Local Limited Partnerships. The sale generated taxable income to the
Partnership's investors. The specific impact of the tax consequences is
dependent upon each specific partner's individual tax situation.
As discussed above, the Partnership received $1,025,988 from the sales
of Meadowood Apartments I and II and Elden Terrace Apartments. During 1997,
the Partnership paid $619,985 to the General Partner for administrative and
reporting fees using the cash proceeds. The remaining proceeds of $406,003 will
be allocated in the manner required in the Partnership Agreement as discussed
in Note 6 of the Partnership's financial statements.
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, the
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 $15,698, $18,362 and $28,528
were received from three, two and two Local Limited Partnerships during the
years ended December 31, 1997, 1996 and 1995, respectively. The receipt of
distributions in future years is dependent on the operations of the underlying
Properties of the Local Limited Partnerships.
During 1997, 1996 and 1995, the Partnership made no advances to the
Local Limited Partnerships. During 1997, loans of $16,310 were repaid by one
Local Limited Partnership. There were no repayments made during 1996 and 1995.
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' operations, determined
that such advances to Local Limited Partnerships were not likely to be
collected and, therefore, 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. Advances to the
Local Limited Partnerships remain due and payable to the Partnership.
During 1997, 1996 and 1995, the General Partner advanced $26,668,
$30,715 and $120,952 to twelve, seven and ten of the Local Limited Partnerships
to fund partnership entity expenses, including expenses incurred relating to
potential sales or refinancing under the LIHPRHA program. During 1997 and 1995,
loans of $100,517 and $2,392, respectively, were repaid by five and four Local
Limited Partnerships. There were no repayments made during 1996. The balance
owed to the General Partner by the Local Limited Partnerships at December 31,
1997 and 1996, was $631,633 and $705,482, respectively. Interest is charged at
a rate equal to the Chase Manhattan Bank prime interest rate plus 2%. Chase
Manhattan Bank prime was 8.5% at December 31, 1997.
Net cash provided by operations for the year ended December 31, 1997
was $381,421 as compared to net cash used in operations of $23,592 in 1996 and
$7,944 in 1995. The increase in cash used in operations from 1995 to 1996 was
the result of a decrease in distributions received in excess of investment in
Local Limited Partnerships. The increase in cash provided operations from 1996
to 1997 was primarily the result of an increase in distributions received from
the Local Limited Partnerships resulting from the sales of Elden Terrace
Apartments and Meadowood Apartments I and II during 1997, partially offset by
the payment of administrative and reporting fees of $619,985 to the General
Partner during 1997.
10
<PAGE> 12
Cash and cash equivalents amounted to $538,513 at December 31, 1997.
The ability of the Partnership to meet its on-going cash requirements, in
excess of cash on hand at December 31, 1997, 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, 1997,
together with projected distributions from Local Limited Partnerships, should
provide sufficient capital to fund the Partnership during 1998.
Results of Operations
The Partnership has invested as a limited partner in Local Limited
Partnerships which operate ten 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, 1996, the Partnership had no carrying basis in
any of the Local Limited Partnerships and reflected no share of losses for
Local Limited Partnerships in 1996 and 1995. During 1997, the Partnership
recorded $348,862 of its share of profits resulting from the sale of the rental
property owned by one Local Limited Partnership and $764,234 of its share of
gain on extinguishment of debt resulting from the sale of the two rental
properties owned by another Local Limited Partnership.
The Partnership's net profit increased to $1,016,781 in 1997 from a
net loss of $107,225 in 1996. Net profit per unit of limited partnership
interest increased to $87 in 1997 from a net loss per unit of $9 in 1996 for
the 11,500 units outstanding throughout both years. This increase was primarily
due to the Partnership's share of profits from Local Limited Partnerships of
$348,862 in 1997 resulting from the sale of Elden Terrace Apartments and the
Partnership's share of gain on extinguishment of debt of $764,234 resulting
from the sale and resulting discounted payoff of the deferred acquisition note
of Meadowood Apartments I and II during 1997. The Partnership did not
recognize $1,852,645 of its allocated share of losses from ten Local Limited
Partnerships for the year ended December 31, 1997, 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 profit or
losses from the Local Limited Partnerships, if not limited to its investment
account balance, would have decreased $3,755,362 between years. The increase in
profit was primarily the result of one of the Local Limited Partnerships
recording an extraordinary gain on extinguishment of debt during 1997. The
decrease in the Partnership's share of losses before extraordinary item was
primarily due to the 1997 gain on disposal of rental property of $980,293.
Additionally, impairment losses on their rental properties were recognized by
one of the Local Limited Partnerships for $811,943 and $450,000 during 1997 and
1996, respectively. Additionally, rental income and operating expenses
decreased during 1997.
The Partnership's net loss increased to $107,225 in 1996 from a net
loss of $100,847 in 1995. Net loss per unit of limited partnership interest was
$9 for the 11,500 units outstanding throughout both years. This increase was
primarily due to a decrease in distributions in excess of investment in Local
Limited Partnerships, partially offset by a decrease in operating expenses. The
Partnership did not recognize $1,690,487 of its allocated share of losses from
eleven Local Limited Partnerships for the year ended December 31, 1996, as the
Partnership's net book investment in them was reduced to zero prior to 1996
(see Note 3 to the Partnership's financial statements). In addition, the
Partnership's share of profits in Elden Limited Partnership was $15,125 which
was offset against prior year losses not taken. The Partnership's share of
losses from the Local Limited Partnerships, if not limited to its investment
account balance, would have increased $738,419 between years. The increase in
the loss was primarily the result of one of the Local Limited Partnerships
recognizing an impairment loss on its rental property of $450,000.
Additionally, rental income decreased during 1996 and operating expenses
increased.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary schedules of the
Partnership are included on pages 12 through 29 of this report.
11
<PAGE> 13
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund III
Indianapolis, IN
We have audited the accompanying statements of financial position of National
Housing Partnership Realty Fund III (the Partnership) as of December 31, 1997
and 1996, and the related statements of operations, partners' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1997, and the financial statement 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, 1997, 1996 and 1995. The Partnership's equity in the net
assets of this investee has been reduced to zero at December 31, 1997 and 1996
in accordance with the equity method of accounting. The financial statements of
this investee were audited by other auditors whose reports thereon have been
furnished to us, and our opinion, insofar as it relates to amounts included for
this investee, is based solely upon the report 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 report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such
financial statements present fairly, in all material respects, the financial
position of the Partnership as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, based on our audits and the report of other
auditors, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
McLean, VA
March 3, 1998
12
<PAGE> 14
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
------
Cash and cash equivalents (Note 2) $ 538,513 $ 140,782
Investments in and advances to Local Limited Partnerships (Note 3) 87,108 -
-------- ---------
$ 625,621 $ 140,782
======== =========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
------------------------------------------
Liabilities:
Administrative and reporting fees payable to
General Partner $ - $ 533,737
Accrued expenses 40,890 39,095
-------- ---------
40,890 572,832
-------- ---------
Partners' equity (deficit):
General Partner - The National Housing Partnership (NHP) (89,402) (99,570)
Original Limited Partner - 1133 Fifteenth Street
Three Associates (94,302) (104,470)
Other Limited Partners - 11,500 investment units 768,435 (228,010)
-------- ---------
584,731 (432,050)
-------- ---------
$ 625,621 $ 140,782
======== =========
</TABLE>
See notes to financial statements.
13
<PAGE> 15
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Share of profits from Local Limited
Partnerships (Note 3) $ 348,862 $ - $ -
Interest income 11,093 8,073 6,057
Distributions in excess of
investment in Local Limited
Partnerships (Note 3) 32,008 18,362 28,528
---------- --------- ---------
391,963 26,435 34,585
---------- --------- ---------
COSTS AND EXPENSES:
Administrative and reporting fees to
General Partner (Note 4) 86,248 86,248 86,248
Other operating expenses 53,168 47,412 49,184
--------- --------- ---------
139,416 133,660 135,432
--------- --------- ---------
NET PROFIT (LOSS) BEFORE EXTRAORDINARY
ITEM 252,547 (107,225) (100,847)
EXTRAORDINARY ITEM - SHARE OF GAIN ON
EXTINGUISHMENT OF DEBT (Note 3) 764,234 - -
--------- --------- ---------
NET PROFIT (LOSS) $1,016,781 $ (107,225) $ (100,847)
========= ========= =========
ALLOCATION OF NET PROFIT (LOSS):
General Partner - NHP $ 10,168 $ (1,072) $ (1,008)
Original Limited Partner - 1133
Fifteenth Street Three Associates 10,168 (1,072) (1,008)
Other Limited Partners - 11,500
investment units 996,445 (105,081) (98,831)
--------- --------- ---------
$1,016,781 $ (107,225) $ (100,847)
========= ========= =========
NET PROFIT (LOSS) PER LIMITED
PARTNERSHIP INTEREST $ 87 $ (9) $ (9)
========= ======== =========
</TABLE>
See notes to financial statements.
14
<PAGE> 16
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>
Deficit at January 1, 1995 $ (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)
Net loss (1,072) (1,072) (105,081) (107,225)
---------- ---------- -------- ----------
Deficit at December 31, 1996 (99,570) (104,470) (228,010) (432,050)
Net profit 10,168 10,168 996,445 1,016,781
--------- --------- -------- ---------
Equity (deficit) at December 31, 1997 $ (89,402) $ (94,302) $ 768,435 $ 584,731
========= ========= ======== ==========
Percentage interest at
December 31, 1995, 1996,
and 1997 1% 1% 98%
========== ========== =========
(A) (B) (C)
========== ========== =========
</TABLE>
(A) General Partner
(B) Original Limited Partner
(C) Consists of 11,500 investment units held by 927 investors. Each unit
represents .0085% of ownership interest.
See notes to financial statements.
15
<PAGE> 17
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Distributions received in excess of
investment in Local Limited Partnerships $ 15,698 $ 18,362 $ 28,528
Distributions from Local Limited Partnerships 1,025,988 - -
Payment of administrative and reporting fees to
General Partner (619,985) - -
Interest received 11,093 8,073 8,804
Operating expenses paid (51,373) (50,027) (45,276)
---------- ---------- ---------
Net cash provided by (used in) operating activities 381,421 (23,592) (7,944)
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of advances to Local Limited Partnerships 16,310 - -
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES -
Repayment of loans from General Partner - - (1,518)
---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 397,731 (23,592) (9,462)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 140,782 164,374 173,836
---------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 538,513 $ 140,782 $ 164,374
========== ========== =========
RECONCILIATION OF NET PROFIT (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net profit (loss) $ 1,016,781 $ (107,225) $ (100,847)
---------- ---------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Repayment of advances to Local Limited Partnerships $ (16,310) $ - $ -
Distributions from Local Limited Partnerships 1,025,988 - -
Share of profits from Local Limited Partnerships (348,862) - -
Share of gain on extinguishment of debt (764,234) - -
Decrease in interest receivable - - 2,747
(Decrease) increase in administrative and reporting
fees payable to the General Partner (533,737) 86,248 86,248
Increase (decrease) in payables 1,795 (2,615) 3,908
---------- ---------- ---------
Total adjustments (635,360) 83,633 92,903
---------- ---------- ---------
Net cash provided by (used in) operating activities $ 381,421 $ (23,592) $ (7,944)
========== ========== =========
</TABLE>
See notes to financial statements.
16
<PAGE> 18
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.
On June 3, 1997, Apartment Investment and Management Company, a
Maryland corporation ("AIMCO" and, together with its subsidiaries and other
controlled entities, the "AIMCO Group"), acquired all of the issued and
outstanding capital stock of NHP Partners, Inc., a Delaware corporation ("NHP
Partners"), and the AIMCO Group acquired all of the outstanding interests in
NHP Partners Two Limited Partnership, a Delaware limited partnership ("NHP
Partners Two"). The acquisitions were made pursuant to a Real Estate
Acquisition Agreement, dated as of May 22, 1997 (the "Agreement"), by and among
AIMCO, AIMCO Properties, L.P., a Delaware limited partnership (the "Operating
Partnership"), Demeter Holdings Corporation, a Massachusetts corporation
("Demeter"), Phemus Corporation, a Massachusetts corporation ("Phemus"),
Capricorn Investors, L.P., a Delaware limited partnership ("Capricorn"), J.
Roderick Heller, III and NHP Partners Two LLC, a Delaware limited liability
company ("NHP Partners Two LLC"). NHP Partners owns all of the outstanding
capital stock of the National Corporation for Housing Partnerships, a District
of Columbia corporation ("NCHP"), which is the general partner of The National
Housing Partnership, a District of Columbia limited partnership ("NHP").
Together, NCHP and NHP Partners Two own all of the outstanding partnership
interests in NHP. NHP is the general partner of National Housing Partnership
Realty Fund III (a Maryland Limited Partnership) (the "Registrant" or
"Partnership"). As a result of these transactions, the AIMCO Group has acquired
control of the general partner of the Registrant and, therefore, may be deemed
to have acquired control of the Registrant.
The Original Limited Partner of the Partnership is 1133 Fifteenth
Street Three Associates, whose limited partners were key employees of NCHP at
the time the Partnership was formed and whose general partner is NHP.
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.
17
<PAGE> 19
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 plus the Partnership's share of the
Local Limited Partnerships' profits 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.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash in demand accounts $ 199 $ 952
Money market account 538,314 139,830
------- -------
$538,513 $140,782
======= =======
</TABLE>
As discussed in Note 3, the Partnership received $1,025,988 from the
sales of Meadowood Apartments I and II and Elden Terrace Apartments. During
1997, the Partnership paid $619,985 to the General Partner for administrative
and reporting fees using the cash proceeds. The remaining procedds of $406,003
will be allocated in the manner required in the Partnership Agreement as
discussed in Note 6 to the Partnership's financial statements,
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: Elden Limited Partnership, Edmond Estates 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%.
On May 2, 1996, Meadowood Townhouses I Limited Partnership entered
into an Agreement of Sale with Community Preservation and Development
Corporation, to sell its two properties, Meadowood Apartments I and II
18
<PAGE> 20
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
pursuant to the terms of LIHPRHA. The purchase price was based on the
properties' Transfer Preservation Value, as approved by HUD. During 1997,
funding was approved for the sale of Meadowood Apartments I and II, and final
settlement occurred on July 15, 1997. Total LIHPRHA grant money received for
the properties was $3,336,387, comprised of $1,558,252 for Meadowoods
Apartments I and $1,778,135 for Meadowood Apartments II. The holders of the
deferred acquisition notes were paid a portion of the LIHPRHA grant money in
full satisfaction of amounts due on their notes. Any unpaid balances were
forgiven. The mortgage notes were assumed by the purchaser. The Partnership's
share of the gain from these sales, in excess of cumulative losses not taken,
in the amount of $764,234 has been recorded in the accompanying statements of
operations for the year ended December 31, 1997, as an extraordinary item -
gain on extinguishment of debt. During 1997, the Partnership received net
proceeds from the sale of $677,126, and at December 31, 1997, the Partnership's
investment in the Local Limited Partnership was $87,108. The sale generated
taxable income to the Partnership's investors. The specific impact of the tax
consequences is dependent upon each specific partner's individual tax
situation.
During 1997, Elden Limited Partnership entered into an Agreement of
Sale with Southport Financial Services, Inc., to sell its property, Elden
Terrace Apartments. The purchase price for the sale was $5,746,892, which is
above the mortgage note of $1,866,667. In addition, Southport Financial
Services, Inc., assumed the deferred acquisition note and accrued interest
totaling $3,505,225 from the note holders. Final settlement occurred on July
31, 1997. The Partnership received net proceeds from the sale of $348,862. The
Partnership's share of the gain from this transaction has been recorded in the
accompanying statements of operations for the year ended December 31, 1997, as
the Partnership's share of profits from Local Limited Partnerships. The sale
generated taxable income to the Partnership's investors. The specific impact of
the tax consequences is dependent upon each specific partner's individual tax
situation.
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 plus the Partnership's share of the Local
Limited Partnerships' profits 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 $1,852,645,
$1,690,487 and $936,943 of its allocated share of losses from ten, eleven and
twelve Local Limited Partnerships during 1997, 1996 and 1995, respectively.
During 1996, the Partnership's share of profits in one Local Limited
Partnership was $15,125, which were offset against prior year losses not taken.
As a result of the sales during 1997, $2,384,156 in shares of profits and
extraordinary gains from the extinguishment of debt were offset against prior
year losses not taken. As of December 31, 1997 and 1996, the Partnership had
not recognized $13,749,840 and $14,281,351, respectively, of its allocated
share of cumulative losses from the ten and twelve Local Limited Partnerships
in which its investment is zero.
During 1997, 1996 and 1995, the General Partner advanced $26,668,
$30,715 and $120,952 to twelve, seven and ten of the Local Limited Partnerships
to fund partnership entity expenses, including expenses incurred relating to
potential sales or refinancing under the LIHPRHA program. During 1997 and 1995,
loans of $100,517 and $2,392, respectively, were repaid by five and four Local
Limited Partnerships. There were no repayments made during 1996. The balance
owed to the General Partner by the Local Limited Partnerships at December 31,
1997 and 1996, was $631,633 and $705,482, respectively. Interest is charged at
a rate equal to the Chase Manhattan Bank prime interest rate plus 2%. Chase
Manhattan Bank prime was 8.5% at December 31, 1997.
During 1997, 1996 and 1995, the Partnership made no advances to the
Local Limited Partnerships. During 1997, loans of $16,310 were repaid by one
Local Limited Partnership. There were no repayments made during 1996 and 1995.
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' operations, that such advances are
19
<PAGE> 21
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
not likely to be collected. 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.
These advances plus accrued interest remain due and payable to the
Partnership. As of December 31, 1997 and 1996, the balance of such advances was
$519,834 and $534,280, respectively. Interest is calculated at the Chase
Manhattan Bank prime rate plus 2%. Chase Manhattan Bank prime was 8.5% at
December 31, 1997. 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, 1997 and 1996, and the combined
results of operations for the years ended December 31, 1997, 1996 and 1995 are
as follows:
COMBINED FINANCIAL POSITION
OF THE LOCAL LIMITED PARTNERSHIPS
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996
---- ----
<S> <C> <C>
Assets:
Land $ 2,072,600 $ 2,992,600
Buildings and improvements,
net of accumulated depreciation of
$10,733,564 and $14,098,487 and impairment
losses of $5,161,943 in 1997 and $4,350,000 in 1996 18,129,276 28,569,356
Other assets 3,247,825 4,731,800
------------- -------------
$ 23,449,701 $ 36,293,756
============= =============
Liabilities and partners' deficit:
Liabilities:
Mortgage notes payable $ 12,306,856 $ 17,314,114
Acquisition notes payable 10,278,044 14,683,867
Other liabilities 16,375,470 20,866,030
------------- -------------
38,960,370 52,864,011
Partners' deficit:
National Housing Partnership Realty Fund III (14,024,589) (15,062,902)
Other partners (1,486,080) (1,507,353)
------------ ------------
$ 23,449,701 $ 36,293,756
============ ============
</TABLE>
20
<PAGE> 22
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,
-----------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue $ 7,912,953 $ 8,952,268 $ 8,997,266
----------- ----------- -----------
Gain on disposal of rental property 980,293 - -
----------- ----------- -----------
Expenses:
Operating expenses 6,304,562 6,956,609 6,661,387
Financial expenses - primarily interest 468,331 505,862 640,359
Interest on acquisition notes 1,189,591 1,378,755 1,379,901
Depreciation and amortization 1,214,369 1,364,217 1,262,745
Impairment loss on rental property 811,943 450,000 -
----------- ----------- -----------
Total expenses 9,988,796 10,655,443 9,944,392
----------- ----------- -----------
Net loss before extraordinary item (1,095,550) (1,703,175) (947,126)
Gain on extinguishment of debt 3,232,683 - -
----------- ----------- -----------
Net profit (loss) $ 2,137,133 $ (1,703,175) $ (947,126)
=========== =========== ===========
</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. During 1997, eleven of the projects
received a substantial amount of rental assistance from HUD.
All of the units (503 in total) receiving rent subsidies from Section
8 have their contracts expiring during the year ending December 31, 1998.
Contracts for 285 of these units expire on or prior to September 30,
1998, and Congress has passed legislation which will provide a one-year renewal
contract to replace those contracts. Contracts covering the remaining 218 units
expire in October and November, 1998. It is uncertain whether the agreements
will be renewed, and if so, on what terms.
For the past several years, various proposals have been advanced by
the United States Department of Housing and Urban Development ("HUD"), Congress
and others proposing the restructuring of HUD's rental assistance programs
under Section 8 of the United States Housing Act of 1937 ("Section 8"), under
which 503 units, 41 percent of the total units owned by the properties in which
the Partnership has invested, receive rental subsidies. On October 27, 1997,
the President signed into law the Multifamily Assisted Housing Reform and
Affordability Act of 1997 (the "1997 Housing Act"). Under the 1997 Housing Act,
certain properties assisted under Section 8, with rents above market levels and
financed with HUD-insured mortgage loans, will be restructured by adjusting
subsidized rents to market levels, thereby potentially reducing rent subsidies,
and lowering required debt service costs as needed to ensure financial
viability at the reduced rents and rent subsidies. The 1997 Housing Act retains
project-based subsidies for most properties (properties in rental markets with
limited supply, properties serving the elderly, and certain other properties).
The 1997 Housing Act phases out project-based subsidies on selected properties
servicing families not located in rental
21
<PAGE> 23
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
markets with limited supply, converting such subsidies to a tenant-based
subsidy. Under a tenant-based system, rent vouchers would be issued to
qualified tenants who then could elect to reside at properties of their choice,
provided such tenants have the financial ability to pay the difference between
the selected properties' monthly rent and the value of the vouchers, which
would be established based on HUD's regulated fair market rent for the relevant
geographical areas. The 1997 Housing Act provides that properties will begin
the restructuring process in federal fiscal year 1999 (beginning October 1,
1998), and that HUD will issue final regulations implementing 1997 Housing Act
on or before October 27, 1998. With respect to Housing Assistance Payments
Contracts ("HAP Contracts") expiring before October 1, 1998, Congress has
elected to renew them for one-year terms, generally at existing rents, so long
as the properties remain in compliance with the HAP Contracts. While the
Partnership does not expect the provisions of the 1997 Housing Act to result in
a significant number of tenants relocating from properties owned by the Local
Limited Partnerships, there can be no assurance that the provisions will not
significantly affect the operations of the properties of the Local Limited
Partnerships. Furthermore, there can be no assurance that other changes in
Federal housing subsidy policy will not occur. Any such changes could have an
adverse effect on the operation of the Partnership.
Depreciation of the buildings and improvements for nine 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 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 $10,278,044 at December 31, 1997 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 maturity dates ranging in 1999, except for the Meadowood
Townhouses III Limited Partnership note discussed below. The notes may be
prepaid in whole or in part at any time without penalty.
On May 2, 1996, the Meadowood Townhouses III Limited Partnership
entered into Agreement of Sale with Community Preservation and Development
Corporation, pursuant to the terms of the LIHPRHA. The purchase price was to be
based on the project's Transfer Preservation Value, as approved by HUD.
Settlement was pending Congressional appropriation of LIHPRHA funds to HUD.
This appropriation did not transpire and therefore this sale opportunity
expired. In connection with the expired sale opportunity, a Forebearance
Agreement was executed, which extended the maturity date of the deferred
acquisition note in the amount of $4,995,980 including accrued interest at
December 31, 1997, made by the Meadowood Townhouses III Limited Partnership.
Under the terms of this agreement, the initial period of forebearance expired
on April 30, 1997. Such funding was not approved by April 30, 1997 and a
further extension of forebearance until January 2, 1998 was granted to permit
the General Partner to submit an alternative plan to the note holders, and to
negotiate and close such plan. The General Partner is currently attempting to
negotiate an extension of the due date of the deferred acquisition note. If
such an extension is not negotiated, the Partnership shall cause title to the
Partnership's interest in the Local Limited Partnership to be conveyed to the
note holders. There can be no assurance that the efforts will be successful.
The Meadowood Townhouses III Limited Partnership's continued existence
as a going concern is dependent on the Local Limited Partnership's ability to
repay the principal and accrued interest on the deferred acquisition notes,
22
<PAGE> 24
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
or to negotiate further amendments of the terms of the note and the related
forbearance documents. The Local Limited Partnership has, for the past several
years, generated losses which have been funded through loans from the partners.
The Local Limited Partnership has minimal cash and is generating negative cash
flows. The partners are under no obligation to provide such funding in the
future. Should the Meadowood Townhouses III Limited Partnership cease to exist
as a going concern, there could be significant tax consequences to the partners
in the Partnership.
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. This Statement requires 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.
During 1997, Brunswick Village Limited Partnership recognized an
impairment loss on its rental property in the amount of $811,943. The
Partnership and NHP are actively pursuing a plan to dispose of their interests
in the Local Limited Partnership. As a result, the estimated net cash flow was
less than the carrying amount at December 31, 1997. The Local Limited
Partnership has used the Direct Capitalization Method to estimate the fair
value of the rental property. Using this Method, estimated annual cash flow
generated by the property is divided by an overall capitalization rate to
estimate the rental property's fair value. The impairment loss had no impact
on the Partnership's operations, since its investment in Brunswick Village
Limited Partnership had been reduced to zero in a prior year.
During 1996, Galion Limited Partnership recognized an impairment loss
on its rental property in the amount of $450,000. Because the Local Limited
Partnership's deferred acquisition note is due December 20, 1999, the Local
Limited Partnership estimated net cash flow only for the period January 1, 1997
to December 20, 1999. As a result of this limited holding period, the estimated
net cash flow was less than the carrying amount at December 31, 1996. The
impairment loss had no impact on the Partnership's operations, since its
investment in Galion Limited Partnership had been reduced to zero in a prior
year.
The Woodmark and Indian Valley I, II, and III Local Limited
Partnerships estimate of cash flows anticipates that they will be able to
successfully refinance, restructure, or renegotiate their deferred acquisition
note payable which are due in 1999. If the these Local Limited Partnerships are
unsuccessful in these efforts, the Partnerships estimate of undiscounted cash
flows will change resulting in the need to write-down the rental property to
fair value.
Additionally, regardless of whether an impairment loss of an
individual property has been recorded or not, the carrying value of each of the
rental properties may still exceed their fair market value as of December 31,
1997. Should a Local Limited Partnership be forced to dispose of any of its
properties, it could incur a loss.
4. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL
PARTNER
The Partnership accrued Administrative and Reporting Fees payable to
the General Partner of $86,248 in 1997, 1996 and 1995. The Partnership paid
the General Partner $619,985 for these fees during 1997. No payments were made
to the General Partner for those fees in 1996 and 1995. As of December 31, 1997
there were no fees remaining owed to the General Partner while at December 31,
1996, the Partnership owed $533,737 to the General Partner for accrued
administrative and reporting fees.
An affiliate of the General Partner, NHP Management Company ("NHPMC"),
formerly a wholly owned subsidiary of NHP Incorporated ("NHPI"), is the project
management agent for the projects operated by four of the
23
<PAGE> 25
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Local Limited Partnerships. During May 1997, AIMCO acquired approximately 51%
of the voting stock of NHPI. An additional 3% of the voting stock was acquired
by AIMCO in August 1997. On December 8, 1997, the NHPI stockholders elected to
merge with AIMCO. After the merger, NHPMC became a wholly owned subsidiary of
AIMCO. NHPMC and other affiliates of NCHP earned $568,855, $625,232 and
$583,446 from the Local Limited Partnerships for management fees and other
services provided to the Local Limited Partnerships during 1997, 1996 and 1995,
respectively. At December 31, 1997 and 1996, amounts due NHPMC and unpaid by
the Local Limited Partnerships amounted to $21,905 and $31,119, respectively.
Personnel working at the project sites, which are managed by NHPMC,
were employees of NHPI during the period January 1, 1996 through December 8,
1997 and became employees of NHPMC (as a successor employer) as of December 8,
1997 and, therefore, the projects reimbursed NHPI and NHPMC for the actual
salaries and related benefits. Prior to January 1, 1996, project employees were
employees of NCHP. Total reimbursements earned for salaries and benefits for
the years ended December 31, 1997, 1996 and 1995, were approximately $668,000,
$786,000 and $739,000, respectively. At December 31, 1997 and 1996 account
payable included $9,648 and $2,309 due to NHPMC and NHPI, 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.
24
<PAGE> 26
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
A reconciliation follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net profit (loss) per financial statements $1,016,781 $ (107,225) $ (100,847)
Timing differences in determining
losses of local limited partnerships:
Depreciation (666,530) (1,041,755) (1,045,037)
Interest on acquisition notes payable (342,838) (161,384) (136,036)
Losses taken in excess of financial statement
investment account 356,532 (1,693,165) (962,475)
Accrued interest on partner loans 206,104 151,341 208,654
Impairment loss on rental property 803,824 441,000 -
Net income from dispositions 5,544,474 - -
Other 262,882 109,338 225,733
--------- ---------- ----------
Profit (loss) per tax return $7,181,229 $(2,301,850) $(1,810,008)
========= ========== ==========
</TABLE>
As discussed in Note 3, there is substantial doubt as to the ability
of one of the Local Limited Partnerships, Meadowood Townhouses III Limited
Partnership, 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 establishment of any reserves which the General Partner
deems reasonably necessary for contingent, unmatured or unforeseen
liabilities of obligations of the Partnership.
Third, 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;
25
<PAGE> 27
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Fourth, 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% 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 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;
Sixth, to the General Partner for disposition and refinancing fees,
including prior disposition and refinancing fees which have been
accrued but are unpaid;
Seventh, 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.
******************
26
<PAGE> 28
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION OF
LOCAL LIMITED PARTNERSHIPS IN WHICH NHP REALTY FUND III HAS INVESTED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Local Cost Capitalized
Limited Partnership Subsequent to Acquisition
--------------------------------------------------------------------------------
Buildings and Carrying Cost
Partnership Name Encumbrances Land Improvements Improvements Adjustments
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Brunswick Village Limited
Partnership (1) $ 275,000 $ 2,109,506 $ 512,830 $ (811,943)
Edmond Estates Limited
Partnership (1) 150,000 2,470,329 195,842 (1,400,000)
Galion Limited
Partnership (1) 60,000 1,308,947 178,630 (844,395)
Indian Valley I Limited
Partnership (1) 120,000 2,764,506 208,145 -
Indian Valley II Limited
Partnership (1) 108,000 2,278,088 217,338 -
Indian Valley III Limited
Partnership (1) 117,600 2,782,409 255,601 -
Kimberly Associates Limited
Partnership (1) 294,000 4,259,949 1,827,490 -
Meadowood Townhouses III
Limited Partnership (1) 566,000 6,285,999 945,864 (2,500,000)
Newton Hill Limited
Partnership (1) 60,000 1,015,475 108,186 -
Woodmark Limited
Partnership (1) 322,000 3,882,930 811,114 -
-------------------------------------------------------------------------------
TOTAL,
December 31, 1997 $ 2,072,600 $ 29,158,138 $ 5,261,040 $ (5,556,338)
===============================================================================
<CAPTION>
Gross Amount at which Carried at
Close of Period
-------------------------------------------------------
Accumulated
Buildings and Depreciation
Land Improvements Total (2)(3) (3)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brunswick Village Limited
Partnership $ 275,000 $ 1,810,393 $ 2,085,393 $ 822,787
Edmond Estates Limited
Partnership 150,000 1,266,171 1,416,171 670,940
Galion Limited
Partnership 60,000 643,182 703,182 70,988
Indian Valley I Limited
Partnership 120,000 2,972,651 3,092,651 991,031
Indian Valley II Limited
Partnership 108,000 2,495,426 2,603,426 813,924
Indian Valley III Limited
Partnership 117,600 3,038,010 3,155,610 980,037
Kimberly Associates Limited
Partnership 294,000 6,087,439 6,381,439 2,191,238
Meadowood Townhouses III
Limited Partnership 566,000 4,731,863 5,297,863 2,144,323
Newton Hill Limited
Partnership 60,000 1,123,661 1,183,661 382,377
Woodmark Limited
Partnership 322,000 4,694,044 5,016,044 1,665,919
-----------------------------------------------------------------------------
TOTAL,
December 31, 1997 $ 2,072,600 $ 28,862,840 $ 30,935,440 $ 10,733,564
=============================================================================
<CAPTION>
Life upon which
depreciation in
latest statement
Date of Date of operations is
Construction Acquired computed
(years)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brunswick Village Limited
Partnership 1971 6/85 5-30
Edmond Estates Limited
Partnership 1972 6/85 5-50
Galion Limited
Partnership 1972 7/85 5-50
Indian Valley I Limited
Partnership 1972 6/85 5-50
Indian Valley II Limited
Partnership 1972 6/85 5-50
Indian Valley III Limited
Partnership 1972 6/85 5-50
Kimberly Associates Limited
Partnership 1971 6/85 5-50
Meadowood Townhouses III
Limited Partnership 1972 6/85 5-50
Newton Hill Limited
Partnership 1972 7/85 5-50
Woodmark Limited
Partnership 1971 6/85 5-50
TOTAL,
December 31, 1997
</TABLE>
See notes to Schedule III.
27
<PAGE> 29
A LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND
ACCUMULATED DEPRECIATION OF LOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND III HAS INVESTED
DECEMBER 31, 1997
(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 $ 640,592 $ 2,176,132 $ 2,816,724
Edmond Estates Limited Partnership 1,002,369 2,125,219 3,127,588
Galion Limited Partnership 519,964 1,047,346 1,567,310
Indian Valley I Limited Partnership 1,084,153 2,093,397 3,177,550
Indian Valley II Limited Partnership 1,084,979 1,358,866 2,443,845
Indian Valley III Limited Partnership 1,202,001 1,901,725 3,103,726
Kimberly Associates Limited Partnership 1,928,685 3,046,387 4,975,072
Meadowood Townhouses III Limited
Partnership 2,929,314 4,995,980 7,925,294
Newton Hill Limited Partnership 437,871 714,306 1,152,177
Woodmark Limited Partnership 1,476,928 3,375,088 4,852,016
---------- ---------- ----------
TOTAL $12,306,856 $22,834,446 $35,141,302
========== ========== ==========
</TABLE>
(2) The aggregate cost of land for Federal income tax purposes is
$2,072,600, and the aggregate costs of buildings and improvements for
Federal income tax purposes is $34,619,380. The total of the
above-mentioned items is $36,691,980.
28
<PAGE> 30
A LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND
ACCUMULATED DEPRECIATION OF LOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND III HAS INVESTED
DECEMBER 31, 1997
(CONTINUED)
(3) Reconciliation of real estate
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $45,660,443 $45,049,169 $43,987,221
Improvements during the period 588,650 1,061,274 1,061,948
Sale of rental properties (14,107,315) - -
Decrease due to prior years impairment
losses on rental property (394,395) - -
Impairment loss on rental property (811,943) (450,000) -
---------- ----------- ----------
Balance at end of period $30,935,440 $45,660,443 $45,049,169
========== ========== ==========
</TABLE>
Reconciliation of accumulated depreciation
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $14,098,487 $12,743,988 $11,491,517
Depreciation expense for the period 1,206,904 1,354,499 1,252,471
Sale of rental properties (4,177,432) - -
Decrease due to prior year impairment
losses on rental property (394,395) - -
---------- ---------- ----------
Balance at end of period $10,733,564 $14,098,487 $12,743,988
========== ========== ==========
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
29
<PAGE> 31
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
Six individuals comprise the Board of Directors of NCHP. Two directors
were appointed by the President of the United States, by and with the advice
and consent of the Senate.
Terry Considine (age 50) was elected Chairman, Chief Executive Officer
and a Director of NCHP in 1997. Mr. Considine has been Chairman of the Board of
Directors and Chief Executive Officer of AIMCO since July 1994, and was
President until July 1997. He is the sole owner of Considine Investment Co. and
prior to July 1994 was owner of approximately 75% of Property Asset Management,
L.L.C., Limited Liability Company, a Colorado limited liability company, and
its related entities (collectively, "PAM"), one of the AIMCO Predecessors. On
October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset
Investors Corp. and Commercial Asset Investors, Inc., two other public real
estate investment trusts, and appointed as a director of Financial Assets
Management, LLC, a real estate investment trust manager. Mr. Considine has been
involved as a principal in a variety of real estate activities, including the
acquisition, renovation, development and disposition of properties. Mr.
Considine has also controlled entities engaged in other businesses such as
television broadcasting, gasoline distribution and environmental laboratories.
Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law
School and is admitted as a member of the Massachusetts Bar. He served as a
Colorado State Senator from 1987 - 1992 and in 1992 was the Republican nominee
for election to the United States Senate from Colorado.
Peter K. Kompaniez (age 52) was elected Vice Chairman, President and a
Director of NCHP in 1997. Mr. Kompaniez has been Vice President and a Director
of AIMCO since July 1994 and was appointed President in July 1997. Mr.
Kompaniez has also served as Chief Operating Officer of NHP and President of
NHP Partners since June 1997. Since September 1993, Mr. Kompaniez has owned 75%
of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's
predecessors, and serves as its President and Chief Executive Officer. From
1986 to 1993, he served as President and Chief Executive Officer of Heron
Financial Corporation ("HFC"), a United States holding company for Heron
International, N.V.'s real estate and related assets. While at HFC, Mr.
Kompaniez administered the acquisition, development and disposition of
approximately 8,150 apartment units (including 6,217 units that have been
acquired by AIMCO) and 3.1 million square feet of commercial real estate. Prior
to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb
and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez
received a B.A. from Yale College and a J.D. from the University of California
(Boalt Hall).
Susan R. Baron (age 46) 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 of Seeds of Peace
Advisory Board 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.
30
<PAGE> 32
Alan A. Diamonstein (age 66) 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.
Leeann Morein (age 43) was elected Senior Vice President Investor
Services and a Director of NCHP in 1997. Ms Morein has served as Senior Vice
President Investor Services AIMCO since November 1997. Ms. Morein has served as
Secretary of AIMCO since July 1994 and from July 1994 until October 1997 also
served as Chief Financial Officer. From September 1990 to March 1994, Ms.
Morein served as Chief Financial Officer of the real estate subsidiaries of
California Federal Bank, including the general partner of CF Income Partners,
L.P., a publicly-traded master limited partnership. Ms. Morein joined
California Federal in September 1988 as Director of Real Estate Syndications
Accounting and became Vice President--Financial Administration in January 1990.
From 1983 to 1988, Ms. Morein was Controller of Storage Equities, Inc., a real
estate investment trust, and from 1981 to 1983, she was Director of Corporate
Accounting for Angeles Corporation, a real estate syndication firm. Ms. Morein
worked on the audit staff of Price Waterhouse from 1979 to 1981. Ms. Morein
received a B.A. from Pomona College and is a Certified Public Accountant.
Thomas W. Toomey (age 37) was elected Executive Vice President Finance
and Administration and a Director of NCHP in 1997. Mr. Toomey has served as
Senior Vice President--Finance and Administration of AIMCO since January 1996
and was promoted to Executive Vice President--Finance and Administration in
March 1997. From 1990 until 1995, Mr. Toomey served in a similar capacity with
Lincoln Property Company ("LPC") as Vice President/Senior Controller and
Director of Administrative Services of Lincoln Property Services where he was
responsible for LPC's computer systems, accounting, tax, treasury services and
benefits administration. From 1984 to 1990, he was an audit manager with Arthur
Andersen & Co. where he served real estate and banking clients. From 1981 to
1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr.
Toomey received a B.S. in Business Administration/Finance from Oregon State
University and is a Certified Public Accountant.
EXECUTIVE OFFICERS
The current executive officers of NCHP and a description of their
principal occupations in recent years are listed below.
Terry Considine (age 50). See "Directors of NCHP."
Peter K. Kompaniez (age 52). See "Directors of NCHP."
Leeann Morein (age 43). See "Directors of NCHP."
Thomas W. Toomey (age 37). See "Directors of NCHP."
Joel F. Bonder (age 49) was appointed Executive Vice President,
General Counsel and Secretary of NCHP and AIMCO effective with the NHP merger.
Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General
Counsel of NCHP 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 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.
31
<PAGE> 33
Steven D. Ira (age 47) has served as Executive Vice President of NCHP
since 1997 and of AIMCO since 1994. From 1987 until July 1994, he served as
President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired
extensive experience in property management. Between 1977 and 1981 he
supervised the property management of over 3,000 apartment and mobile home
units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined
with others to form the property management firm of McDermott, Stein and Ira.
Mr. Ira served for several years on the National Apartment Manager
Accreditation Board and is a former president of the National Apartment
Association and the Colorado Apartment Association. Mr. Ira is the sixth
individual elected to the Hall of Fame of the National Apartment Association in
its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS)
and a Certified Apartment Manager designation from the National Apartment
Association, a Certified Property Manager (CPM) designation from the National
Institute of Real Estate Management (IREM) and he is a member of the Boards of
Directors of the National Multi-Housing Council, the National Apartment
Association and the Apartment Association of Metro Denver. Mr. Ira received a
B.S. from Metropolitan State College in 1975.
David L. Williams (age 52) has served as Executive Vice
President--Operations of NCHP and AIMCO since 1997. Prior to joining AIMCO, Mr.
Williams was Senior Vice President of Operations at Evans Withycombe
Residential, Inc. from January 1996 to January 1997. Previously, he was
Executive Vice President at Equity Residential Properties Trust from October
1989 to December 1995. He has served on National Multi-Housing Council Boards
and NAREIT committees. Mr. Williams also served as Senior Vice President of
Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr.
Williams has been involved in the property management, development and
acquisition of real estate properties since 1973. Mr. Williams received his
B.A. in education and administration from the University of Washington in 1967.
Troy D. Butts (age 33) has served as Senior Vice President and Chief
Financial Officer of NCHP and AIMCO since November 1997. Prior to joining
AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real
Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was
employed by Arthur Andersen LLP for ten years and his clients were primarily
publicly-held real estate companies, including office and multi-family real
estate investment trusts. Mr. Butts holds a Bachelor of Business Administration
degree in Accounting from Angelo State University and is a Certified Public
Accountant.
(d) There is no family relationship between any of the foregoing
directors and executive officers.
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, 1997:
(i) The Partnership paid $86,248 for administrative and reporting
fees for managing the affairs of the Partnership and for
investor services during 1997. In addition, during 1997, the
Partnership made payments of $533,737 for previous years'
administrative and reporting fees.
(ii) Annual partnership administration fees of $87,387 are payable,
but not yet paid, to the General Partner for its services as
General Partner of the Local Limited Partnerships. During
1997, the Local Limited Partnerships made payments of $113,271
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
1997, NHPMC and other affiliates of NCHP earned $568,855 for
management fees and other services provided to the Local
Limited Partnerships. At December 31, 1997, amounts due to
NHPMC by the Local Limited Partnerships amounted to $21,905.
32
<PAGE> 34
(iv) In 1997, personnel working at the project sites which were
managed by NHPMC were NHPI and NHPMC employees, and therefore
the project reimbursed NHPI and NHPMC for their actual
salaries and related benefits. Total reimbursements for
salaries and benefits earned for the year ended December 31,
1997, was approximately $668,000. At December 31, 1997, trade
payables include $9,648 due to NHPMC.
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.
33
<PAGE> 35
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 12
Statements of Financial Position,
December 31, 1997 and 1996 13
Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995 14
Statements of Partners' Deficit for the Years
Ended December 31, 1997, 1996 and 1995 15
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 16
Notes to Financial Statements 17
Schedule III - Real Estate and
Accumulated Depreciation of the Local Limited
Partnerships in which NHP Realty Fund III has
invested, December 31, 1997 27
</TABLE>
2. Financial Statement Schedules
Financial statement schedules for the
Registrant:
Schedule III 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.
34
<PAGE> 36
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 38
Combined Statements of Financial
Position, December 31, 1997 and 1996 42
Combined Statements of Operations
for the Years Ended December 31, 1997,
1996, and 1995 43
Combined Statements of Partners'
Deficit for the Years Ended
December 31, 1997, 1996 and 1995 44
Combined Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 45
Notes to Combined Financial
Statements 48
Exhibit (24) Power of Attorney
</TABLE>
(b) Reports on Form 8-K.
None.
35
<PAGE> 37
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 30, 1998 /s/ Troy D. Butts
- -------------- --------------------------------------
Date Troy D. Butts
Senior Vice President and Chief
Financial 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 30, 1998 /s/ Troy D. Butts
- -------------- ---------------------------------------
Date Troy D. Butts
Senior Vice President and Chief
Financial Officer
36
<PAGE> 38
March 30, 1998 *
- -------------- ---------------------------------------------
Date Terry Considine, Director
March 30, 1998 *
- -------------- ---------------------------------------------
Date Susan R. Baron, Director
March 30, 1998 *
- -------------- ---------------------------------------------
Date Peter K. Kompaniez, Director
March 30, 1998 *
- -------------- ---------------------------------------------
Date Leeann Morein, Director
March 30, 1998 *
- -------------- ---------------------------------------------
Date Thomas W. Toomey, Director
March 30, 1998 *
- -------------- ---------------------------------------------
Date Alan A. Diamonstein, 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 24 to the Partnership's Form
10-K for the fiscal year ended December 31, 1997. Other than the Form 10-K
report, no annual report or proxy materials have been sent to security holders.
*By Troy D. Butts pursuant to Power of Attorney.
/s/ Troy D. Butts
-----------------
37
<PAGE> 39
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund III
Indianapolis, IN
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, 1997 and 1996, and the related combined statements of operations, partners'
deficit, and cash flows for each of the three years in the period ended
December 31, 1997. 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, 1997, 1996 and 1995. This investee's statements of financial
position represents total assets constituting 7% of combined total assets at
December 31, 1997 and 1996, and net losses in the amounts of $883,000, $61,000
and $72,000 for each of the three years in the period ended December 31, 1997.
The financial statements of this investee were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
amounts included for this investee, 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, 1997 and 1996, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
McLean, VA
March 3, 1998
38
<PAGE> 40
Independent Auditors' Report
The Partners
Brunswick Village Limited Partnership
Indianapolis, IN
We have audited the accompanying balance sheet of BRUNSWICK VILLAGE
LIMITED PARTNERSHIP, HUD Project No. 031-55075-LDP, as of December 31, 1997,
and the related states 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.
As set forth in Note 12, Notes to Financial Statements, the
Partnership has recognized a loss of $811,943 attributable to the impairment in
value of its principal real estate asset in accordance with Statement of
Financial Accounting Standards No. 121.
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, 1997, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
In accordance with Government Auditing Standards and the Consolidated
Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing
and Urban Development, we have issued a report dated January 22, 1998, on our
consideration of BRUNSWICK VILLAGE LIMITED PARTNERSHIP's internal control and
reports dated January 22, 1998, on its compliance with specific requirements
applicable to major HUD programs, and specific requirements applicable to Fair
Housing and Non-Discrimination.
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 15 to 22 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
Jenkintown, PA
January 22, 1998
39
<PAGE> 41
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, 1996,
and the related states 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, 1996, 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 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
Jenkintown, PA
January 29, 1997
40
<PAGE> 42
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 states 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
Jenkintown, PA
January 25, 1996
41
<PAGE> 43
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 630,105 $ 750,872
Accounts receivable (Note 2) 77,232 194,383
Tenants' security deposits
held in trust funds 331,710 504,457
Prepaid taxes and insurance 119,193 167,382
Deferred finance costs 71,244 154,274
Mortgage escrow deposits (Note 5) 2,018,341 2,960,432
Rental property, net (Notes 4 and 11) 20,201,876 31,561,956
----------- -----------
$ 23,449,701 $ 36,293,756
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Accounts payable and accrued expenses:
Accounts payable (Note 9) $ 415,692 $ 593,317
Accrued real estate taxes 126,994 122,619
Due to management agent (NHPMC) (Note 9) 21,905 31,119
Accrued interest on mortgage notes 7,107 11,652
Due to partners (Note 7) 1,563,206 1,677,390
Accrued interest on partner loans (Note 7) 1,344,751 1,147,838
----------- -----------
3,479,655 3,583,935
Tenants' security deposits payable 333,626 498,850
Deferred income 5,787 39,757
Deferred acquisition notes payable (Note 6) 10,278,044 14,683,867
Accrued interest on deferred
acquisition notes (Note 6) 12,556,402 16,743,488
Mortgage notes payable (Note 5) 12,306,856 17,314,114
Partners' deficit (15,510,669) (16,570,255)
----------- -----------
$ 23,449,701 $ 36,293,756
=========== ===========
</TABLE>
See notes to combined financial statements.
42
<PAGE> 44
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Rental income (Note 3) $ 7,522,222 $ 8,523,974 $ 8,589,996
Interest income 113,424 145,891 144,838
Other income 277,307 282,403 262,432
Gain on disposal of rental properties 980,293 - -
----------- ----------- -----------
8,893,246 8,952,268 8,997,266
----------- ----------- -----------
EXPENSES:
Administrative expenses 956,329 1,014,031 971,059
Operating and maintenance expenses 3,001,959 3,361,064 3,268,140
Management and other services from
related party (Note 9) 568,855 625,232 583,446
Salaries and related benefits to
related party (Note 9) 667,877 786,391 739,044
Depreciation and amortization 1,214,369 1,364,217 1,262,745
Taxes and insurance 1,022,155 1,072,391 1,002,198
Financial expenses - primarily interest (Notes 5 and 7) 445,274 483,739 510,436
Interest on acquisition notes (Note 6) 1,189,591 1,378,755 1,379,901
Other entity expenses 23,057 22,123 129,923
Impairment loss on rental property (Note 11) 811,943 450,000 -
Annual partnership administrative
fees to General Partner (Note 7) 87,387 97,500 97,500
----------- ----------- -----------
9,988,796 10,655,443 9,944,392
----------- ----------- -----------
NET LOSS BEFORE EXTRAORDINARY ITEM (1,095,550) (1,703,175) (947,126)
EXTRAORDINARY ITEM - GAIN ON
EXTINGUISHMENT OF DEBT 3,232,683 - -
----------- ----------- -----------
NET PROFIT (LOSS) $ 2,137,133 $ (1,703,175) $ (947,126)
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
43
<PAGE> 45
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, 1995 $(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)
Distributions (18,362) (195) (874) - (19,431)
Net loss (1,675,362) (15,447) (12,366) - (1,703,175)
------------ ------------ ---------- ----- ------------
Deficit at
December 31, 1996 (15,062,902) (1,088,999) (418,171) (183) (16,570,255)
Distributions (1,041,687) (18,500) (17,360) - (1,077,547)
Net profit 2,080,000 22,793 34,340 - 2,137,133
------------ ------------ ---------- ----- ------------
Deficit at
December 31, 1997 $(14,024,589) $(1,084,706) $(401,191) $(183) $(15,510,669)
=========== ========== ======== ===== ===========
Percentage interest
at December 31, 1995,
1996 and 1997 (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.
44
<PAGE> 46
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Rental receipts $ 7,386,377 $ 8,313,360 $ 8,421,418
Interest receipts 97,416 134,928 135,559
Other receipts 267,558 278,180 287,946
Administrative expenses paid (426,870) (404,938) (367,535)
Administrative salaries paid (379,083) (430,085) (405,924)
Management fees paid (680,043) (747,666) (749,700)
Computer and accounting fees paid (74,513) (89,198) (89,369)
Utilities paid (1,196,137) (1,336,837) (1,262,837)
Operating and maintenance expenses paid (1,515,780) (1,925,757) (1,659,768)
Operating and maintenance payroll paid (729,107) (846,797) (775,432)
Real estate taxes paid (464,649) (525,411) (492,260)
Payroll taxes paid (94,492) (113,728) (108,668)
Miscellaneous taxes paid (32,239) (10,949) (18,306)
Property insurance paid (318,523) (248,182) (208,310)
Miscellaneous insurance paid (169,477) (177,692) (174,904)
Interest on mortgage notes paid (112,082) (158,387) (191,834)
Interest on partner loans paid to General Partner (61,292) (78,419) (10,852)
Mortgage insurance premium paid (65,123) (84,336) (85,974)
Miscellaneous financial expenses paid (423) (300) (747)
Interest earned on entity funds 16,725 2,899 -
Payment of partnership administrative fee
to General Partner (113,271) (37,317) (145,013)
Payment of accrued interest on deferred acquisition note (3,044,592) - -
Payment of other entity expense (19,817) (471) (14,520)
----------- ---------- -----------
Net cash (used in) provided by rental operating activities (1,729,437) 1,512,897 2,082,970
Transfer of operating cash to new owner (88,115) - -
Decrease (increase) in tenants' security deposits
held in trust fund 6,533 (35,423) 19,174
(Decrease) increase in tenants' security deposits payable (4,092) 21,320 (22,517)
----------- ---------- ----------
Net cash (used in) provided by operating activities (1,815,111) 1,498,794 2,079,627
----------- ---------- ----------
</TABLE>
See notes to combined financial statements.
45
<PAGE> 47
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment purchases $ (703,309) $ (985,968) $(1,044,889)
Proceeds from disposal of rental property 4,288,441 - -
Payments to mortgage escrow deposits (1,414,994) (1,581,392) (1,539,584)
Disbursements from mortgage escrow deposits 1,226,291 1,591,480 1,480,302
Interest earned on mortgage escrow deposits (46,997) (100,038) (89,442)
Decrease (increase) in receivable from mortgagee 86,074 171,189 (208,443)
------------ ----------- -----------
Net cash provided by (used in) investing activities 3,435,506 (904,729) (1,402,056)
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal on mortgage notes (555,354) (578,286) (538,772)
Distributions to partners (1,077,547) (19,431) (30,188)
Loans from partners 6,702 6,165 5,549
Repayment of loans from partners (114,963) - (2,392)
----------- ---------- -----------
Net cash used in financing activities (1,741,162) (591,552) (565,803)
---------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (120,767) 2,513 111,768
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 750,872 748,359 636,591
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 630,105 $ 750,872 $ 748,359
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
46
<PAGE> 48
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net profit (loss) $ 2,137,133 $(1,703,175) $ (947,126)
---------- ---------- -----------
Adjustments to reconcile net profit (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,214,369 1,364,217 1,262,745
Extraordinary gain on extinguishment of deferred
acquisition note principal and interest (3,232,683) - -
Gain on disposal on rental properties (980,293) - -
Impairment loss on rental property 811,943 450,000 -
Mortgagor entity expenses 1,558,236 1,734,347 1,833,545
Decrease (increase) in receivable from tenants, net 8,494 (6,328) 7,591
(Increase) decrease in other receivable (125) 271 59
Decrease (increase) in receivable from FHA subsidy 6,791 (1,296) (2,933)
Decrease (increase) in insurance proceeds receivable 6,370 65,422 (39,713)
Increase in interest receivable (7,413) (1,442) (850)
(Increase) decrease in prepaid taxes and insurance (63,824) 496 14,135
Increase (decrease) in accounts payable 35,937 (251,517) 88,207
Decrease in accrued interest on mortgage note (3,360) (2,928) (3,327)
Increase (decrease) in accrued real estate taxes 11,216 (2,904) (563)
(Decrease) increase in deferred income (5,434) (8,157) 29,614
(Decrease) increase in management fee payable (4,547) (10,801) 2,506
Payment of interest on partner loans (61,292) (78,419) (10,852)
Payment of partnership administrative fee to
General Partner (113,271) (37,317) (145,013)
Payment of other entity expense (19,817) (471) (14,520)
Interest earned on entity funds 16,725 2,899 -
Decrease in deferred costs - - 9,465
Payment of interest on deferred acquisition note (3,044,592) - -
Transfer of operating cash to new owner (88,115) - -
Decrease (increase) in tenants' security deposits
held in trust fund 6,533 (35,423) 19,174
(Decrease) increase in tenants' security deposits
payable (4,092) 21,320 (22,517)
---------- ---------- -----------
Total adjustments (3,952,244) 3,201,969 3,026,753
---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES $(1,815,111) $ 1,498,794 $ 2,079,627
========== ========== ==========
</TABLE>
See notes to combined financial statements.
47
<PAGE> 49
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 3 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.
On June 3, 1997, Apartment Investment and Management Company, a
Maryland corporation ("AIMCO" and, together with its subsidiaries and other
controlled entities, the "AIMCO Group"), acquired all of the issued and
outstanding capital stock of NHP Partners, Inc., a Delaware corporation ("NHP
Partners"), and the AIMCO Group acquired all of the outstanding interests in
NHP Partners Two Limited Partnership, a Delaware limited partnership ("NHP
Partners Two"). The acquisitions were made pursuant to a Real Estate
Acquisition Agreement, dated as of May 22, 1997 (the "Agreement"), by and among
AIMCO, AIMCO Properties, L.P., a Delaware limited partnership (the "Operating
Partnership"), Demeter Holdings Corporation, a Massachusetts corporation
("Demeter"), Phemus Corporation, a Massachusetts corporation ("Phemus"),
Capricorn Investors, L.P., a Delaware limited partnership ("Capricorn"), J.
Roderick Heller, III and NHP Partners Two LLC, a Delaware limited liability
company ("NHP Partners Two LLC"). NHP Partners owns all of the outstanding
capital stock of the National Corporation for Housing Partnerships, a District
of Columbia corporation ("NCHP"), which is the general partner of The National
Housing Partnership, a District of Columbia limited partnership ("NHP").
Together, NCHP and NHP Partners Two own all of the outstanding partnership
interests in NHP. NHP is the general partner of National Housing Partnership
Realty Fund III (a Maryland Limited Partnership) (the "Registrant" or
"Partnership"). As a result of these transactions, the AIMCO Group has acquired
control of the general partner of the Registrant and, therefore, may be deemed
to have acquired control of the Registrant.
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
48
<PAGE> 50
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
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.
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.
Significant Accounting Policies
The financial statements of the Local Limited Partnerships are
prepared on the accrual basis of accounting. For nine 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.
49
<PAGE> 51
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Due from tenants $ 87,942 $123,982
Due from mortgagee - 86,074
Interest 21,199 26,794
Insurance proceeds - 6,370
Other 5,291 11,957
-------- -------
114,432 255,177
Less allowance for doubtful accounts (37,200) (60,794)
-------- -------
Net accounts receivable $ 77,232 $194,383
======== =======
</TABLE>
3. HOUSING ASSISTANCE AGREEMENTS
During 1997, the Federal Housing Administration (FHA) 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 Local
Limited Partnerships 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 1997. The Local Limited Partnerships received
a total of $1,785,057, $1,985,238 and $1,999,593 in the form of housing
assistance payments during 1997, 1996 and 1995, respectively, which is included
in "Rental income" on the combined statements of operations.
All of the units (503 in total) receiving rent subsidies from Section
8 have their contracts expiring during the year ending December 31, 1998.
Contracts for 285 of these units expire on or prior to September 30,
1998, and Congress has passed legislation which will provide a one-year renewal
contract to replace those contracts. Contracts covering the remaining 218 units
expire in October and November, 1998. It is uncertain whether the agreements
will be renewed, and if so, on what terms.
For the past several years, various proposals have been advanced by
the United States Department of Housing and Urban Development ("HUD"), Congress
and others proposing the restructuring of HUD's rental assistance programs
under Section 8 of the United States Housing Act of 1937 ("Section 8"), under
which 503 units, 41 percent of the total units owned by the properties in which
the Partnership has invested, receive rental subsidies. On October 27, 1997,
the President signed into law the Multifamily Assisted Housing Reform and
Affordability Act of 1997 (the "1997 Housing Act"). Under the 1997 Housing Act,
certain properties assisted under Section 8, with rents above market levels and
financed with HUD-insured mortgage loans, will be restructured by adjusting
subsidized rents to market levels, thereby potentially reducing rent subsidies,
and lowering required debt service costs as needed to ensure financial
viability at the reduced rents and rent subsidies. The 1997 Housing Act retains
project-based subsidies for most
50
<PAGE> 52
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
properties (properties in rental markets with limited supply, properties
serving the elderly, and certain other properties). The 1997 Housing Act phases
out project-based subsidies on selected properties servicing families not
located in rental markets with limited supply, converting such subsidies to a
tenant-based subsidy. Under a tenant-based system, rent vouchers would be
issued to qualified tenants who then could elect to reside at properties of
their choice, provided such tenants have the financial ability to pay the
difference between the selected properties' monthly rent and the value of the
vouchers, which would be established based on HUD's regulated fair market rent
for the relevant geographical areas. The 1997 Housing Act provides that
properties will begin the restructuring process in federal fiscal year 1999
(beginning October 1, 1998), and that HUD will issue final regulations
implementing 1997 Housing Act on or before October 27, 1998. With respect to
Housing Assistance Payments Contracts ("HAP Contracts") expiring before October
1, 1998, Congress has elected to renew them for one-year terms, generally at
existing rents, so long as the properties remain in compliance with the HAP
Contracts. While the Partnership does not expect the provisions of the 1997
Housing Act to result in a significant number of tenants relocating from
properties owned by the Local Limited Partnerships, there can be no assurance
that the provisions will not significantly affect the operations of the
properties of the Local Limited Partnerships. Furthermore, there can be no
assurance that other changes in Federal housing subsidy policy will not occur.
Any such changes could have an adverse effect on the operation of the
Partnership.
4. RENTAL PROPERTY
Rental property consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Land $ 2,072,600 $ 2,992,600
Building and improvements 24,362,182 36,409,389
Furniture and equipment 4,500,658 6,258,454
----------- -----------
30,935,440 45,660,443
Less accumulated depreciation (10,733,564) (14,098,487)
----------- -----------
Net rental property $ 20,201,876 $ 31,561,956
=========== ===========
</TABLE>
5. 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 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.
51
<PAGE> 53
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
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.
Approximate maturities of mortgage notes payable for the next five
years are as follows:
<TABLE>
<S> <C>
1998 $ 498,000
1999 535,000
2000 575,000
2001 617,000
2002 663,000
Thereafter 9,419,000
----------
$12,307,000
==========
</TABLE>
6. 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 in 1999, except for the Meadowood
Townhouses III Limited Partnership note discussed below. The notes may be
prepaid in whole or in part at any time without penalty.
On May 2, 1996, the Meadowood Townhouses III Limited Partnership
entered into Agreement of Sale with Community Preservation and Development
Corporation, pursuant to the terms of the Low Income Housing Preservation and
Homeownership Act of 1990 ("LIHPRHA") to sell Meadowoods Associates III Local
Partnership. The purchase price was to be based on the project's Transfer
Preservation Value, as approved by HUD. Settlement was pending Congressional
appropriation of LIHPRHA funds to HUD. This appropriation did not transpire and
therefore this sale opportunity expired. In connection with the expired sale
opportunity, a Forebearance Agreement was executed, which extended the maturity
date of the deferred acquisition note in the amount of $4,995,980 including
accrued interest at December 31, 1997, made by the Meadowood Townhouses III
Limited Partnership. Under the terms of this agreement, the initial period of
forebearance expired on April 30, 1997. Such funding was not approved by April
30, 1997 and a further extension of forebearance until January 2, 1998 was
granted to permit the General Partner to submit an alternative plan to the note
holders, and to negotiate and close such plan. The General Partner is currently
attempting to negotiate an extension of the due date of the deferred
acquisition note. If such an extension is not negotiated, the Partnership shall
cause title to the Partnership's interest in the Local Limited Partnership to
be conveyed to the note holders. There can be no assurance that the efforts
will be successful.
7. PAYABLES DUE PARTNERS
The Local Limited Partnerships accrued annual partnership
administration fees payable to the General Partner, of $87,387, $97,500 and
$97,500 during 1997, 1996 and 1995, respectively. Payments of these fees are
made to NHP without interest from surplus cash available for distribution to
partners pursuant to HUD regulations. During 1997,
52
<PAGE> 54
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
1996 and 1995, the Local Limited Partnerships paid $113,271, $37,317 and
$145,013 for such fees, respectively. The balances owed to the General Partner
for these fees were $411,739 and $437,623 at December 31, 1997 and 1996,
respectively.
During 1997, 1996 and 1995, the General Partner advanced $26,668,
$30,715 and $120,952 to twelve, seven and ten of the Local Limited Partnerships
to fund partnership entity expenses, including expenses incurred relating to
potential sales or refinancing under the LIHPRHA program. During 1997 and 1995,
loans of $100,517 and $2,392, respectively, were repaid by five and four Local
Limited Partnerships. There were no repayments made during 1996. The balance
owed to the General Partner by the Local Limited Partnerships at December 31,
1997 and 1996, was $631,633 and $705,482, respectively. Interest is charged at
a rate equal to the Chase Manhattan Bank prime interest rate plus 2%. Chase
Manhattan Bank prime was 8.5% at December 31, 1997.
During 1997, 1996 and 1995, the Partnership made no advances to the
Local Limited Partnerships. During 1997, loans of $14,446 were repaid one Local
Limited Partnership. There were no repayments made during 1996 and 1995. The
balance owed to the Partnership by the Local Limited Partnerships at December
31, 1997 and 1996, was $519,834 and $534,280, respectively. Interest is charged
at a rate equal to the Chase Manhattan Bank prime interest rate plus 2%. Chase
Manhattan Bank prime was 8.5% at December 31, 1997.
During 1997, 1996 and 1995, respectively, interest on advances from
the Partnership and the General Partner of $258,205, $234,470 and $226,220 was
recorded, and $61,292, $78,419 and $10,852 of interest relating to prior years
was repaid.
All advances and accumulated interest will be paid in conformity with
HUD and/or other regulatory requirements and applicable partnership agreements.
8. 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.
53
<PAGE> 55
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
A reconciliation follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net profit (loss) per financial statements $ 2,137,133 $(1,703,175) $ (947,126)
Depreciation and amortization (676,800) (1,046,233) (1,073,733)
Interest on acquisition notes payable (355,345) (164,793) (138,644)
Impairment loss on rental property 811,943 450,000 -
Accrued interest on partner loans 210,563 154,171 212,738
Net income from dispositions 6,253,777 - -
Other 143,307 (30,467) 149,356
----------- ------------ -----------
Loss per tax returns $ 8,524,578 $(2,340,497) $(1,797,409)
========== ========== ==========
</TABLE>
9. RELATED PARTY TRANSACTIONS
An affiliate of the General Partner, NHP Management Company ("NHPMC"),
formerly a wholly owned subsidiary of NHP Incorporated ("NHPI"), is the project
management agent for the projects operated by four of the Local Limited
Partnerships. During May 1997, AIMCO acquired approximately 51% of the voting
stock of NHPI. An additional 3% of the voting stock was acquired by AIMCO in
August 1997. On December 8, 1997, the NHPI stockholders elected to merge with
AIMCO. After the merger, NHPMC became a wholly owned subsidiary of AIMCO.
NHPMC and other affiliates of NCHP earned $568,855, $625,232 and $583,446 from
the Local Limited Partnerships for management fees and other services provided
to the Local Limited Partnerships during 1997, 1996 and 1995, respectively. At
December 31, 1997 and 1996, amounts due NHPMC and unpaid by the Local Limited
Partnerships amounted to $21,905 and $31,119, respectively.
Personnel working at the project sites, which are managed by NHPMC,
were employees of NHPI during the period January 1, 1996 through December 8,
1997 and became employees of NHPMC (as a successor employer) as of December 8,
1997 and, therefore, the projects reimbursed NHPI and NHPMC for the actual
salaries and related benefits. Prior to January 1, 1996, project employees were
employees of NCHP. Total reimbursements earned for salaries and benefits for
the years ended December 31, 1997, 1996 and 1995, were approximately $668,000,
$786,000 and $739,000, respectively. At December 31, 1997 and 1996 account
payable included $9,648 and $2,309 due to NHPMC and NHPI, respectively.
10. FUTURE OPERATIONS AND CASH FLOWS
The Meadowood Townhouses III Limited Partnership's continued existence
as a going concern is dependent on the Local Limited Partnership's ability to
repay the principal and accrued interest on the deferred acquisition notes, or
to negotiate further amendments of the terms of the note and the related
forbearance documents. The Local Limited Partnership has, for the past several
years, generated losses which have been funded through loans from the partners.
The Local Limited Partnership has minimal cash and is generating negative cash
flows. The partners are under no
54
<PAGE> 56
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
obligation to provide such funding in the future. Should the Meadowood
Townhouses III Limited Partnership cease to exist as a going concern, there
could be significant tax consequences to the partners in the Partnership. The
General Partner intends to manage the Local Limited Partnership prudently so as
to produce positive cash flows from their operations, thus allowing for
adequate cash distributions.
The total assets, deficit, revenues, and net loss before extraordinary
item of Meadowoods Townhouses III Limited Partnership represent 16%, 29%, 17%
and 4%, respectively, of the applicable amounts included in the accompanying
combined financial statements as of December 31, 1997 and for the year then
ended.
11. IMPAIRMENT LOSS ON RENTAL PROPERTY
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. This Statement requires 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.
During 1997, Brunswick Village Limited Partnership recognized an
impairment loss on its rental property in the amount of $811,943. The
Partnership and NHP are actively pursuing a plan to dispose of their interests
in the Local Limited Partnership. As a result, the estimated net cash flow was
less than the carrying amount at December 31, 1997. The Local Limited
Partnership has used the Direct Capitalization Method to estimate the fair
value of the rental property. Using this Method, estimated annual cash flow
generated by the property is divided by an overall capitalization rate to
estimate the rental property's fair value.
During 1996, Galion Limited Partnership recognized an impairment loss
on its rental property in the amount of $450,000. Because the Local Limited
Partnership's deferred acquisition note is due December 20, 1999, the Local
Limited Partnership estimated net cash flow only for the period January 1, 1997
to December 20, 1999. As a result of this limited holding period, the estimated
net cash flow was less than the carrying amount at December 31, 1996. The Local
Limited Partnership has used the Direct Capitalization Method to estimate the
fair value of the rental property.
Additionally, regardless of whether an impairment loss of an
individual property has been recorded or not, the carrying value of each of the
rental properties may still exceed their fair market value as of December 31,
1997. Should a Local Limited Partnership be forced to dispose of any of its
properties, it could incur a loss.
12. NON-CASH INVESTING ACTIVITY
During 1997 and 1996, four and five of the Local Limited
Partnerships incurred costs of $19,161 and $145,744, respectively, for
additions to rental property which are included in accounts payable.
55
<PAGE> 57
NATIONAL HOUSING PARTNERSHIPS REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
13. CONTINGENCY
In accordance with FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
the Local Limited Partnerships record impairment losses on their rental
property when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than their carrying amount. The Woodmark and Indian Valley I,
II, and III Local Limited Partnerships estimate of cash flows anticipates that
they will be able to successfully refinance, restructure, or renegotiate their
deferred acquisition note payable which are due in 1999. If the these Local
Limited Partnerships are unsuccessful in these efforts, the Partnerships
estimate of undiscounted cash flows will change resulting in the need to
write-down the rental property to fair value.
14. DISPOSALS OF RENTAL PROPERTIES
On May 2, 1996, Meadowood Townhouses I Limited Partnership entered into
an Agreement of Sale with Community Preservation and Development Corporation,
to sell its two properties, Meadowood Apartments I and II pursuant to the terms
of LIHPRHA. The purchase price was based on the properties' Transfer
Preservation Value, as approved by HUD. During 1997, funding was approved for
the sale of Meadowood Apartments I and II, and final settlement occurred on
July 15, 1997. Total LIHPRHA grant money received for the properties was
$3,336,387, comprised of $1,558,252 for Meadowoods Apartments I and $1,778,135
for Meadowood Apartments II. The holders of the deferred acquisition notes were
paid a portion of the LIHPRHA grant money in full satisfaction of amounts due
on their notes. Any unpaid balances were forgiven. Meadowood Townhouses I
Limited Partnership's gain from this transaction has been recorded in the
combined statements of operations for the year ended December 31, 1997, as an
extraordinary item - gain on extinguishment of debt of $3,232,683.
During 1997, Elden Limited Partnership entered into an Agreement of
Sale with Southport Financial Services, Inc., to sell its property, Elden
Terrace Apartments. The purchase price for the sale was $5,746,892, which is
above the mortgage note of $1,866,667. In addition, Southport Financial
Services, Inc., assumed the deferred acquisition note and accrued interest
totaling $3,505,225 due to the note holders. Final settlement occurred on July
31, 1997. Elden Limited Partnership's gain of $1,093,975 has been recorded in
the combined statements of operations for the year ended December 31, 1997 as a
gain on disposal of rental property.
15. 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 note and the partner
loans and related accrued interest. For the deferred acquisition notes 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
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
NHP REALTY FUND III LIMITED PARTNERSHIP
KNOW ALL MEN BY THESE PRESENTS
THAT I, the undersigned member of the Board of Directors of National
Corporation for Housing Partnerships, hereby make, constitute and appoint
Troy D. Butts, Chief Financial Officer of NCHP, my attorney-in-fact, with full
power of substitution, in my name, place and stead to execute and sign my name
upon and documents, paper releases, consents and the like, including federal
and state securities registration statements and amendments and Form 10-K
annual reports and other post-sale and periodic reports pertaining to NHP
Realty Fund III Limited Partnership as may be appropriate.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal on the date
set forth below.
Date: 3-20-98 /s/ Alan A. Diamonstein
-------------- ------------------------
SIGNATURE
State of Virginia
City of Newport News
Before me, Allan R. Staley, on this day personally appeared Alan A. Diamonstein
known to me to be the person whose name is subscribed in the foregoing
instrument, and who, after being duly sworn, stated that the content of said
instrument is to the best of his knowledge and belief true and correct, and who
acknowledged that he executed same for the purposes therein expressed.
Given under my hand and official seal at 10 AM this 20th day of March 1998.
/s/ Allan R. Staley
- -------------------
Notary Public
My Commission expires: 5-31-98
-----------
<PAGE> 2
POWER OF ATTORNEY
NHP REALTY FUND III LIMITED PARTNERSHIP
KNOW ALL MEN BY THESE PRESENTS
THAT I, the undersigned member of the Board of Directors of National
Corporation for Housing Partnerships, hereby make, constitute and appoint
Troy D. Butts, Chief Financial Officer of NCHP, my attorney-in-fact, with full
power of substitution, in my name, place and stead to execute and sign my name
upon and documents, paper releases, consents and the like, including federal
and state securities registration statements and amendments and Form 10-K
annual reports and other post-sale and periodic reports pertaining to NHP
Realty Fund III Limited Partnership as may be appropriate.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal on the date
set forth below.
Date: 3-12-98 /s/ Susan R. Baron
-------------- -------------------
SIGNATURE
State of District of Columbia
County of ___________
Before me, James M. Reed, on this day personally appeared Susan R. Baron known
to me to be the person whose name is subscribed in the foregoing instrument,
and who, after being duly sworn, stated that the content of said instrument is
to the best of his knowledge and belief true and correct, and who acknowledged
that he executed same for the purposes therein expressed.
Given under my hand and official seal at 11 AM this 12th day of March 1998.
/s/ James M. Reed
- -----------------
Notary Public
My Commission expires: 6-30-2002
-----------
<PAGE> 3
POWER OF ATTORNEY
NHP REALTY FUND III LIMITED PARTNERSHIP
KNOW ALL MEN BY THESE PRESENTS
THAT I, the undersigned member of the Board of Directors of National
Corporation for Housing Partnerships, hereby make, constitute and appoint
Troy D. Butts, Chief Financial Officer of NCHP, my attorney-in-fact, with full
power of substitution, in my name, place and stead to execute and sign my name
upon and documents, paper releases, consents and the like, including federal
and state securities registration statements and amendments and Form 10-K
annual reports and other post-sale and periodic reports pertaining to NHP
Realty Fund III Limited Partnership as may be appropriate.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal on the date
set forth below.
Date: 3-30-98 /s/ Terry Considine
-------------- --------------------
SIGNATURE
State of Colorado
City of Denver
Before me, ____________, on this day personally appeared Terry Considine known
to me to be the person whose name is subscribed in the foregoing instrument,
and who, after being duly sworn, stated that the content of said instrument is
to the best of his knowledge and belief true and correct, and who acknowledged
that he executed same for the purposes therein expressed.
Given under my hand and official seal at _____ this ____ day of _______ 1998.
/s/
- ---
Notary Public
My Commission expires: -
---
<PAGE> 4
POWER OF ATTORNEY
NHP REALTY FUND III LIMITED PARTNERSHIP
KNOW ALL MEN BY THESE PRESENTS
THAT I, the undersigned member of the Board of Directors of National
Corporation for Housing Partnerships, hereby make, constitute and appoint
Troy D. Butts, Chief Financial Officer of NCHP, my attorney-in-fact with full
power of substitution, in my name, place and stead to execute and sign my name
upon and documents, paper releases, consents and the like, including federal
and state securities registration statements and amendments and Form 10-K
annual reports and other post-sale and periodic reports pertaining to NHP
Realty Fund III Limited Partnership as may be appropriate.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal on the date
set forth below.
Date: 3-30-98 /s/ Peter K. Kompaniez
-------------- -----------------------
SIGNATURE
State of Colorado
City of Denver
Before me, _________, on this day personally appeared Peter K. Kompaniez known
to me to be the person whose name is subscribed in the foregoing instrument,
and who, after being duly sworn, stated that the content of said instrument is
to the best of his knowledge and belief true and correct, and who acknowledged
that he executed same for the purposes therein expressed.
Given under my hand and official seal at _____ this ____ day of _______ 1998.
/s/
- ---
Notary Public
My Commission expires: -
---
<PAGE> 5
POWER OF ATTORNEY
NHP REALTY FUND III LIMITED PARTNERSHIP
KNOW ALL MEN BY THESE PRESENTS
THAT I, the undersigned member of the Board of Directors of National
Corporation for Housing Partnerships, hereby make, constitute and appoint
Troy D. Butts, Chief Financial Officer of NCHP, my attorney-in-fact, with full
power of substitution, in my name, place and stead to execute and sign my name
upon and documents, paper releases, consents and the like, including federal
and state securities registration statements and amendments and Form 10-K
annual reports and other post-sale and periodic reports pertaining to NHP
Realty Fund III Limited Partnership as may be appropriate.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal on the date
set forth below.
Date: 3-30-98 /s/ Leeann Morein
-------------- ------------------
SIGNATURE
State of Colorado
City of Denver
Before me, ________, on this day personally appeared Leeann Morein known
to me to be the person whose name is subscribed in the foregoing instrument,
and who, after being duly sworn, stated that the content of said instrument is
to the best of his knowledge and belief true and correct, and who acknowledged
that he executed same for the purposes therein expressed.
Given under my hand and official seal at _____ this ____ day of ______ 1998.
/s/
- ---
Notary Public
My Commission Expires: -
---
<PAGE> 6
POWER OF ATTORNEY
NHP REALTY FUND III LIMITED PARTNERSHIP
KNOW ALL MEN BY THESE PRESENTS
THAT I, the undersigned member of the Board of Directors of National
Corporation for Housing Partnerships, hereby make, constitute and appoint Troy
D. Butts, Chief Financial Officer of NCHP, my attorney-in-fact, with full power
of substitution, in my name, place and stead to execute and sign my name upon
and documents, paper releases, consents and the like, including federal and
state securities registration statements and amendments and Form 10-K annual
reports and other post-sale and periodic reports pertaining to NHP Realty Fund
III Limited Partnership as may be appropriate.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal on the date
set forth below.
Date: 3-30-98 /s/ Thomas W. Toomey
-------------- ---------------------
SIGNATURE
State of Colorado
City of Denver
Before me, _____________, on this day personally appeared Thomas W. Toomey known
to me to be the person whose name is subscribed in the foregoing instrument,
and who, after being duly sworn, stated that the content of said instrument is
to the best of his knowledge and belief true and correct, and who acknowledged
that he executed same for the purposes therein expressed.
Given under my hand and official seal at _____ this ____ day of _____ 1998.
/s/
- ---
Notary Public
My Commission Expires: -
---
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 538,513
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 538,513
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 625,621
<CURRENT-LIABILITIES> 40,890
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 584,731
<TOTAL-LIABILITY-AND-EQUITY> 625,621
<SALES> 0
<TOTAL-REVENUES> 391,963
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 139,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 252,547
<INCOME-TAX> 0
<INCOME-CONTINUING> 252,547
<DISCONTINUED> 0
<EXTRAORDINARY> 764,234
<CHANGES> 0
<NET-INCOME> 1,016,781
<EPS-PRIMARY> 87
<EPS-DILUTED> 87
</TABLE>
