<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998......Commission file number 0-14457
----------------- -------
NATIONAL HOUSING PARTNERSHIP REALTY FUND III (A MARYLAND LIMITED PARTNERSHIP)
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 52-1394972
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9200 KEYSTONE CROSSING, SUITE 500 46240
--------------------------------- -----
INDIANAPOLIS, INDIANA (Zip Code)
---------------------
(Address of principal executive offices)
<TABLE>
<S> <C>
Registrant's telephone number, including area code: (317) 817-7500
--------------
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
------------------------------------
</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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days prior to the date of
filing. No market for the Registrant's limited partnership interests exists,
and, therefore, a market value for such interests cannot be determined.
Documents incorporated by reference. NONE
----
<PAGE> 2
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
-----------------
PART I
------
Page
----
Item 1. Business 2
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
-------
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 35
PART III
--------
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial
Owners and Management 38
Item 13. Certain Relationships and Related Transactions 38
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 39
1
<PAGE> 3
PART I
INTRODUCTION
The matters discussed in this Form 10-K contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-K and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operation. Accordingly,
actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
Item 1. Business
National Housing Partnership Realty Fund III (A Maryland Limited
Partnership) (the "Partnership" or the "Registrant") 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" or the "General Partner").
Together, NCHP and NHP Partners Two own all of the outstanding partnership
interests in NHP. NHP is the general partner of the Registrant. As a result of
these transactions, the AIMCO Group acquired control of the general partner of
the Registrant and, therefore, may be deemed to have acquired control of the
Registrant.
Receipt of HUD Subpoena/Tolling Agreement
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 agreement whereby NHP or any of its
affiliates provides or has provided compensation to owners (or their
affiliates) of HUD-assisted properties in connection with management of a
HUD-assisted property (the "Transactions"). This matter has been disclosed in
all filings by NHP with the Securities and Exchange Commission. Documents were
produced which may have been responsive to the HUD subpoena and submitted to the
HUD Inspector General in 1998.
On or about February 26, 1998, Counsel for NHP and the U.S. government
entered into a Tolling Agreement with respect to any applicable statues of
limitations related to certain civil claims the government may have against NHP
in connection with the Transactions. The Tolling Agreement expired in August
1998.
NHP believes its operations are in compliance, in all material respects
with all laws, rules, and regulations related to HUD-assisted or HUD-insured
properties and has retained counsel in connection with NHP's response to the
subpoena. 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.
2
<PAGE> 4
The Partnership's business is to hold limited partnership interests in
ten limited partnerships (Local Limited Partnerships) each of which owns and
operates a multi-family rental housing property (Properties), which receives one
or more forms of assistance from the Federal Government. In each instance, NHP
is the general partner of the Local Limited Partnership and the Partnership is
the principal limited partner. As a limited partner, the Partnership's liability
for obligations of the Local Limited Partnerships is limited to its investment
and, as a limited partner, the Partnership does not exercise control over the
activities of the Local Limited Partnerships in accordance with the partnership
agreements. See "Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations" for information relating to the
Registrant's rights and obligations to make additional contributions or loans to
Local Limited Partnerships.
During 1997, two Local Limited Partnerships in which the Partnership
held a limited partnership interest, Elden Limited Partnership and Meadowood
Townhouses I Limited Partnership sold their properties.
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>
Financed, Units Authorized Occupancy
Insured and for Rental Percentage for the
Property Name, Location and Number Subsidized Assistance Under Year Ended
Partnership Name of Units Under Section 8 (C) December 31, 1998
---------------- -------- ----- ------------- -----------------
<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)
Galion East 61 (B) 60 98%
Galion, Ohio
(Galion Limited Partnership)
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
Financed, Units Authorized Occupancy
Insured and for Rental Percentage for the
Property Name, Location and Number Subsidized Assistance Under Year Ended
Partnership Name of Units Under Section 8 (C) December 31, 1998
---------------- -------- ----- ------------- -----------------
<S> <C> <C> <C> <C>
Indian Valley I 100 (A) 40 95%
Kent, Ohio
(Indian Valley I Limited
Partnership)
Indian Valley II 90 (A) 36 97%
Kent, Ohio
(Indian Valley II Limited
Partnership)
Indian Valley III 98 (A) 39 96%
Kent, Ohio
(Indian Valley III Limited
Partnership)
Cherry Branch Townhomes 172 (A) 20 95%
Laurel, Maryland
(Kimberly Associates
Limited Partnership)
Meadowood Apartments Associates III 283 (A) 164 94%
Edgewood, Maryland
(Meadowood Townhouses III
Limited Partnership)
Newton Hill 40 (A) 16 93%
Akron, Ohio
(Newton Hill Limited Partnership)
Woodmark 150 (A) 0 95%
Woodbridge, Virginia
(Woodmark Limited Partnership)
</TABLE>
(A) The mortgage is insured by the Federal Housing Administration under the
provisions of Section 236 of the National Housing Act.
(B) The mortgage is insured by the Federal Housing Administration under the
provisions of Section 221(d)(3) of the National Housing Act.
(C) Section 8 of Title II of the Housing and Community Development Act of
1974.
Although each Local Limited Partnership in which the Partnership has
invested owns an apartment complex which must compete with other apartment
complexes for tenants, government mortgage interest and rent subsidies make it
possible to rent units to eligible tenants at below market rates. In general,
this insulates the Properties from market competition.
For the past several years, various proposals have been advanced by
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
4
<PAGE> 6
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. With respect to
Housing Assistance Payments Contracts ("HAP Contracts") expiring before October
1, 1998, Congress 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.
All of the units (503 in total) receiving rent subsidies from Section 8
have their contracts expiring during the year ending December 31, 1999. HUD has
issued new regulations that govern the continuance of project-based subsidies.
Under the new regulations, owners with HAP contracts expiring after September
30, 1998 may elect to (1) renew the contract without restructuring for one year,
(2) opt out of the contract, or (3) enter into the Mark-to Market program, which
includes a potential restructuring of the mortgage and renewal of the contract.
At this time it is not possible to determine which option each of the Local
Limited Partnerships will elect, and accordingly, it is not possible to
determine the ultimate impact on the operations of the Local Limited
Partnerships.
REGULATION
General
Multifamily apartment properties are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas.
Changes in laws increasing the potential liability for environmental conditions
existing on properties or increasing the restrictions on discharges or other
conditions, as well as changes in laws effecting development, construction and
safety requirements, may result in significant unanticipated expenditures, which
would adversely affect the Partnership's cash flow from operating activities. In
addition, future enactment of rent control or rent stabilization laws or other
laws regulating multi-family housing may reduce rental revenue or increase
operating costs in particular markets.
HUD Approval and Enforcement
A significant number of properties owned by the Partnership are subject
to regulations by HUD. Under its regulations, HUD reserves the right to approve
the owner, and the manager of HUD-insured and HUD-assisted properties, as well
as their "principals" (e.g. general partners, stockholders with 10% or greater
interest, officers and directors) in connection with the acquisition of a
property, participation in HUD programs or the award of a management contract.
This approval process is commonly referred to as "2530 Clearance." HUD monitors
the performance of properties with HUD-insured mortgage loans. HUD also monitors
compliance with applicable regulations, and takes performance and compliance
into account in approving the acquisition of management of HUD-assisted
properties. In the event of instances of unsatisfactory performances or
regulatory violations, the HUD office with jurisdiction over the applicable
property has the authority to enter a "flag" into the computerized 2530
Clearance system. If one or more flags have been entered, a decision whether to
grant 2530 Clearance is then subject to review by HUD's Multifamily
Participation Review Committee in Washington, D.C., (the 2530 Committee). As a
result of certain mortgage defaults and unsatisfactory ratings received by NHP
Incorporated in years prior to its acquisition by AIMCO in December, 1997, HUD
believes that the 2530 Committee must review any application for 2530 Clearance
filed by AIMCO. On December 18, 1998, AIMCO received approval of approximately
fifty 2530 applications and had no unresolved flags in the 2530 system as of
December 31, 1998.
AIMCO believes that the 2530 Committee will continue to apply the 2530
Clearance process to large management portfolios such as AIMCO's with discretion
and flexibility. While there can be no assurance, AIMCO believes that the
unsatisfactory reviews and the mortgage defaults will not have a material impact
on its results of operations or financial condition.
5
<PAGE> 7
Laws Benefiting Disabled Persons
Under the Americans with Disabilities Act of 1990, all places of public
accommodations are required to meet certain Federal requirements related to
access and use by disabled persons. These requirements became effective in 1992.
A number of additional Federal, state and local laws may also require
modifications to the Properties, or restrict certain further renovations of the
Properties, with respect to access thereto by disabled persons. For example, the
Fair Housing Amendments Act of 1988 requires apartment properties first occupied
after March 13, 1990 to be accessible to the handicapped. Noncompliance with
these laws could result in the imposition of fines or an award of damages to
private litigants and also could result in an order to correct any non-complying
feature, which could result in substantial capital expenditures. Although the
Partnership believes that its properties are substantially in compliance with
present requirements, it may incur unanticipated expenses to comply with these
laws.
Regulation of Affordable Housing
As of December 31, 1998, the Partnership held an equity interest in 10
properties that benefit from government programs intended to provide housing to
people of low or moderate incomes. These programs, which are usually
administered by the HUD or state housing finance agencies, typically provide
mortgage insurance, favorable financing terms or rental assistance payments to
the property owners. As a condition to the receipt of assistance under these
programs, the properties must comply with various requirements, which typically
limit rents to pre-approved amounts. If permitted rents on a property are
insufficient to cover costs, a sale of the property may become necessary, which
could result in a loss of the Partnership's interest in the property, as well as
any benefits flowing from the property. The Partnership must obtain the approval
of HUD in order to acquire a significant interest in a HUD-assisted or
HUD-insured property. The Partnership can make no assurance that it will always
receive such approval.
Environment
Various Federal, state and local laws subject property owners or
operators to liability for the costs of removal or remediation of certain
hazardous substances present on a property. Such laws often impart liability
without regard to whether the owner or operator knew of, or was responsible for,
the release of the hazardous substances. The presence of, or failure to properly
remediate, hazardous substances may adversely affect occupancy at contaminated
apartment communities and the Partnership's ability to sell or borrow against
contaminated properties. In addition to the costs associated with investigation
and remediation actions brought by governmental agencies, the presence of
hazardous wastes on a property could result in personal injury or similar claims
by private plaintiffs. Various laws also impose liability for the cost of
removal or remediation of hazardous or toxic substances is potentially liable
under such laws. These laws often impose liability whether or not the person
arranging for the disposal ever owned or operated the disposal facility. In
connection with the ownership or operation of properties, the Partnership could
potentially be liable for environmental liabilities or costs associated with its
properties or properties it may acquire in the future.
Management believes that the Partnership's properties are covered by
adequate fire, flood and property insurance provided by reputable companies and
with commercially reasonable deductibles and limits.
Sale of Properties
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 Meadowoods
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
6
<PAGE> 8
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 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 notes payable 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 1998 and 1997, the Partnership received net proceeds from the sale
of $85,459 and $677,126, respectively. 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 note payable 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. During 1998 and 1997, the Partnership received net
proceeds from the sale of $13,908 and $348,862, respectively. The Partnership's
share of the gain from this transaction has been recorded in the accompanying
statements of operations for the years ended December 31, 1998 and 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, during 1998 and 1997, the Partnership received
$99,366 and $1,025,988, respectively 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 from the cash
proceeds. The remaining proceeds of $505,369 will be allocated in the manner
required in the Partnership Agreement as discussed in Note 6 to the
Partnership's financial statements.
Notes Payable
All of the Local Limited Partnerships in which the Partnership has
invested carry notes payable due the original owner of each Property. All of the
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 notes payable as they
mature.
Meadowood Townhouses III Limited Partnership's note payable, plus
accrued interest, was due and payable upon the earlier of the sale, transfer, or
refinancing of the Local limited Partnership or April 30, 1997. A Forbearance
Agreement was executed, which extended the maturity date of certain non-recourse
notes payable in the amount of $5,211,737 including accrued interest at December
31, 1998, 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 noteholders, and to negotiate and close such
plan. An amendment to the Forbearance Agreement requires the Local Limited
Partnership to market the property for sale. If the sale is not closed by
November, 1999, the noteholders will have the right to foreclose on the such
Local Limited Partnership's property. The Forbearance Agreement provides for
sharing of net sale proceeds between the Partners and noteholders. Such proceeds
allocated to the noteholders would be in full satisfaction of the note payable
and the related interest. Meadowood Townhouse III Limited Partnership's
continued existence as a going concern with its present
7
<PAGE> 9
ownership structure is dependent on its successful efforts to repay the
principal and accrued interest on the note payable, or to negotiate further
amendments of the terms of the note and the related forbearance agreements.
Brunswick Village Limited Partnership's note payable, plus accrued
interest, became due on February 28, 1999, and is currently in default. The
remaining eight Local Limited Partnerships' note payable, plus accrued interest,
are due in December, 1999. As of March 1, 1999, the Local Limited Partnerships'
have not renegotiated the terms of the notes, including the extension of the due
date. Continuation of the Local Limited Partnerships' operations in the present
form is dependent on their ability to extend the maturity dates of these notes
or to repay or refinance the notes.
Ownership Percentages
The following sets forth the Partnership's ownership percentages of the
Local Limited Partnerships and the cost of acquisitions of such ownership. All
interests are limited partner interests. Also included are the total mortgage
encumbrance and notes payable notes and related accrued interest encumbrances on
each property for each of the Local Limited Partnerships as of December 31,
1998.
<TABLE>
<CAPTION>
NHP Realty Original Notes
Fund III Cost of Payable
Percentage Ownership Mortgage and Accrued
Partnership Ownership Interest Notes Interest
- ----------- --------- -------- ----- --------
<S> <C> <C> <C> <C>
Brunswick Village, L.P. 99.0% $ 580,592 $ 599,628 $2,267,438
Edmond Estates, L.P. 94.5% 416,038 966,175 2,213,215
Galion, L.P. 94.5% 282,933 500,506 1,090,735
Indian Valley I, II and III, L.P.s 94.5% 1,456,232 3,225,731 5,575,757
Kimberly Associates, L.P. 94.5% 902,469 1,851,360 3,172,531
Meadowoods Townhouses 99.0% 2,998,424 2,827,169 5,211,737
III, L.P.
Newton Hill, L.P. 94.5% 210,227 421,039 743,898
Woodmark, L.P. 94.5% 835,732 1,417,158 3,514,858
</TABLE>
Item 2. Properties
See Item 1 for the real estate owned by the Partnership through the
ownership of limited partnership interests in Local Limited Partnerships.
Item 3. Legal Proceedings
The Partnership is not involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted.
8
<PAGE> 10
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, 1998, there were 927 registered holders of
11,500 limited partnership interests (in addition to 1133 Fifteenth
Street Three Associates See Item 1).
(c) No cash dividends or distributions have been declared from the
inception of the Partnership through December 31, 1998.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Share of profit (losses) from
Local Limited Partnership (A) $ 12,258 $ 348,862 $ - $ - $ (13,066)
Other revenue and expenses:
Interest income 21,381 11,093 8,073 6,057 7,185
Loss on investment in Local
Limited Partnerships - - - - (10,641)
Distributions in excess of investment
in Local Limited Partnerships - 32,008 18,362 28,528 24,527
Partnership operating expenses (163,499) (139,416) (133,660) (135,432) (139,684)
-------- ---------- -------- -------- --------
(Loss) profit before extraordinary item (129,860) 252,547 (107,225) (100,847) (131,679)
Extraordinary item - share of gain on
extinguishment of debt - 764,234 - - -
-------- ---------- -------- -------- --------
Net (loss) profit $(129,860) $1,016,781 $(107,225) $(100,847) $(131,679)
======== ========== ======== ======== ========
Net (loss) profit per unit of other limited
partnership interest based on units
outstanding during the period $ (11) $ 87 $ (9) $ (9) $ (11)
======== ========== ======== ======== ========
Total assets, at December 31 $ 594,835 $ 625,621 $ 140,782 $ 164,374 $ 176,583
======== ========== ======== ======== ========
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 1998, 1997, 1996, 1995
and 1994, $2,033,058, $1,852,645, $1,690,487, $936,943 and $3,803,923,
respectively, of losses from ten, ten, eleven, twelve and twelve 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.
9
<PAGE> 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The matters discussed in this Form 10-K contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-K and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operation. Accordingly,
actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. The
Partnership is dependent upon the Managing General Partner and its affiliates
for management and administrative services ("Managing Agent"). Any of the
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Over the past two years, the Managing Agent has determined that it will
be required to modify or replace significant portions of its software and
certain hardware so that those systems will properly utilize dates beyond
December 31, 1999. The Managing Agent presently believes that with modifications
or replacements of existing software and certain hardware, the Year 2000 issue
can be mitigated. However, if such modifications and replacements are not made
or not completed in time, the Year 2000 issue could have a material impact on
the operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four
Phases: assessment, remediation, testing, and implementation. To date, the
Managing Agent has fully completed its assessment of all the information systems
that could be significantly affected by the Year 2000, and has begun the
remediation, testing and implementation phases on both hardware and software
systems. Assessments are continuing in regards to embedded systems. The status
of each is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer
systems at risk and formulated a plan to repair or replace each of the affected
systems. In August 1998, the mainframe system used by the Managing Agent became
fully functional. In addition to the mainframe, PC-based network servers and
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of December 31, 1998, had completed approximately 75% of this effort.
The total cost to the Managing Agent to replace the PC-based network
servers, routers and desktop PCs is expected to be approximately $1.5 million of
which $1.3 million has been incurred to date. The remaining network connections
and desktop PCs are expected to be upgraded to Year 2000 compliant systems by
March 31, 1999.
10
<PAGE> 12
Computer software:
The Managing Agent utilizes a combination of off-the-shelf,
commercially available software programs as well as custom-written programs that
are designed to fit specific needs. Both of these types of programs were
studied, and implementation plans written and executed with the intent of
repairing or replacing any non-compliant software programs.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and the testing process is
expected to be completed by March 31, 1999.
The final software area is the office software and server operating
systems. The Managing Agent has upgraded all non-compliant office software
systems on each PC and has upgraded 80% of the server operating systems. The
remaining server operating systems are planned to be upgraded to be Year 2000
compliant by March 31, 1999.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property
sites, which needed to be evaluated for Year 2000 compliance. In September 1997,
the Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon
security systems, elevators, heating, ventilating and air conditioning systems,
telephone systems and switches, and sprinkler systems. While this area is the
most difficult to fully research adequately, management has not yet found any
major non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an audit
of these systems and report their findings by March 31, 1999.
Any of the above operating equipment that has been found to be
non-compliant to date has been replaced or repaired. To date, these have
consisted only of security systems and phone systems. As of December 31, 1998
the Managing Agent has evaluated approximately 86% of the operating equipment
for the Year 2000 compliance.
The total cost incurred for all properties managed by the Managing
Agent as of December 31, 1998 to replace or repair the operating equipment was
approximately $400,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $325,000, which is
expected to be completed by April 30, 1999.
The Managing Agent continues to have "awareness campaigns" throughout
the organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within our enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and
other vendor relationships to assess risks regarding their Year 2000 readiness.
The Managing Agent has banking relationships with three major financial
institutions, all of which have indicated their compliance efforts will be
complete before May 1999. The Managing Agent has updated data transmission
standards with two of the three financial institutions. The Managing Agent's
contingency plan in this regard is to move accounts from any institution that
cannot be certified Year 2000 compliant by June 1, 1999.
The Partnership does not rely heavily on any single vendor for goods
and services, and does not have significant suppliers and subcontractors who
share information systems (external agent). To date the Partnership is not aware
of any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
11
<PAGE> 13
The Managing Agent does not believe that the inability of external
agents to complete their Year 2000 remediation process in a timely manner will
have a material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is
estimated at $3.5 million and is being funded from operating cash flows. To
date, the Managing Agent has incurred approximately $2.8 million ($0.6 million
expensed and $2.2 million capitalized for new systems and equipment) related to
all phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred. The
Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Managing
Agent has not yet completed all necessary phases of the Year 2000 program. In
the event that the Managing Agent does not complete any additional phases,
certain worst case scenarios could occur. The worst case scenarios could include
elevators, security and heating, ventilating and air conditioning systems that
read incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year
2000 issues could also adversely affect the Partnership. The Partnership could
be subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical
applications and is working on such plans for others. These contingency plans
involve, among other actions, manual workarounds and selecting new relationships
for such activities as banking relationships and elevator operating systems.
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 notes payable due the original owner of each Property. All of the
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 notes payable as they
mature.
Meadowood Townhouses III Limited Partnership's note payable, plus
accrued interest, was due and payable upon the earlier of the sale, transfer, or
refinancing of the Local limited Partnership or April 30, 1997. A Forbearance
Agreement was executed, which extended the maturity date of certain non-recourse
notes payable in the amount of $5,211,737 including accrued interest at December
31, 1998, made by the Meadowood Townhouses III Limited Partnership. Under the
terms of this agreement, the initial period of forbearance expired on April 30,
1997. Such funding was not approved by April 30, 1997 and a further extension of
forbearance until January 2, 1998 was granted to permit the General Partner to
submit an alternative plan to the noteholders, and to negotiate and close such
plan. An
12
<PAGE> 14
amendment to the Forbearance Agreement requires the Local Limited Partnership to
market the property for sale. If the sale is not closed by November, 1999, the
noteholders will have the right to foreclose on the such Local Limited
Partnership's property. The Forbearance Agreement provides for sharing of net
sale proceeds between the Partners and noteholders. Such proceeds allocated to
the noteholders would be in full satisfaction of the note payable and the
related interest. Meadowood Townhouse III Limited Partnership's continued
existence as a going concern with its present ownership structure is dependent
on its successful efforts to repay the principal and accrued interest on the
note payable, or to negotiate further amendments of the terms of the note and
the related forbearance agreements.
Brunswick Village Limited Partnership's note payable, plus accrued
interest, became due on February 28, 1999, and is currently in default. The
remaining eight Local Limited Partnerships' note payable, plus accrued interest,
are due in December, 1999. As of March 1, 1999, the Local Limited Partnerships'
have not renegotiated the terms of the notes, including the extension of the due
date. Continuation of the Local Limited Partnerships' operations in the present
form is dependent on their ability to extend the maturity dates of these notes
or to repay or refinance the notes.
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 notes payable 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 1998 and 1997, the Partnership received net proceeds from the sale
of $85,459 and $677,126, respectively. 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 note payable 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. During 1998 and 1997, the Partnership received net
proceeds from the sale of $13,908 and $348,862, respectively. The Partnership's
share of the gain from this transaction has been recorded in the accompanying
statements of operations for the years ended December 31, 1998 and 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, during 1998 and 1997, the Partnership received
$99,366 and $1,025,988, respectively 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 $505,369 will be allocated in the manner
required in the Partnership Agreement as discussed in Note 6 to 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.
In addition to the distributions received from the sales described above, cash
distributions totaling $15,698 and $18,362 were received from three and two
Local Limited Partnerships during the
13
<PAGE> 15
years ended December 31, 1997 and 1996, respectively. The receipt of
distributions in future years is dependent on the operations of the underlying
Properties of the Local Limited Partnerships.
During 1998, 1997 and 1996, 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 1998 and 1996.
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, together with accrued interest on such advances,
remain due and payable to the Partnership. As of December 31, 1998 and 1997, the
balance of such advances was $519,834. Interest is calculated at the Chase
Manhattan Bank prime rate plus 2%. Chase Manhattan Bank prime was 7.75% at
December 31, 1998.
During 1998, 1997 and 1996, the General Partner advanced $28,379,
$26,668 and $30,715 to seven, twelve and seven of the Local Limited
Partnerships, respectively, to fund partnership entity expenses, including
expenses incurred relating to potential sales or refinancing under the LIHPRHA
program. During 1998 and 1997, loans of $200 and $100,517,and accrued interest
of $8,698 and $61,292, respectively, were repaid by three and five 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, 1998 and 1997,
was $668,078 and $631,633, respectively. Interest is charged at a rate equal to
the Chase Manhattan Bank prime interest rate plus 2%. Chase Manhattan Bank prime
was 7.75% at December 31, 1998.
Net cash provided by operations for the year ended December 31, 1998
was $56,322 as compared to net cash provided by operations of $381,421 in 1997
and net cash used in operations of $23,592 in 1996. The decrease in cash
provided operations from 1997 to 1998 was primarily the result of a decrease 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. 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.
Cash and cash equivalents amounted to $594,835 at December 31, 1998.
The ability of the Partnership to meet its on-going cash requirements, in excess
of cash on hand at December 31, 1998, is dependent on distributions received
from the Local Limited Partnerships and proceeds from sales or refinancings of
the underlying Properties. In addition, the Partnership's liquidity will be
detrimentally affected to the extent that all or some of the Local Limited
Partnerships are unable to extend the maturity date of their motes payable to
the original owner of the Property and such Properties are foreclosed upon.
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. During 1998 and 1997, the Partnership recorded
$12,258 and $348,862, respectively, of its share of profits resulting from the
sale of the rental property owned by one Local Limited Partnership and during
1997, $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 loss was $129,860 for the year ended December 31,
1998 as compared to a net profit of $1,016,781 for the year ended December 31,
1997. Similarly, net loss per unit of limited partnership interest decreased to
$11 in 1998 from a net profit per unit of $87 in 1997 for the 11,500 units
outstanding throughout both years. This decrease was primarily due to a decrease
in the Partnership's share of profits from Local Limited Partnerships and the
recognition of a share of gain on extinguishment of debt in 1997. The decrease
in share of profits from Local Limited
14
<PAGE> 16
Partnerships was primarily due to the sale of Elden Terrace Apartments in 1997.
The Partnership recognized a gain on extinguishment of debt of $764,234
resulting from the sale and resulting discounted payoff of the note payable of
Meadowood Apartments I and II which were also sold in 1997. As indicated above,
the Partnership's net book investment in the Local Limited Partnerships was
reduced to zero in a prior year (see Note 3 to the Partnership's financial
statements). As a result, the Partnership did not recognize $2,033,058 of its
allocated share of losses from the Local Limited Partnerships for the year ended
December 31, 1998. The Partnership's share of profit or losses from the Local
Limited Partnerships, if not limited to its investment account balance, would
have decreased $4,098,639 from 1997 to 1998. This increase in loss 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 the three rental properties of $980,293, as discussed above. No such
sales occurred during 1998. Additionally, impairment losses on their rental
properties were recognized by one of the Local Limited Partnerships of
$1,230,000 and $811,943 during 1998 and 1997, respectively. Additionally, rental
income and operating expenses decreased during 1998, due to the sales which
occurred during 1997.
The Partnership's net profit was $1,016,781 for the year ended December
31, 1997 compared to a net loss of $107,225 for the year ended December 31,
1996. Similarly, 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 note payable 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.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is exposed to market risks from adverse changes in
interest rates. In this regard, changes in U.S. interest rates affect the
interest earned on the Partnership's cash and cash equivalents as well as
interest paid on indebtedness. As a policy, the Partnership does not engage in
speculative or leveraged transactions, nor does it hold or issue financial
instruments for trading purposes. The Partnership is exposed to changes in
interest rates primarily as a result of its borrowing activities used to
maintain liquidity and fund business operations. Based on interest rates at
December 31, 1998, a 1% increase or decrease in market rates would not have a
material impact on the Partnership.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary schedules of the Partnership
are included on pages 16 through 35 of this report.
15
<PAGE> 17
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund III
Indianapolis, Indiana
We have audited the accompanying statement of financial position of National
Housing Partnership Realty Fund III (the Partnership) as of December 31, 1998,
and the related statements of operations, partners' deficit, and cash flows for
the year then ended, 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 audit. We did not audit the
financial statements of Brunswick Village Limited Partnership for the year ended
December 31, 1998 and which had no investment balance at December 31, 1998.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to data included for Brunswick
Village Limited Partnership, is based solely on the report of the other
auditors.
We conducted our audit 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 audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of National Housing Partnership Realty Fund III as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.
As discussed in Note 7 to the financial statements, the due dates of certain of
the Local Partnership's notes payable have expired, and therefore, the notes are
in default. In addition, certain Local Partnerships' notes payable are due in
1999. These conditions raise substantial doubt about their ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
Ernst & Young LLP
Indianapolis, Indiana
February 22, 1999
16
<PAGE> 18
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund III
Indianapolis, IN
We have audited the accompanying statement of financial position of National
Housing Partnership Realty Fund III (the Partnership) as of December 31, 1997,
and the related statements of operations, partners' equity (deficit), and cash
flows for each of the two years in the period ended December 31, 1997, and
Schedule III listed in the Index at Item 14 for the two years in the period
ended December 31, 1997. These financial statements and Schedule III are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and Schedule III based on our
audits. We did not audit the financial statements of Brunswick Village Limited
Partnership for the years ended December 31, 1997 and 1996. The Partnership's
equity in the net assets of this investee has been reduced to zero at December
31, 1997 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 the results of its
operations and its cash flows for each of the two 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 Schedule III for the two years in the period ended December 31, 1997, 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
17
<PAGE> 19
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
---- ----
ASSETS
------
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 594,835 $ 538,513
Investments in and advances to Local Limited Partnerships (Note 3) - 87,108
--------- ---------
$ 594,835 $ 625,621
========= =========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
------------------------------------------
Liabilities:
Administrative and reporting fees payable to
General Partner $ 86,248 $ -
Accrued expenses 53,716 40,890
--------- ---------
139,964 40,890
--------- ---------
Partners' equity (deficit):
General Partner - The National Housing Partnership (NHP) (90,701) (89,402)
Original Limited Partner - 1133 Fifteenth Street
Three Associates (95,601) (94,302)
Other Limited Partners - 11,500 investment units 641,173 768,435
--------- ---------
454,871 584,731
--------- ---------
$ 594,835 $ 625,621
========= =========
</TABLE>
See notes to financial statements.
18
<PAGE> 20
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1998 1997 1996
---- ---- ----
REVENUES:
<S> <C> <C> <C>
Share of profits from Local Limited
Partnerships (Note 3) $ 12,258 $ 348,862 $ -
Interest income 21,381 11,093 8,073
Distributions in excess of
investment in Local Limited
Partnerships (Note 3) - 32,008 18,362
----------- --------- -----------
33,639 391,963 26,435
----------- --------- -----------
COSTS AND EXPENSES:
Administrative and reporting fees to
General Partner (Note 4) 86,248 86,248 86,248
Other operating expenses 77,251 53,168 47,412
----------- --------- -----------
163,499 139,416 133,660
---------- --------- ----------
(LOSS) PROFIT BEFORE EXTRAORDINARY
ITEM (129,860) 252,547 (107,225)
EXTRAORDINARY ITEM - SHARE OF GAIN ON
EXTINGUISHMENT OF DEBT (Note 3) - 764,234 -
----------- --------- ----------
NET (LOSS) PROFIT $ (129,860) $1,016,781 $ (107,225)
========== ========= ==========
ALLOCATION OF NET (LOSS) PROFIT:
General Partner - NHP $ (1,299) $ 10,168 $ (1,072)
Original Limited Partner - 1133
Fifteenth Street Three Associates (1,299) 10,168 (1,072)
Other Limited Partners - 11,500
investment units (127,262) 996,445 (105,081)
---------- --------- ----------
$ (129,860) $1,016,781 $ (107,225)
========== ========= ==========
NET (LOSS) PROFIT PER OTHER
LIMITED PARTNERSHIP INTEREST $ (11) $ 87 $ (9)
========== ========= ============
</TABLE>
See notes to financial statements.
19
<PAGE> 21
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, 1996 $ (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
Net loss (1,299) (1,299) (127,262) (129,860)
--------- --------- -------- ---------
Equity (deficit) at December 31, 1998 $ (90,701) $ (95,601) $ 641,173 $ 454,871
========= ======== ======== =========
Percentage interest at
December 31, 1996, 1997,
and 1998 1% 1% 98%
========= ======== =======
(A) (B) (C)
========= ======== =======
</TABLE>
(A) General Partner
(B) Original Limited Partner
(C) Consists of 11,500 investment units
See notes to financial statements.
20
<PAGE> 22
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Distributions received in excess of
investment in Local Limited Partnerships $ - $ 15,698 $ 18,362
Distributions from Local Limited Partnerships 99,366 1,025,988 -
Payment of administrative and reporting fees to
General Partner - (619,985) -
Interest received 21,381 11,093 8,073
Operating expenses paid (64,425) (51,373) (50,027)
----------- ----------- -----------
Net cash provided by (used in) operating activities 56,322 381,421 (23,592)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of advances to Local Limited Partnerships - 16,310 -
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 56,322 397,731 (23,592)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 538,513 140,782 164,374
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 594,835 $ 538,513 $ 140,782
=========== =========== ===========
RECONCILIATION OF NET PROFIT (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net (loss) profit $ (129,860) $ 1,016,781 $ (107,225)
----------- ----------- -----------
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 99,366 1,025,988 -
Share of profits from Local Limited Partnerships (12,258) (348,862) -
Share of gain on extinguishment of debt - (764,234) -
Increase (decrease) in administrative and reporting
fees payable to the General Partner 86,248 (533,737) 86,248
Increase (decrease) in payables 12,826 1,795 (2,615)
----------- ----------- -----------
Total adjustments 186,182 (635,360) 83,633
----------- ----------- -----------
Net cash provided by (used in) operating activities $ 56,322 $ 381,421 $ (23,592)
=========== =========== ===========
</TABLE>
See notes to financial statements.
21
<PAGE> 23
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" or the
"Registrant") 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" or the "General Partner"). Together, NCHP and NHP
Partners Two own all of the outstanding partnership interests in NHP. NHP is the
general partner of the Registrant. 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. At December 31, 1998, the Partnership
retained an ownership interest in ten of the original Local Limited
Partnerships.
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.
22
<PAGE> 24
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.
Certain reclassifications of prior years' amounts have been made to
conform with the current year's presentation.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Cash in demand accounts $ - $ 199
Money market account 594,835 538,314
-------- --------
$594,835 $538,513
======== ========
</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 proceeds 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%.
23
<PAGE> 25
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 Meadowood Apartments I and $1,778,135 for Meadowood Apartments
II. The holders of the notes payable 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 1998 and 1997, the
Partnership received net proceeds from the sale of $85,459 and $677,126,
respectively. 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 note payable and accrued interest totaling $3,505,225 from the note
holders. Final settlement occurred on July 31, 1997. During 1998 and 1997, the
Partnership received net proceeds from the sale of $13,908 and $348,862,
respectively. The Partnership's share of the gain from this transaction has been
recorded in the accompanying statements of operations for the years ended
December 31, 1998 and 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 $2,033,058,
$1,852,645 and $1,690,487 of its allocated share of losses from ten, eleven and
twelve Local Limited Partnerships during 1998, 1997 and 1996, respectively.
During 1998 and 1996, the Partnership's share of profits in one Local Limited
Partnership was $3,999 and $15,125, respectively, 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, 1998 and 1997,
the Partnership had not recognized $15,782,898 and $13,749,840, respectively, of
its allocated share of cumulative losses from the ten Local Limited Partnerships
in which its investment is zero.
During 1998, 1997 and 1996, the General Partner advanced $36,646,
$26,668 and $30,715 to seven, twelve and seven of the Local Limited Partnerships
to fund partnership entity expenses, including expenses incurred relating to
potential sales or refinancing under the LIHPRHA program. During 1998 and 1997,
loans of $200 and $100,517, and accrued interest of $8,698 and $61,292,
respectively, were repaid by three and five 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, 1998 and 1997, was $668,078 and
$631,633, respectively. Interest is charged at a rate equal to the Chase
Manhattan Bank prime interest rate plus 2%. Chase Manhattan Bank prime was 7.75%
at December 31, 1998.
24
<PAGE> 26
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
During 1998, 1997 and 1996, 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 1998 and 1996.
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 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, 1998 and 1997, the balance of such advances was
$519,834. Interest is calculated at the Chase Manhattan Bank prime rate plus 2%.
Chase Manhattan Bank prime was 7.75% at December 31, 1998. 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, 1998 and 1997, and the combined results
of operations for the years ended December 31, 1998, 1997 and 1996 are as
follows:
25
<PAGE> 27
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
COMBINED FINANCIAL POSITION
OF THE LOCAL LIMITED PARTNERSHIPS
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
---- ----
Assets:
<S> <C> <C>
Land $ 2,137,022 $ 2,072,600
Buildings and improvements, net of accumulated depreciation
of $11,731,318 and $10,733,564 and impairment losses
of $6,728,266 in 1998 and $5,161,943 in 1997 16,692,494 18,129,276
Other assets 3,295,090 3,247,825
------------ ------------
$ 22,124,606 $ 23,449,701
============ ============
Liabilities and partners' deficit:
Liabilities:
Mortgage notes payable $ 11,808,766 $ 12,306,856
Notes payable 10,278,044 10,278,044
Accrued interest on notes payable 13,512,125 12,556,402
Other liabilities 4,194,467 3,819,068
------------ ------------
39,793,402 38,960,370
Partners' deficit:
National Housing Partnership Realty Fund III (16,512,101) (14,024,589)
Other partners (1,156,695) (1,486,080)
------------ ------------
(17,668,796) (15,510,669)
------------ ------------
$ 22,124,606 $ 23,449,701
============ ============
</TABLE>
COMBINED RESULTS OF OPERATIONS
OF THE LOCAL LIMITED PARTNERSHIPS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue $ 6,437,310 $ 7,912,953 $ 8,952,268
------------ ------------ ------------
Gain on disposal of rental property - 980,293 -
------------ ------------ ------------
Expenses:
Operating expenses 4,945,311 6,327,619 6,978,732
Financial expenses - primarily interest 140,870 187,073 247,769
Interest on notes payable 1,232,965 1,447,792 1,614,725
Depreciation and amortization 944,482 1,214,369 1,364,217
Impairment loss on rental property 1,230,000 811,943 450,000
------------ ------------ ------------
Total expenses 8,493,628 9,988,796 10,655,443
------------ ------------ ------------
Loss before extraordinary item (2,056,318) (1,095,550) (1,703,175)
Gain on extinguishment of debt - 3,232,683 -
------------ ------------ ------------
Net (loss) profit $ (2,056,318) $ 2,137,133 $ (1,703,175)
============ ============ ============
</TABLE>
26
<PAGE> 28
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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, three of the rental
housing projects owned by two Local Limited Partnerships were sold. During 1998,
nine of the projects received a substantial amount of rental assistance from
HUD.
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. With respect to Housing Assistance
Payments Contracts ("HAP Contracts") expiring before October 1, 1998, Congress
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.
All of the units (503 in total) receiving rent subsidies from Section 8
have their contracts expiring during the year ending December 31, 1999. HUD has
issued new regulations that govern the continuance of project-based subsidies.
Under the new regulations, owners with HAP contracts expiring after September
30, 1998 may elect to (1) renew the contract without restructuring for one year,
(2) opt out of the contract, or (3) enter into the Mark-to Market program, which
includes a potential restructuring of the mortgage and renewal of the contract.
At this time it is not possible to determine which option each of the Local
Limited Partnerships will elect, and accordingly, it is not possible to
determine the ultimate impact on the operations of the Local Limited
Partnerships.
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
27
<PAGE> 29
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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.
Notes payable were executed by the Local Limited Partnerships with the
former owners as part of the acquisition of the properties by the Local Limited
Partnerships. These notes bear simple interest at rates of 9% or 10% per annum.
The notes are nonrecourse notes secured by a security interest in all
partnership interests in the respective Local Limited Partnership and are
subordinated to the respective mortgage note for as long as the mortgage note is
insured by HUD. Any payments due from project income are payable from the
respective Local Limited Partnership's surplus cash, as defined by the
respective HUD Regulatory Agreement. The notes may be prepaid in whole or in
part at any time without penalty. Neither the respective Local Limited
Partnership nor any partner thereof, present or future, assumes any personal
liability for the payment of these notes.
These notes mature as follows:
<TABLE>
<CAPTION>
Local Partnership Due Date Note Amount Accrued Interest
----------------- -------- ----------- ----------------
<S> <C> <C> <C>
Brunswick Village
Limited Partnership February 28, 1999 $ 913,064 $ 1,354,374
Meadowood Townhouses III
Limited Partnership November 1, 1999 2,157,572 3,054,165
Woodmark Limited
Partnership December 13, 1999 1,553,000 1,961,858
Kimberly Associates
Limited Partnership December 13, 1999 1,401,600 1,770,931
Edmond Estates
Limited Partnership December 17, 1999 977,808 1,235,407
Galion Limited
Partnership December 20, 1999 482,100 608,635
Indian Valley I
Limited Partnership December 20, 1999 963,600 1,216,521
Indian Valley II
Limited Partnership December 20, 1999 625,200 789,934
Indian Valley III
Limited Partnership December 20, 1999 875,300 1,105,202
Newton Hill
Limited Partnership December 20, 1999 328,800 415,098
----------- -----------
Total Due 1999 $10,278,044 $13,512,125
========== ==========
</TABLE>
Meadowood Townhouses III Limited Partnership's notes payable, plus
accrued interest, were due and payable upon the earlier of the sale, transfer,
or refinancing of the Local limited Partnership or April 30, 1997. A Forbearance
Agreement was executed, which extended the maturity date of these non-recourse
notes payable and accrued interest. Under the terms of this agreement, the
initial period of forbearance expired on April 30, 1997. Such funding was not
approved by April 30, 1997 and a further extension of forbearance until January
2, 1998 was granted to permit the General Partner to submit an alternative plan
to the noteholders, and to negotiate and close such plan. An amendment to the
Forbearance Agreement requires the Local Limited Partnership to market the
property for sale. If the sale is not closed by November 1999, the noteholders
will have the right to foreclosure on the such Local Limited Partnership's
property. The Forbearance Agreement provides for sharing of net sale proceeds
between the Partners and noteholders.
28
<PAGE> 30
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Such proceeds allocated to the noteholders would be in full satisfaction of the
notes payable and the related interest. Meadowood Townhouse III Limited
Partnership's continued existence as a going concern with its present ownership
structure is dependent on its successful efforts to repay the principal and
accrued interest on the notes payable, or to negotiate further amendments of the
terms of the notes and the related forbearance agreements.
In accordance with 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, the Local Limited Partnerships record
impairment losses on when events and circumstances indicate that the investment
in the Local Limited Partnership might be impaired and the estimated
undiscounted cash flows to be generated by the Local Limited Partnership are
less than the carrying amount of the investment in the Local Limited
Partnership. When an asset is determined to be impaired, it is written down to
its estimated fair value. In 1998, Indian Valley I Limited Partnership recorded
an impairment loss and reduced the carrying value of fixed assets by $1,230,000.
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 note payable 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.
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, 1998.
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 1998, 1997 and 1996. 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 1998 and 1996. As of December 31, 1998,
the Partnership owed $86,248 to the General Partner for accrued administrative
and reporting fees, while at December 31, 1997 there were no fees remaining owed
to the General Partner.
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 preferred stock subsidiary of AIMCO.
NHPMC and other affiliates of NCHP earned $296,260, $568,855 and $625,232 from
the Local Limited Partnerships for management fees and other services provided
to the Local Limited Partnerships during 1998, 1997 and
29
<PAGE> 31
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
1996, respectively. At December 31, 1997, amounts due NHPMC and unpaid by the
Local Limited Partnerships amounted to $21,905.
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, 1998, 1997 and 1996, were approximately $544,000, $668,000 and
$786,000, respectively.
5. INCOME TAXES
The Partnership is not taxed on its income. The partners are taxed in
their individual capacities upon their distributive share of the Partnership's
taxable income and are allowed the benefits to be derived from off-setting their
distributive share of the tax losses against taxable income from other sources,
subject to passive loss rule limitations. The taxable income or loss differs
from amounts included in the statements of operations because of different
methods used in determining the losses of the Local Limited Partnerships. The
tax loss is allocated to the partner groups in accordance with Section 704(b) of
the Internal Revenue Code and therefore is not necessarily proportionate to the
percentage interest owned.
A reconciliation follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net (loss) profit per financial statements $ (129,860) $ 1,016,781 $ (107,225)
Other 36,000 - -
Partnership's share of limited local
partnership's (loss) profit (420,800) 6,164,448 (2,194,625)
---------- ---------- ----------
(Loss) profit per tax return $ (514,660) $ 7,181,229 $(2,301,850)
========== ========== ==========
</TABLE>
The following is a reconciliation between the Partnership's reported amounts and
the federal tax basis of net assets:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Net assets as reported $ 454,873
Add (deduct):
Investment in Partnerships (21,737,690)
Other (51,109)
-----------
Net deficit - federal tax basis $(21,333,926)
===========
</TABLE>
30
<PAGE> 32
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 or 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;
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;
31
<PAGE> 33
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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.
7. GOING CONCERN
Certain of the Local Partnership's notes payable are past due or are due
in 1999 (see Note 3). Continuation of the Local Partnerships' operations in the
present form is dependent on its ability to extend the maturity date of these
notes, or to repay or to refinance the notes. The financial statements do not
include any adjustments which might result from the outcome of this uncertainty.
******************
32
<PAGE> 34
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, 1998
<TABLE>
<CAPTION>
Initial Cost to Local Cost Capitalized
Limited Partnership Subsequent to Acquisition
---------------------------------------------------------------------------------
Carrying
Buildings and Cost
Partnership Name Encumbrances Land Improvements Improvements Adjustments
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Brunswick Village
Limited Partnership (1) $ 275,000 $ 2,109,506 $ 545,330 $ -
Edmond Estates
Limited Partnership (1) 150,000 2,470,329 273,616 (1,400,000)
Galion Limited
Partnership (1) 60,000 1,308,947 190,079 (844,395)
Indian Valley I Limited
Partnership (1) 120,000 2,764,506 233,737 (1,983,871)
Indian Valley II Limited
Partnership (1) 108,000 2,278,088 239,317 -
Indian Valley III
Limited Partnership (1) 117,600 2,782,409 275,952 -
Kimberly Associates
Limited Partnership (1) 294,000 4,259,949 1,946,271 -
Meadowood Townhouses
III Limited Partnership (1) 566,000 6,285,999 1,138,240 (2,500,000)
Newton Hill Limited
Partnership (1) 60,000 1,015,475 126,982 -
Woodmark Limited
Partnership (1) 322,000 3,882,930 1,088,838 -
---------------------------------------------------------------------------------
TOTAL,
December 31, 1998 $2,072,600 $29,158,138 $ 6,058,362 $ (6,728,266)
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried at Close of
Period
-----------------------------------------------------------
Accumulated
Buildings and Depreciation Date of Date
Partnership Name Land Improvements Total (2) (3) (3) Construction Acquired
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Brunswick Village
Limited Partnership $ 275,000 $ 2,654,836 $ 2,929,836 $ 1,667,671 1971 6/85
Edmond Estates
Limited Partnership 150,000 1,343,945 1,493,945 706,551 1972 6/85
Galion Limited
Partnership 60,000 654,631 714,631 93,230 1972 7/85
Indian Valley I Limited
Partnership 120,000 1,014,372 1,134,372 334,840 1972 6/85
Indian Valley II Limited
Partnership 108,000 2,517,405 2,625,405 890,390 1972 6/85
Indian Valley III
Limited Partnership 117,600 3,058,361 3,175,961 1,076,188 1972 6/85
Kimberly Associates
Limited Partnership 303,346 6,196,874 6,500,220 2,430,104 1971 6/85
Meadowood Townhouses
III Limited Partnership 621,076 4,869,163 5,490,239 2,274,999 1972 6/85
Newton Hill Limited
Partnership 60,000 1,142,457 1,202,457 417,817 1972 7/85
Woodmark Limited
Partnership 322,000 4,971,768 5,293,768 1,839,528 1971 6/85
TOTAL, -------------------------------------------------------------------------
December 31, 1998 $ 2,137,022 $28,423,812 $30,560,834 $11,731,318
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Life upon which
depreciation in
latest statement
of operations is
computed
Partnership Name (years)
- ----------------------------------------------------
<S> <C>
Brunswick Village
Limited Partnership 5-30
Edmond Estates
Limited Partnership 5-50
Galion Limited
Partnership 5-50
Indian Valley I Limited
Partnership 5-50
Indian Valley II Limited
Partnership 5-50
Indian Valley III
Limited Partnership 5-50
Kimberly Associates
Limited Partnership 5-50
Meadowood Townhouses
III Limited Partnership 5-50
Newton Hill Limited
Partnership 5-50
Woodmark Limited
Partnership 5-50
TOTAL,
December 31, 1998
</TABLE>
See notes to Schedule III.
33
<PAGE> 35
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, 1998
(1) Schedule of Encumbrances
<TABLE>
<CAPTION>
Notes
Payable and
Mortgage Accrued
Partnership Name Notes Interest Total
---------------- ----- -------- -----
<S> <C> <C> <C>
Brunswick Village Limited Partnership $ 599,628 $ 2,267,438 $ 2,867,066
Edmond Estates Limited Partnership 966,175 2,213,215 3,179,390
Galion Limited Partnership 500,506 1,090,735 1,591,241
Indian Valley I Limited Partnership 1,031,236 2,180,121 3,211,357
Indian Valley II Limited Partnership 1,042,935 1,415,134 2,458,069
Indian Valley III Limited Partnership 1,151,560 1,980,502 3,132,062
Kimberly Associates Limited Partnership 1,851,360 3,172,531 5,023,891
Meadowood Townhouses III Limited
Partnership 2,827,169 5,211,737 8,038,906
Newton Hill Limited Partnership 421,039 743,898 1,164,937
Woodmark Limited Partnership 1,417,158 3,514,858 4,932,016
----------- ----------- -----------
TOTAL $11,808,766 $23,790,169 $35,598,935
=========== =========== ===========
</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 $35,129,429. The total of the
above-mentioned items is $37,202,029.
34
<PAGE> 36
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, 1998
(CONTINUED)
(3) Reconciliation of real estate
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $30,935,440 $45,660,443 $45,049,169
Improvements during the period 797,322 588,650 1,061,274
Sale of rental properties - (14,107,315) -
Increase (decrease) due to prior years
impairment losses on rental property 811,943 (394,395) -
Impairment loss on rental property (1,983,871) (811,943) (450,000)
----------- ------------ ------------
Balance at end of period $30,560,834 $30,935,440 $45,660,443
========== ========== ==========
Reconciliation of accumulated depreciation
------------------------------------------
Years Ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
Balance at beginning of period $10,733,564 $14,098,487 $12,743,988
Depreciation expense for the period 939,682 1,206,904 1,354,499
Sale of rental properties - (4,177,432) -
Decrease due to prior year impairment
losses on rental property 811,943 (394,395) -
Impairment loss on rental property (753,871) - -
----------- ----------- -----------
Balance at end of period $11,731,318 $10,733,564 $14,098,487
=========== =========== ===========
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
35
<PAGE> 37
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
Four individuals comprise the Board of Directors of NCHP. One director
was appointed by the President of the United States, by and with the advice and
consent of the Senate.
Thomas W. Toomey (age 38) 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.
Susan R. Baron (age 47) 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.
Joel F. Bonder (age 50) was elected as a Director of NCHP in 1998 and
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.
Roberta Ujakovich (age 46) was elected President and a Director of NCHP
in 1998. Ms. Ujakovich has served as Senior Vice President of AIMCO since July,
1997. Prior to joining AIMCO, Ms. Ujakovich was Vice President of NHP serving as
the Director of Transactions in NHP's Asset Management Department. Previously,
Ms. Ujakovich worked as a developer for three successive, affiliated real estate
development companies: The Cafritz / Freeman Group, The Investment Group and
Rosenberg, Freeman and Associates. She holds a B.A. from Allegheny College and a
Masters in Public Policy from John F. Kennedy School of Government at Harvard
university.
36
<PAGE> 38
EXECUTIVE OFFICERS
The current executive officers of NCHP and a description of their
principal occupations in recent years are listed below.
Thomas W. Toomey (age 38). See "Directors of NCHP."
Joel F. Bonder (age 50). See "Directors of NCHP."
Roberta Ujakovich (age 46). See "Directors of NCHP."
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.
Leeann Morein (age 44) was elected Senior Vice President Investor
Services 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.
Patrick J. Foye (Age 41) has been Executive Vice President of NCHP since
October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since
May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of
Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing
Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through
1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and
serves as a member of the New York State Privatization Council. He received a
B.A. from Fordham College and a J.D. from Fordham University Law School.
Troy D. Butts (age 34) 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.
37
<PAGE> 39
Item 11. Executive Compensation
National Housing Partnership Realty Fund III has no officers or
directors. No direct form of compensation or remuneration was paid by the
Partnership to any officer or director of the General Partner. However,
reimbursements and other payments have been made to the Partnership's General
Partner and its affiliates, as described in "Item 13. Certain Relationships and
Related Transactions."
Item 12. Security Ownership of Certain Beneficial Owners and Management
1133 Fifteenth Street Three ("1133") 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.
The following table sets forth certain information regarding limited
partnership units of the Registrant owned by each person or entity is known by
the Registrant to own beneficially or exercise voting or dispositive control
over more than 5% of the Registrant's limited partnership units as of December
31, 1998.
Name of
Beneficial Owner Number of Units % of Class
AIMCO and affiliates 1,624.5 13.84%
(affiliates of the General Partner)
The business address of AIMCO is 3410 South Galena Street, Suite 200, Denver, CO
80231
Item 13. Certain Relationships and Related Transactions
The Partnership accrued Administrative and Reporting Fees payable to the
General Partner of $86,248 in 1998, 1997 and 1996. 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 1998 and 1996. As of December 31, 1998,
the Partnership owed $86,248 to the General Partner for accrued administrative
and reporting fees, while at December 31, 1997 there were no fees remaining owed
to the General Partner.
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 preferred stock subsidiary of AIMCO.
NHPMC and other affiliates of NCHP earned $296,260, $568,855 and $625,232 from
the Local Limited Partnerships for management fees and other services provided
to the Local Limited Partnerships during 1998, 1997 and 1996, respectively. At
December 31, 1997, amounts due NHPMC and unpaid by the Local Limited
Partnerships amounted to $21,905.
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
38
<PAGE> 40
salaries and benefits for the years ended December 31, 1998, 1997 and 1996, were
approximately $544,000, $668,000 and $786,000, respectively.
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 16
Statements of Financial Position,
December 31, 1998 and 1997 18
Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996 19
Statements of Partners' Deficit for the Years
Ended December 31, 1998, 1997 and 1996 20
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 21
Notes to Financial Statements 22
Schedule III - Real Estate and Accumulated Depreciation of
the Local Limited Partnerships in which NHP Realty Fund
III has invested, December 31, 1998 33
</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.
39
<PAGE> 41
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> <C>
Independent Auditors' Reports 43
Combined Statements of Financial
Position, December 31, 1998 and 1997 48
Combined Statements of Operations
for the Years Ended December 31, 1998,
1997 and 1996 49
Combined Statements of Partners'
Deficit for the Years Ended
December 31, 1998, 1997 and 1996 50
Combined Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 51
Notes to Combined Financial
Statements 53
Exhibit (24) Power of Attorney
</TABLE>
(b) Reports on Form 8-K.
The Partnership filed form 8-K on October 30, 1998 and from 8-Ka
on November 12, 1998, in connection with a change in independent
auditors from Deloitte & Touche LLP to Ernst & Young LLP
effective for the year ended December 31, 1998.
40
<PAGE> 42
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 31, 1999 /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 31, 1999 /s/ Troy D. Butts
- -------------- ------------------------------------
Date Troy D. Butts
Senior Vice President and Chief
Financial Officer
41
<PAGE> 43
March 31, 1999 *
- -------------- --------------------------------------
Date Thomas W. Toomey, Director
March 31, 1999 *
- -------------- --------------------------------------
Date Susan R. Baron, Director
March 31, 1999 *
- -------------- --------------------------------------
Date Joel F. Bonder, Director
March 31, 1999 *
- -------------- --------------------------------------
Date Roberta Ujakovich, 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, 1998. 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
-----------------
42
<PAGE> 44
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund III
Indianapolis, Indiana
We have audited the accompanying combined statement 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, 1998,
and the related combined statements of operations, partners' deficit, and cash
flows for the year then ended. These combined 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 did not audit
the financial statements of Brunswick Village Limited Partnership for the year
ended December 31, 1998. This investee's statements of financial position
represent total assets which reflect 8% of combined total assets as of December
31, 1998 and a net loss in the amount of $29,371 for the year then ended. The
financial statements of this investee were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for this investee, is based solely on the report of the other
auditors.
We conducted our audit 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 audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position of the Local Limited Partnerships in which
National Housing Partnership Realty Fund III holds a limited partnership
interest as of December 31, 1998, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 10 to the financial statements, the due dates of certain of
the Local Partnership's notes payable have expired, and therefore, the notes are
in default. In addition, certain Local Partnerships' notes payable are due in
1999. These conditions raise substantial doubt about their ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
Ernst & Young LLP
Indianapolis, Indiana
February 22, 1999
43
<PAGE> 45
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund III
Indianapolis, IN
We have audited the accompanying combined statement 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 the related combined statements of operations, partners' deficit, and
cash flows for each of the two 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 and
1996. This investee's statements of financial position represent total assets
constituting 7% of combined total assets at December 31, 1997, and net losses in
the amounts of $883,000 and $61,000 for each of the two 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 the combined
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
McLean, VA
March 3, 1998
44
<PAGE> 46
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, 1998, 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, 1998, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
the Partnership will continue as a going concern. As discussed in Note 3 to the
financial statements, notes payable mature in February, 1999, with a required
payment of principal and accrued interest. It is at least reasonably possible
that the Partnership will not be able to pay these debts when the notes mature.
This condition raises substantial doubt about the Partnership's ability to
continue as a going concern. Management's plans regarding these matters are also
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
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, 1999, on our
consideration of BRUNSWICK VILLAGE LIMITED PARTNERSHIP's internal control and
reports dated January 22, 1999, 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 16 to 18 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, 1999
47
<PAGE> 47
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
46
<PAGE> 48
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
47
<PAGE> 49
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
---- ----
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 389,065 $ 630,105
Accounts receivable (Note 2) 210,965 77,232
Tenants' security deposits
held in trust funds 330,378 331,710
Prepaid taxes and insurance and other assets 110,085 119,193
Deferred finance costs 66,444 71,244
Mortgage escrow deposits (Note 5) 2,188,153 2,018,341
Rental property, net (Notes 4 and 11) 18,829,516 20,201,876
----------- -----------
$ 22,124,606 $ 23,449,701
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Accounts payable and accrued expenses:
Accounts payable (Note 9) $ 485,138 $ 422,799
Accrued real estate taxes 133,647 126,994
Due to management agent (NHPMC) (Note 9) - 21,905
Due to partners (Note 7) 1,643,285 1,563,206
Accrued interest on partner loans (Note 7) 1,613,295 1,344,751
----------- -----------
3,875,365 3,479,655
Tenants' security deposits payable 319,102 333,626
Deferred income - 5,787
Notes payable (Note 6) 10,278,044 10,278,044
Accrued interest on notes payable(Note 6) 13,512,125 12,556,402
Mortgage notes payable (Note 5) 11,808,766 12,306,856
Partners' deficit (17,668,796) (15,510,669)
----------- -----------
$ 22,124,606 $ 23,449,701
=========== ===========
</TABLE>
See notes to combined financial statements.
48
<PAGE> 50
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1998 1997 1996
---- ---- ----
REVENUES:
<S> <C> <C> <C>
Rental income (Note 3) $ 6,040,786 $ 7,522,222 $ 8,523,974
Interest income 110,061 113,424 145,891
Other income 286,463 277,307 282,403
Gain on disposal of rental properties - 980,293 -
----------- ---------- -----------
6,437,310 8,893,246 8,952,268
----------- ---------- -----------
EXPENSES:
Administrative expenses 887,683 956,329 1,014,031
Operating and maintenance expenses 2,231,965 3,001,959 3,361,064
Management and other services from
related party (Note 9) 296,260 568,855 625,232
Salaries and related benefits to
related party (Note 9) 543,830 667,877 786,391
Depreciation and amortization 944,482 1,214,369 1,364,217
Taxes and insurance 904,041 1,022,155 1,072,391
Financial expenses - primarily interest (Notes 5) 140,870 187,073 247,769
Interest on notes payable (Note 6 and 7) 1,232,965 1,447,792 1,614,725
Other entity expenses 6,532 23,057 22,123
Impairment loss on rental property (Note 11) 1,230,000 811,943 450,000
Annual partnership administrative
fees to General Partner (Note 7) 75,000 87,387 97,500
----------- ----------- -----------
8,493,628 9,988,796 10,655,443
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (2,056,318) (1,095,550) (1,703,175)
EXTRAORDINARY ITEM - GAIN ON
EXTINGUISHMENT OF DEBT - 3,232,683 -
----------- ----------- -----------
NET (LOSS) PROFIT $ (2,056,318) $ 2,137,133 $ (1,703,175)
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
49
<PAGE> 51
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, 1996 $(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)
Reclassification (369,506) 341,672 27,837 - 3
Distributions (99,367) (1,783) (662) - (101,812)
Net loss (2,018,639) (18,885) (18,794) - (2,056,318)
------------ ----------- --------- ----- ------------
Deficit at
December 31, 1998 $(16,512,101) $ (763,702) $(392,810) $(183) $(17,668,796)
============ =========== ========= ===== ============
Percentage interest
at December 31, 1996,
1997 and 1998 (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.
50
<PAGE> 52
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Receipts:
Rental receipts $ 6,033,677 $ 7,386,377 $ 8,313,360
Interest receipts 111,376 97,416 134,928
Other receipts 261,217 267,558 278,180
Tenant security deposits - 4,287 2,465
Entity receipts 7,641 16,725 2,899
---------- ---------- ----------
Total receipts 6,413,911 7,772,363 8,731,832
Disbursements:
Administrative (565,763) (501,383) (494,136)
Management fees (526,220) (680,043) (747,666)
Utilities (834,199) (1,196,137) (1,336,837)
Salaries and wages (831,202) (1,108,190) (1,276,882)
Operating and maintenance (1,183,705) (1,515,780) (1,925,757)
Real estate taxes (375,675) (464,649) (525,411)
Property insurance (259,840) (318,523) (248,182)
Miscellaneous taxes and insurance (256,489) (296,208) (302,369)
Tenant security deposits (13,191) (1,846) (16,568)
Other operating disbursements (18,750) (88,115) -
Interest on mortgage (89,288) (112,082) (158,387)
Mortgage insurance premium (37,868) (65,123) (84,336)
Miscellaneous financial (3,321) (423) (300)
Entity disbursements:
Interest on notes payable (8,698) (3,105,884) (78,419)
Miscellaneous disbursements (31,913) (133,088) (37,788)
---------- ---------- ----------
Total disbursements (5,036,122) (9,587,474) (7,233,038)
---------- ---------- ----------
Net cash provided by (used in) operating activities 1,377,789 (1,815,111) 1,498,794
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in mortgage escrow accounts $ (169,810) $ (235,700) $ (89,950)
Proceeds from disposal of rental property - 4,288,441 -
Net purchase of fixed assets (801,027) (703,309) (985,968)
Other investing (68,770) 86,074 171,189
---------- --------- ----------
Net cash (used in) provided by investing activities (1,039,607) 3,435,506 (904,729)
---------- --------- ----------
</TABLE>
See notes to combined financial statements.
51
<PAGE> 53
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage principal payments (498,090) (555,354) (578,286)
Principal payments on loans or notes payable (8,393) (114,963) -
Proceeds from loans or notes payable 29,073 6,702 6,165
Distributions (101,812) (1,077,547) (19,431)
---------- ---------- ----------
Net cash used in financing activities (579,222) (1,741,162) (591,552)
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (241,040) (120,767) 2,513
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 630,105 750,872 748,359
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 389,065 $ 630,105 $ 750,872
========== ========== ==========
RECONCILIATION OF NET (LOSS) PROFIT TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net (loss) profit $(2,056,318) $ 2,137,133 $(1,703,175)
---------- ---------- ----------
Adjustments to reconcile net (loss) profit to
net cash provided by (used in) operating
activities:
Depreciation and amortization 944,482 1,214,369 1,364,217
Extraordinary gain on extinguishment of debt - (3,232,683) -
Gain on disposal on rental properties - (980,293) -
Impairment loss on rental property 1,230,000 811,943 450,000
Changes in operating assets and liabilities:
Net tenant receivables (18,527) 8,494 (6,328)
Accounts receivable - other (51,203) 5,623 62,955
Prepaid expenses 15,982 (63,824) 496
Cash restricted for tenant security deposits 1,332 6,533 (35,423)
Accounts payable trade (24,647) 35,937 (251,517)
Accrued liabilities 50,915 3,309 (16,633)
Accrued interest - notes payable 1,233,017 (1,658,092) 1,536,306
Tenant security deposits held in trust fund (14,523) (4,092) 21,320
Prepaid revenue 7,883 - -
Entity liability accounts 59,396 (5,919) 84,733
Deferred income - (5,434) (8,157)
Transfer of operating cash to new owner - (88,115) -
---------- ---------- ----------
Total adjustments 3,434,107 (3,952,244) 3,201,969
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 1,377,789 $(1,815,111) $ 1,498,794
========== ========== ==========
</TABLE>
See notes to combined financial statements.
52
<PAGE> 54
66
<PAGE> 55
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" or the
"Registrant") 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" or the "General Partner"). Together, NCHP and NHP
Partners Two own all of the outstanding partnership interests in NHP. NHP is the
general partner of the Registrant. As a result of these transactions, the AIMCO
Group 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
53
<PAGE> 56
NATIONAL HOUSING PARTNERSHIP 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.
Certain reclassifications of prior years' amounts have been made to
conform with the current year's presentation.
54
<PAGE> 57
NATIONAL HOUSING PARTNERSHIP 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,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Net tenant accounts receivable $ 69,270 $ 50,742
Housing assistance receivable 47,116 -
Accrued interest receivable 19,731 21,199
Reserve releases receivable 61,896 -
Other 12,952 5,291
-------- ---------
Net accounts receivable $210,965 $ 77,232
======= ========
</TABLE>
3. HOUSING ASSISTANCE AGREEMENTS
During 1998, 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 1999. Ten Local Limited Partnerships have agreements in
effect during 1998. The Local Limited Partnerships received a total of
$1,478,997, $1,785,057 and $1,985,238 in the form of housing assistance payments
during 1998, 1997 and 1996, respectively, which is included in "Rental income"
on the combined statements of operations.
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. With respect to Housing Assistance
Payments Contracts ("HAP Contracts") expiring before October 1, 1998, Congress
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.
55
<PAGE> 58
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
All of the units (503 in total) receiving rent subsidies from Section 8
have their contracts expiring during the year ending December 31, 1999. HUD has
issued new regulations that govern the continuance of project-based subsidies.
Under the new regulations, owners with HAP contracts expiring after September
30, 1998 may elect to (1) renew the contract without restructuring for one year,
(2) opt out of the contract, or (3) enter into the Mark-to Market program, which
includes a potential restructuring of the mortgage and renewal of the contract.
At this time it is not possible to determine which option each of the Local
Limited Partnerships will elect, and accordingly, it is not possible to
determine the ultimate impact on the operations of the Local Limited
Partnerships.
4. RENTAL PROPERTY
Rental property consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
---- ----
<S> <C> <C>
Land $ 2,137,022 $ 2,072,600
Building and improvements 25,829,750 24,362,182
Furniture and equipment 2,594,062 4,500,658
------------ ------------
30,560,834 30,935,440
Less accumulated depreciation (11,731,318) (10,733,564)
----------- -----------
Net rental property $ 18,829,516 $ 20,201,876
=========== ===========
</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.
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>
<CAPTION>
<S> <C> <C>
1999 $ 535,000
2000 575,000
2001 618,000
2002 664,000
2003 713,000
Thereafter 8,704,000
-----------
$11,809,000
===========
</TABLE>
<PAGE> 59
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
6. NOTES PAYABLE
Notes payable were executed by the Local Limited Partnerships with the
former owners as part of the acquisition of the properties by the Local Limited
Partnerships. These notes bear simple interest at rates of 9% or 10% per annum.
The notes are nonrecourse notes secured by a security interest in all
partnership interests in the respective Local Limited Partnership and are
subordinated to the respective mortgage note for as long as the mortgage note is
insured by HUD. Any payments due from project income are payable from the
respective Local Limited Partnership's surplus cash, as defined by the
respective HUD Regulatory Agreement. The notes may be prepaid in whole or in
part at any time without penalty. Neither the respective Local Limited
Partnership nor any partner thereof, present or future, assumes any personal
liability for the payment of these notes.
These notes mature as follows:
<TABLE>
<CAPTION>
Local Partnership Due Date Note Amount Accrued Interest
----------------- -------- ----------- ----------------
<S> <C> <C> <C>
Brunswick Village
Limited Partnership February 28, 1999 $ 913,064 $ 1,354,374
Meadowood Townhouses III
Limited Partnership November 1, 1999 2,157,572 3,054,165
Woodmark Limited
Partnership December 13, 1999 1,553,000 1,961,858
Kimberly Associates
Limited Partnership December 13, 1999 1,401,600 1,770,931
Edmond Estates
Limited Partnership December 17, 1999 977,808 1,235,407
Galion Limited
Partnership December 20, 1999 482,100 608,635
Indian Valley I
Limited Partnership December 20, 1999 963,600 1,216,521
Indian Valley II
Limited Partnership December 20, 1999 625,200 789,934
Indian Valley III
Limited Partnership December 20, 1999 875,300 1,105,202
Newton Hill
Limited Partnership December 20, 1999 328,800 415,098
---------- ----------
Total Due 1999 $10,278,044 $13,512,125
========== ==========
</TABLE>
Meadowood Townhouses III Limited Partnership's notes payable, plus
accrued interest, were due and payable upon the earlier of the sale, transfer,
or refinancing of the Local limited Partnership or April 30, 1997. A Forbearance
Agreement was executed, which extended the maturity date of these non-recourse
notes payable and accrued interest. Under the terms of this agreement, the
initial period of forbearance expired on April 30, 1997. Such funding was not
approved by April 30, 1997 and a further extension of forbearance until January
2, 1998 was granted to permit the General Partner to submit an alternative plan
to the noteholders, and to negotiate and close such plan. An amendment to the
Forbearance Agreement requires the Local Limited Partnership to market the
property for sale. If the sale is not closed by November 1999, the noteholders
will have the right to foreclose on such Local Limited Partnership's property.
The Forbearance Agreement provides for sharing of net sale proceeds between the
Partners and noteholders. Such proceeds allocated to the noteholders would be in
full satisfaction of the notes payable and the related interest.
57
<PAGE> 60
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Meadowood Townhouse III Limited Partnership's continued existence as a going
concern with its present ownership structure is dependent on its successful
efforts to repay the principal and accrued interest on the notes payable, or to
negotiate further amendments of the terms of the notes and the related
forbearance agreements.
7. PAYABLES DUE PARTNERS
The Local Limited Partnerships accrued annual partnership administration
fees payable to the General Partner, of $75,000, $87,387 and $97,500 during
1998, 1997 and 1996, respectively. Payments of these fees are made to NHP
without interest from surplus cash available for distribution to partners
pursuant to HUD regulations. During 1998, 1997 and 1996, the Local Limited
Partnerships paid $31,367, $113,271 and $37,317 for such fees, respectively. The
balances owed to the General Partner for these fees were $455,372 and $411,739
at December 31, 1998 and 1997, respectively.
During 1998, 1997 and 1996, the General Partner advanced $36,646,
$26,668 and $30,715 to seven, twelve and seven of the Local Limited
Partnerships, respectively, to fund partnership entity expenses, including
expenses incurred relating to potential sales or refinancing under the LIHPRHA
program. During 1998 and 1997, loans of $200 and $100,517, and accrued interest
of $8,698 and $61,292, respectively, were repaid by three and five 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, 1998 and 1997,
was $668,079 and $631,633, respectively. Interest is charged at a rate equal to
the Chase Manhattan Bank prime interest rate plus 2%. Chase Manhattan Bank prime
was 7.75% at December 31, 1998.
During 1998, 1997 and 1996, 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 1998 and 1996. The
balance owed to the Partnership by the Local Limited Partnerships at December
31, 1998 and 1997, was $519,834. Interest is charged at a rate equal to the
Chase Manhattan Bank prime interest rate plus 2%. Chase Manhattan Bank prime was
7.75% at December 31, 1998.
During 1998, 1997 and 1996, respectively, interest on advances from the
Partnership and the General Partner of $277,242, $258,205 and $234,470 was
recorded, and $8,698, $61,292 and $78,419 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 partner groups in accordance with
Section 704(b) of the Internal Revenue Code and therefore is not necessarily
proportionate to the interest percentage owned.
58
<PAGE> 61
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
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 preferred stock subsidiary of AIMCO.
NHPMC and other affiliates of NCHP earned $296,260, $568,855 and $625,232 from
the Local Limited Partnerships for management fees and other services provided
to the Local Limited Partnerships during 1998, 1997 and 1996, respectively. At
December 31, 1997, amounts due NHPMC and unpaid by the Local Limited
Partnerships amounted to $21,905.
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, 1998, 1997 and 1996, were approximately $544,000, $668,000 and
$786,000, respectively. At December 31, 1997, account payable included $9,648
NHPMC.
10. GOING CONCERN
Certain of the Local Partnership's notes payable are past due or are due
in 1999 (see Note 6). Continuation of the Local Partnerships' operations in the
present form is dependent on its ability to extend the maturity date of these
notes, or to repay or to refinance the notes. The financial statements do not
include any adjustments which might result from the outcome of this uncertainty.
11. IMPAIRMENT LOSS ON RENTAL PROPERTY
In accordance with 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, the Local Limited Partnerships record
impairment losses on when events and circumstances indicate that the investment
in the Local Limited Partnership might be impaired and the estimated
undiscounted cash flows to be generated by the Local Limited Partnership are
less than the carrying amount of the investment in the Local Limited
Partnership. When an asset is determined to be impaired, it is written down to
its estimated fair value. In 1998, Indian Valley I Limited Partnership recorded
an impairment loss and reduced the carrying value of fixed assets by $1,230,000.
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 note payable 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
59
<PAGE> 62
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
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, 1998.
Should a Local Limited Partnership be forced to dispose of any of its
properties, it could incur a loss.
12. 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 notes payable 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 note payable 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.
13. 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. For the notes
payable and related accrued interest, a reasonable estimate of fair value could
not be made without incurring excessive costs. The carrying amount of other
assets and liabilities reported on the statement of financial position that
require such disclosure approximates fair value.
60
<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: 3-30-99 /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: -
-----------
<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: 3-30-99 /s/ Susan R. Baron
----------- -------------------
SIGNATURE
State of District of Columbia
County of
-----------------
Before me, __________, 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 _______________ this ________ day of
________ 1998.
/s/
- --------------
Notary Public
My Commission Expires:
-------
<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: 3-30-99 /s/ Joel F. Bonder
----------- -------------------
SIGNATURE
State of District of Columbia
County of
----------------------
Before me, __________, on this day personally appeared Joel F. Bonder 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: 3-30-99 /s/ Roberta Ujakovich
----------- ----------------------
SIGNATURE
State of District of Columbia
County of
-------------------
Before me, __________, on this day personally appeared Roberta Ujakovich 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 594,835
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 594,835
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 594,835
<CURRENT-LIABILITIES> 139,964
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 454,871
<TOTAL-LIABILITY-AND-EQUITY> 594,835
<SALES> 0
<TOTAL-REVENUES> 33,639
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 163,499
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (129,860)
<INCOME-TAX> 0
<INCOME-CONTINUING> (129,860)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (129,860)
<EPS-PRIMARY> (11)
<EPS-DILUTED> (11)
</TABLE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 30, 1998
NATIONAL HOUSING PARTNERSHIP REALTY FUND III (a Maryland Limited Partnership)
(Exact name of registrant as specified in its charter)
Maryland 0 14457 52 1394972
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation or organization) Identification No.)
9200 Keystone Crossing
Suite 500
Indianapolis, Indiana 46240-7602
(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code: (317) 817-7500
Not Applicable
(Former Name or Former Address, if changed since last report)
<PAGE> 2
Item 4. Changes in Registrant's Certifying Accountant
(a) Previous independent accountants.
(i) On or about October 28, 1998, National Housing Partnership
Realty Fund III (the "Registrant") dismissed Deloitte & Touche LLP as the
Registrant's independent accountants and engaged Ernst & Young LLP as its
independent accountants.
(ii) Deloitte & Touche LLP's reports on the financial
statements of the Registrant for the past two fiscal years did not contain
an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles.
(iii) The decision to change independent accountants from
Deloitte & Touche LLP to Ernst & Young LLP was recommended by the general
partner of the Registrant.
(iv) During the Registrant's fiscal years ending December
31, 1996 and December 31, 1997 and the subsequent interim period preceding
the dismissal, there were no disagreements with Deloitte & Touche LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Deloitte & Touche LLP, would have caused Deloitte & Touche
LLP to make reference to the subject matter of the disagreement(s) in
connection with their report.
(v) During the periods listed in item (iv) above, there
have been no "reportable events" (as defined in paragraph (a)(1)(v) of Item
304 of Regulation S-K).
(vi) The Registrant has provided Deloitte & Touche LLP with a
copy of this disclosure and requested that Deloitte & Touche LLP furnish it
with a letter addressed to the Securities and Exchange Commission (the
"Commission") stating whether it agrees with the above statements. (A copy
of the Deloitte & Touche LLP letter addressed to the Commission will be filed
by amendment to this Form 8-K within 10 business days).
(b) New independent accountants.
(i) On or about the date of dismissal of Deloitte & Touche LLP,
the Registrant engaged Ernst & Young LLP as independent accountants for the
fiscal year ending December 31, 1998.
(ii) Prior to the appointment of Ernst & Young LLP, the
Registrant did not engage or consult with Ernst & Young LLP regarding any
of the matters described in Item 304(a)(2) of Regulation S-K.
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
Not applicable.
(b) Pro Forma Financial Information
Not applicable.
(c) Exhibits
The required letter of Deloitte & Touche LLP regarding a
change in certifying accountant will be filed by amendment within
10 business days.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NATIONAL HOUSING PARTNERSHIP
REALTY FUND III (a Maryland Limited
Partnership)
By: The National Housing Partnership,
its general partner
By: National Corporation for Housing
Partnerships, its general partner
Date: October 30, 1998 By: /s/ Troy D. Butts
----------------------------------
Troy D. Butts
Senior Vice President and
Chief Financial Officer
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 30, 1998
NATIONAL HOUSING PARTNERSHIP REALTY FUND III (a Maryland Limited Partnership
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 0 14457 52-1394972
-------- ------- ----------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation or Identification No.)
organization)
9200 Keystone Crossing
Suite 500
Indianapolis, Indiana 46240-7602
--------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone, including area code: (317) 817-7500
Not Applicable
--------------
(Former Name or Former Address, if changed since last report)
<PAGE> 2
Item 4. Changes in Registrant's Certifying Accountant
(a) Previous independent accountants.
(i) On or about October 28, 1998, National Housing Partnership
Realty Fund III (the "Registrant") dismissed Deloitte & Touche LLP as the
Registrant's independent accountants and engaged Ernst & Young LLP as its
independent accountants.
(ii) Deloitte & Touche LLP's reports on the financial
statements of the Registrant for the past two fiscal years did not contain
an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles.
(iii) The decision to change independent accountants from
Deloitte & Touche LLP to Ernst & Young LLP was recommended by the general
partner of the Registrant.
(iv) During the Registrant's fiscal years ending December
31, 1996 and December 31, 1997 and the subsequent interim period preceding
the dismissal, there were no disagreements with Deloitte & Touche LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Deloitte & Touche LLP, would have caused Deloitte & Touche
LLP to make reference to the subject matter of the disagreement(s) in
connection with their report.
(v) During the periods listed in item (iv) above, there
have been no "reportable events" (as defined in paragraph (a)(1)(v) of Item
304 of Regulation S-K).
(vi) The Registrant has provided Deloitte & Touche LLP with a
copy of the original Form 8-K and requested that Deloitte & Touche LLP
furnish it with a letter addressed to the Securities and Exchange Commission
(the "Commission") stating whether it agrees with the statements made by the
Registrant in response to this Item 4. A copy of the Deloitte & Touche LLP
letter addressed to the Commission is filed as Exhibit 16.1 to this Form
8-K/A.
(b) New independent accountants.
(i) On or about the date of dismissal of Deloitte & Touche LLP,
the Registrant engaged Ernst & Young LLP as independent accountants for the
fiscal year ending December 31, 1998.
(ii) Prior to the appointment of Ernst & Young LLP, the
Registrant did not engage or consult with Ernst & Young LLP regarding any
of the matters described in Item 304(a)(2) of Regulation S-K.
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(c) Exhibits
16.1 Letter of Deloitte & Touche LLP dated
November 10, 1998 regarding change in
certifying accountant.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NATIONAL HOUSING PARTNERSHIP
REALTY FUND III (a Maryland Limited Partnership)
By: The National Housing Partnership,
its general partner
By: National Corporation for Housing
Partnerships, its general partner
Date: November 12, 1998 By: /s/ Troy D. Butts
----------------------------------------
Troy D. Butts
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX TO FORM 8-K/A
Exhibit
Number Description
16.1 Letter of Deloitte & Touche LLP dated
November 10, 1998 regarding change in
certifying accountant.
<PAGE> 4
EXHIBIT 16.1
November 10, 1998
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N.W.
Washington, DC 20549
Dear Sirs/Madams:
We have read and agree with the comments in Items 4(a)(i), 4(a)(ii),
4(a)(iv), 4(a)(v) and 4(a)(vi) of Form 8-K of the entities listed below
dated October 30, 1998. We have no basis for agreement or disagreement with
the comments in Items 4(a)(iii), 4(b)(i) and 4(b)(ii).
National Housing Partnership Realty Fund Two (Commission File No. 0-14458)
National Housing Partnership Realty Fund III (Commission File No. 0-14457)
National Housing Partnership Realty Fund IV (Commission File No. 0-15731)
Yours truly,
Deloitte & Touche LLP
