FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ________________ to ________________
Commission File Number T3-24235
SECURED INVESTMENT RESOURCES FUND, L.P. III
(Exact name of registrant as specified in its charter)
Missouri 48-6291172
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 Main, Suite 2100 Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (816) 421-4670
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests ("Units")
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K, is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
1
<PAGE>
PART I
Item 1. Business
Secured Investment Resources Fund, L.P. III ("Partnership") is a Missouri
limited partnership formed pursuant to the Missouri Revised Uniform Limited
Partnership Act on April 20, 1988. SIR Partners III, L.P., a Missouri limited
partnership, Nichols Resources Ltd., a Missouri corporation and James R. Hoyt,
an individual, are the General Partners. James R. Hoyt is the Managing General
Partner. The Partnership has no predecessors or subsidiaries.
On July 31, 1998, Nichols Resources, Ltd., a General Partner, filed Form 8-K
with the SEC describing a Settlement Agreement and Mutual Release between James
R. Hoyt, Managing General Partner; SIR Partners III, L.P., a General Partner and
Nichols Resources, Ltd, also a General Partner. Under terms of the agreement,
James R. Hoyt and SIR Partners III have agreed to withdraw as General Partners
of the Partnership (as described in item 12). This settlement is expected to
have a positive future impact on the Partnership.
The Partnership was formed to engage in the business of acquiring, improving,
developing, operating and holding for investment income producing real
properties with the objectives of ( i) preserving and protecting the
Partnership's capital; (ii) providing cash distributions from operations; (iii)
providing capital growth through property appreciation of Partnership
properties; and (iv) increasing equity in property ownership by the reduction of
mortgage loans on Partnership properties. The term of the partnership is 60
years from the date of the Partnership Agreement (December 6, 1988), or the date
on which all of the assets acquired by the Partnership are sold and converted to
cash.
On December 7, 1990, the Partnership closed its offering having received gross
proceeds of $4,842,500 from the sale of 9,685 units of limited partnership
interests.
The Partnership acquired two apartment communities in 1989. The General Partners
feel that these properties met the Partnership's investment criteria and
objectives. Because of many factors, the Partnership did not raise the level of
capital anticipated. Accordingly, the General Partners were unable to obtain the
targeted leveraged ratio and a residential/commercial property mix.
As of December 31, 1998, the Partnership has made cash distributions to Limited
Partners of $364,000 for the period April 1, 1989 through December 31, 1998. No
distributions have been made since July 1990. Future distributions will only be
made from excess cash flow not needed for working capital reserves.
As of December 31, 1998, the Partnership had no employees. Employees of SPECS,
Inc. have provided property management services to the Partnership (as described
in Note 5 to the accompanying Consolidated Financial Statements). Effective
January 1, 1999, the Partnership has hired Maxus Properties, Inc., to provide
property management services to the Partnership.
2
<PAGE>
Item 1. Business--Cont'd.
Due to the Partnership's inability to restructure the debt on the KC Club
Apartments (after negotiations to obtain more favorable terms failed), on
January 7, 1998 the property was lost to foreclosure (as described in Note 6 to
the accompanying Consolidated Financial Statements).
Competition
The real estate business is highly competitive, and the Partnership competes
with numerous entities engaged in real estate activities, some of which may have
greater financial resources than those of the Partnership. The Partnership's
management believes that success against such competition is dependent upon the
geographic location of the property, the performance of property managers, the
amount of new construction in the area and the maintenance and appearance of the
property. With respect to residential property, competition is also based upon
the design and mix of the units and the ability to provide a community
atmosphere for the tenants. The partnership's direct competitors, located within
five miles of the Bicycle Club Apartments, are Quail Run Apartments, 690 units
built in 1985; Falcon Point, 192 units built in 1988; The Ethans, 606 units
built in 1988; Camden Passage, 598 units built in 1989-1998; The Lakes, 400
units built in 1987 and Kelly Crossing, 624 units built in 1998. The Bicycle
Club Apartments is competitive in terms of square footage per unit and rents for
unit types. The Partnership's management believes that general economic
circumstances and trends and new properties in the vicinity of the Partnership's
property will also be competitive factors.
Inflation
The effects of inflation on the Partnership's operations or investments are not
quantifiable. Revenues from property operations fluctuate proportionately with
increases and decreases in housing costs. Fluctuations in the rate of inflation
also affect the sales values of properties and, correspondingly, the ultimate
gains to be realized by the Partnership from property sales.
3
<PAGE>
Item 2. Properties
The following table sets forth the investment portfolio of the Partnership at
December 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average
Properties at Occupancy(*)
Property Description Initial Cost Date Acquired Percentage
-------- ----------- ------------ ------------- ----------
1998 1997
---- ----
Greenhills Bicycle
Club Apartments
Kansas City, MO 312 units $11,251,613 Oct. 27, 1989 91% 91%
</TABLE>
(*) Based upon vacancy amount (in dollars) as a percent of gross possible rents.
(Gross possible rents is calculated by multiplying established market rents for
each unit type by the total unit mix. Established market rents are budgeted
rents, established by conducting market surveys to determine the typical rents
charged for similar properties in the area and through knowledge of the rates
the market will bear for similar unit types.)
The encumbrances against the property are described in Note 3 to the
accompanying Consolidated Financial Statements.
Description of Real Estate:
The Partnership's remaining property, the Greenhills Bicycle Club Apartments,
consists of 312 units of multi-family rental real estate. On July 8, 1996 the
Partnership refinanced the matured first mortgage on Greenhills Bicycle Club
Apartments. The terms of the mortgage are $8,100,000 at 9.0% interest with
monthly principal and interest payments in the amount of $65,000 through the
loan maturity date of August 1, 2001. The outstanding principal balance of the
note at December 31, 1998 is $7,963,000. The balance to be due at maturity
assuming no payment has been made on principal in advance of its due date is
$7,766,000. The note can be prepaid with penalty. A second mortgage note was
paid in full at a discount in July, 1998 for $200,000, creating an extraordinary
gain on early extinguishment of debt of $197,000.
Competition:
The real estate business is highly competitive and the Partnership competes with
numerous entities engaged in real estate activities, some of which may have
greater financial resources than those of the Partnership. The Partnership's
management believes that success against such competition is dependent upon the
geographic location of the property, the performance of property managers, the
amount of new construction in the area and the maintenance and appearance of the
property. With respect to residential property, competition is also based upon
the design and mix of the units and the ability to provide a community
atmosphere for the tenants. The Partnership's direct competitors, located within
five miles of the Bicycle Club Apartments, are Quail Run Apartments, 690 units
built in 1985; Falcon Point, 192 units built in 1988; The Ethans, 606 units
built in 1988; Camden Passage, 598 units built in 1989-1998; The
4
<PAGE>
Item 2. Properties
Competition - Cont'd
Lakes, 400 units built in 1987 and Kelly Crossing, 624 units built in 1998. The
Bicycle Club Apartments is competitive in terms of square footage per unit and
rents for unit types. The Partnership's management believes that general
economic circumstances and trends and new properties in the vicinity of the
Partnership's property will also be competitive factors. The partnership's
management believes that the property is adequately covered by insurance.
Operating Data:
The occupancy rate for the Greenhills Bicycle Club Apartments for each of the
last five years was:
1994: 92% 1995: 93% 1996: 91% 1997: 91% 1998: 91%
The average effective annual rental per unit for each of the last five years was
1994: $4,870 1995: $5,360 1996: $5,750 1997: $6,000 1998: $6,100
Depreciation:
Investment property is depreciated on a straight-line basis over the
estimated useful life of the property (30 years for buildings and 5 years for
furniture, fixtures and equipment). Improvements are capitalized and depreciated
over their estimated useful lives. Maintenance and repair expenses are charged
to operations as incurred. Cost (including capital improvements subsequent to
acquisition) of the Greenhills Bicycle Club Apartments at December 31, 1998 is
$11,193,000.
Item 3. Legal Proceedings,
Due to the Partnership's inability to restructure the debt on the KC Club
Apartments (after negotiations to obtain more favorable terms failed), on
January 7, 1998 the property was lost to foreclosure (as described in Note 6 to
the accompanying Consolidated Financial Statements). Under the terms of the
foreclosure, net assets with a net book value of $3,143,000 were surrendered to
the KC Club mortgage holder and the Partnership was relieved of the mortgage
obligation amounting to $3,922,000. The resulting gain amounted to $779,000.
Item 4. Submission of Matters to a Vote for Security Holders.
None
5
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters
(A) There is no established public trading market for the Units of the
Partnership. (B) There have been no distributions the last three years. (C) As
of December 31, 1998, the Partnership had admitted 539 Limited Partners who
purchased 9,685 units.
Item 6. Selected Financial Data,
<TABLE>
OPERATING DATA
(In Thousands)
<CAPTION>
<C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Revenues $1,967 $ 2,791 $2,768 $ 2,697 $ 2,299
Interest and earnings on
investments 13 196 90 128 106
Property operating
expense 1,421 2,078 2,110 2,072 2,102
Interest expense 741 1,113 1,126 925 931
----- ----- ----- ----- -----
Partnership income (loss)
before extraordinary items (182) (204) (378) (172) (628)
----- ----- ----- ----- -----
Extraordinary items:
Gain on extinguishment
of debt 976 --- --- --- ---
----- ----- ----- ----- -----
Partnership income (loss) $ 794 $ (204) $ (378) $ (172) $ (628)
===== ====== ===== ===== =====
PER LIMITED PARTNERSHIP UNIT
Partnership income(loss)(1)$81.18 $(20.87) $(38.64) $(17.54) $(64.23)
===== ====== ===== ===== =====
Cash distribution $ --- $ --- $ --- $ --- $ ---
BALANCE SHEET DATA 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
Total Assets $7,690 $ 11,617 $ 12,749 $ 13,223 $ 14,227
Mortgage Debt $7,963 $ 12,344 $ 12,931 $ 12,851 $ 13,737
</TABLE>
(1) Partnership loss per limited partnership unit is computed by dividing loss
allocated to the Limited Partners by the weighted average number of limited
partnership units outstanding (9,685 units for each period).
6
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Revenues for the year ended December 31, 1998 decreased $823,000 (29.5%) when
compared to 1997. The majority of the decrease ($853,000) is due to the loss of
revenue caused by the foreclosure of the KC Club Apartments. Revenue for 1998 at
the Greenhills Bicycle Club Apartments increased $30,000 (1.6%) when compared to
the same period in 1997. This increase is primarily due to increased rental
rates for new leases and upon lease renewals. These higher market rates are
being achieved with fewer rent concessions.
Total operating and administrative expenses for the year ended December 31, 1998
decreased $657,000 (31.6%) compared to 1997. Of the total decrease, $820,000
relates to the foreclosure of the KC Club Apartments. In addition, total
operating and administrative expenses at the Greenhills Bicycle Club Apartments
increased by $163,000. The $820,000 decrease related to the foreclosure of the
KC Club Apartments is primarily due to a decrease in expenses as follows:
property operating $536,000, general and administrative $28,000, professional
services $31,000, management fee $41,000 and depreciation and amortization
$168,000. The $163,000 increase in total operating and administrative expenses
relating to the Greenhills Bicycle Club Apartments is primarily due to an
increase in expenses as follows: property operating $51,000, general and
administrative $9,000, professional services $71,000, management fee $17,000 and
depreciation and amortization $15,000. The $51,000 increase in property
operating expense was due to an increase in general operating expenses including
an increase in periodic repairs and maintenance, marketing and property tax.
The $9,000 increase in general and administrative expenses was due primarily to
an increase in screening expense and collection fees. The increase in screening
expense is offset by an increase reported in application income. The increase in
collection fees is due to increased collection efforts. License fees also
increased due to zoning requirements for directional signage for the Greenhills
Bicycle Club Apartments. The $71,000 increase in professional services expenses
was primarily due to legal fees incurred in connection with the foreclosure of
the KC Club Apartments and other partnership related matters. The General
Partners are entitled to receive a Partnership management fee equal to 5% of
total operating cash flows (as defined) for managing the normal operations of
the Partnership. The $17,000 increase in management fee expense was due
primarily to the management fees due to the General Partners for the year ended
December 31, 1998. There was no management fee due to the General Partners for
the years ended December 31, 1997 and 1996. The $15,000 increase in depreciation
and amortization was due primarily to depreciation of capital items added to the
balance sheet in the year ended December 31, 1998.
Interest expense for the year ended December 31, 1998 decreased $372,000.
$340,000 of the decrease is due to the foreclosure of the KC Club Apartments.
The remainder of the decrease is due to the Bicycle Club Apartments paying down
the mortgage balance on the property through normal principal and interest
payments.
Interest income for the year ended December 31, 1998 decreased $183,000 (93.3%)
from 1997. The decrease in interest income was caused primarily by the absence
of interest income from, and the August 1997 gain realized on the sale of, the
Treasury certificate of accrual held by the Partnership as collateral for the KC
Club Apartments.
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations--Cont'd
Revenue for the Partnership increased in 1997 to $2,791,000 compared to
$2,768,000 (0.8%) in 1996. This increased revenue was the result of an increase
in gross possible rental rates.
Interest income increased $106,000 (116.9%) in 1997 compared to 1996. The
increase in interest income was caused primarily by the August 1997 gain
realized on the sale of the Treasury certificate of accrual held by the
Partnership as collateral for the KC Club Apartments.
Total operating and administrative expenses decreased $32,000 (1.5%) in 1997
compared to 1996 primarily in the areas of services, payroll and marketing. The
decrease in services, payroll and marketing was caused by continuing management
initiatives to decrease administrative expenses and budgets, and increase Net
Operating Income.
Interest expense decreased from $1,126,000 in 1996 to $1,112,000 (1.2%) in 1997.
The decrease in interest expense was due to the reduction in principal related
to the KC Club Apartments mortgage note of $530,000, which was paid with the
proceeds of the sale of the certificate of accrual (as described in note 4 to
the accompanying Consolidated Financial Statements). Depreciation and
amortization expense decreased from $606,000 to $605,000. The 1997 net loss
decreased by $174,000 (46.0%).
Due to the inability to renegotiate loan terms with the lender, the KC Club
Apartments was foreclosed on in 1998 (as described in Note 6 to the accompanying
Consolidated Financial Statements). This resulted in a decrease in revenue with
a corresponding decrease in expenses for 1998. The 1997 rental revenue for the
KC Club was $853,000 and expenses (including interest) were $1,160,000.
The Partnership anticipates that 1999 operations will improve as the result of
the foreclosure of the KC Club Apartments and of planned increases in rental
rates and decreased promotional rental incentives at the Greenhills Bicycle Club
Apartments. This planned increase in net rental income will be coupled with a
close monitoring of costs.
Liquidity and Sources of Capital
During 1998, cash was provided by operating activities in the amount of
$244,000. Investing activities used $112,000, and financing activities
(primarily principal payments, as described in the Consolidated Statement of
Cash Flows) used $319,000. During the year accounts payable and accrued expenses
decreased by $1,000 and accrued interest decreased by $11,000.
8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Sources of Capital - Cont'd
The Bicycle Club Apartments was encumbered by a second mortgage (as described in
Note 3 to the accompanying Consolidated Financial Statements). In July, 1998,
the Partnership settled the remaining principal balance of $397,000 due on the
second mortgage for $200,000, resulting in a $197,000 gain.
The funds advanced by the Partnership to Secured Investment Resources Fund, L.P.
(a related partnership) were being repaid, including 9% interest, beginning in
May, 1995. The balance due from Secured Investment Resources Fund, L.P. was
$86,000 at December 31, 1997. The entire balance on the note was repaid in full
in July, 1998.
As a result of the foreclosure of the KC Club Apartments, the liquidity and
financial condition of the Partnership is expected to improve. The cash
generated from operations for the KC Club Apartments was insufficient to service
the mortgage on the property.
During 1997, cash was provided by investing activities in the amount of
$887,000. Operations used $59,000, and financing activities (primarily payments
on debt, as described in the accompanying Consolidated Statement of Cash Flows)
used $594,000. During the year, accounts payable and accrued expenses increased
by $56,000 and accrued interest decreased by $386,000.
The Partnership invested $500,000 (held as a Certificate of Accrual with a
market value of $1,037,000 as of December 31, 1996) which was pledged as
collateral on the KC Club Apartments until the property's net operating income
achieved the level of 120% of the debt service on the first mortgages for a
consecutive 24-month period or May 31, 2004, whichever was earlier. As a result
of declining cash flows for KC Club Apartments, on August 1, 1997, the
Certificate of Accrual was sold. The proceeds of $1,083,000 were used to pay
$553,000 of accrued interest and $530,000 of delinquent principal on the
property. The cash generated from operations for that property was insufficient
to service the mortgage under the existing payment requirements. The Managing
General Partner had ongoing negotiations with the lender concerning a complete
restructure of the mortgage and related debt service. The negotiations were
unsuccessful and on January 7, 1998 the property was lost to foreclosure.
On July 8, 1996 the Partnership refinanced the matured $8,400,000 first mortgage
on Greenhills Bicycle Club Apartments. The terms of the new mortgage are
$8,100,000 at 9.0% interest with monthly principal and interest payments in the
amount of $65,000 through the loan maturity date of August 1, 2001 (5 years).
9
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Year 2000
Management is in the process of evaluating the risks associated with potential
Year 2000 computer problems. It is our opinion that the potential on-site Year
2000 problems at the Greenhills Bicycle Club apartments will not have a material
impact on property operations. The computer and on-site software utilized in the
day to day operations of the property have been upgraded as of January 12, 1999
at a cost of approximately $4,000 with Year 2000 compliant software. No
additional material expenditures are planned at this time for Year 2000
compliance. There are no known non-information technology systems (elevators,
fire alarms, security systems etc.) on-site that would be impacted by a Year
2000 problem. There are no elevators, central fire alarm systems or central
security systems on the property. Management believes that the mission critical
systems are prepared for the Year 2000, and non-critical systems are being
evaluated.
Management believes the worst case scenario that could impact property
operations would be if third-party utility providers (electricity and water)
failed to provide services to the property due to a Year 2000 problem in their
systems. Management has contacted the utility providers, and received and
reviewed their plans to address potential Year 2000 issues. Management believes
the likelihood of the utility companies failure to provide services is remote,
and as such, management has not developed contingency plans to deal with this
possibility. Management believes that if the utility companies fail to provide
services, the failure will by system-wide, and not confined to the property, and
therefore the investment value of the property will not be impacted.
Inflation
The effects of inflation on the Partnership's operations or investments are not
quantifiable. Revenues from property operations fluctuate proportionately with
increases and decreases in housing costs. Fluctuations in the rate of inflation
also affect the sales values of properties and, correspondingly, the ultimate
gains to be realized by the Partnership from property sales.
Future Changes in Accounting Principle
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998. The Statement is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. This pronouncement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. The Partnership anticipates no material
impact of SFAS No. 133 on its consolidated results of operations or financial
position.
10
<PAGE>
Item 8. Financial Statements and Supplementary Data
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
DECEMBER 31, 1998 AND 1997
CONTENTS Page
INDEPENDENT ACCOUNTANTS' REPORT
Baird, Kurtz & Dobson 12
BDO Seidman, LLP 13
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 14
Statements of Income 16
Statements of Changes in Partners' Equity (Deficit) 17
Statements of Cash Flows 18
Notes to Financial Statements 19
11
<PAGE>
Independent Accountants' Report
The Partners
Secured Investment Resources Fund, L.P. III
Kansas City, Missouri
We have audited the consolidated balance sheet of SECURED INVESTMENT RESOURCES
FUND, L.P. III (A Partnership) as of December 31, 1998 and the related
consolidated statements of income, changes in partners' equity (deficit) and
cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based upon our audit.
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 provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of SECURED INVESTMENT RESOURCES
FUND L.P. III (A 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.
/s/ Baird, Kurtz and Dobson
--------------------------
Kansas City, Missouri
January 21, 1999
- ----------------
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Secured Investment Resources Fund, L.P. III
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Secured
Investment Resources Fund, L.P. III and affiliated company as of December 31,
1997 and 1996, and the related statements of operations, partnership deficit and
cash flows for each of the three years in the period ended December 31, 1997. We
have also audited the schedules listed in the accompanying index. These
financial statements and schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Secured Investment
Resources Fund, L.P. III at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also in our opinion, the schedules present fairly, in all material respects, the
information set forth therein.
s/ BDO Seidman LLP
St. Louis, Missouri
February 6, 1998
13
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---- -----
INVESTMENT PROPERTIES $7,219,848 $10,833,989
---------- -----------
RESTRICTED DEPOSITS 154,853 93,553
---------- -----------
CASH 130,061 317,315
---------- -----------
OTHER ASSETS
Rent receivables, less allowance for
doubtful accounts of $16,200 in 1997 1,867 7,347
Prepaid expenses and deposits 19,525 30,695
Due from related parties
Note receivable 85,694
Syndication costs 21,751
Debt issuance costs, less accumulated
amortization of $253,015 in 1998 and
$189,761 in 1997 163,405 226,659
---------- -----------
184,797 372,146
---------- -----------
TOTAL ASSETS $7,689,559 $11,617,003
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
14
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
CONSOLIDATED BALANCE SHEETS--CONT'D
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Mortgages payable $7,962,718 $12,344,460
Accounts payable and accrued expenses 47,913 300,653
Accrued management fees - General Partners 17,549
Accrued interest 60,188 141,133
Unearned revenue 25,639 14,449
Tenant security deposits 71,032 105,913
---------- ---------
TOTAL LIABILITIES 8,185,039 12,906,608
---------- ---------
PARTNERS' DEFICIT
General Partners (4 units authorized
and outstanding)
Capital contributions 2,000 2,000
Partnership deficit (44,110) (52,051)
---------- ---------
(42,110) (50,051)
---------- ---------
Limited Partners (60,000 units authorized;
9685 units outstanding)
Capital contributions 3,915,084 3,915,084
Partnership deficit (4,368,454) (5,154,638)
---------- ---------
(453,370) (1,239,554)
---------- ---------
TOTAL PARTNERS' DEFICIT (495,480) (1,289,605)
---------- ---------
TOTAL LIABILITIES & PARTNERS' DEFICIT $ 7,689,559 $11,617,003
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
15
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
REVENUES 1998 1997 1996
---- ---- ----
Rents $ 1,878,353 $ 2,671,083 $ 2,767,870
Other income 88,978 119,534
----------- ----------- -----------
1,967,331 2,790,617 2,767,870
----------- ----------- -----------
OPERATING AND ADMINISTRATIVE
EXPENSES
Property operating expenses 704,600 1,189,480 1,177,374
General and administrative expenses 34,864 54,526 70,752
Professional fees 132,480 91,873 118,896
Management fees 113,098 137,445 137,449
Depreciation and amortization 436,759 605,175 605,578
----------- ----------- -----------
1,421,801 2,078,499 2,110,049
----------- ----------- -----------
OPERATING INCOME 545,530 712,118 657,821
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (740,776) (1,112,421) (1,126,256)
Interest income 13,186 196,127 90,428
----------- ----------- -----------
(727,590) (916,294) (1,035,828)
----------- ----------- -----------
NET LOSS BEFORE EXTRAORDINARY ITEM (182,060) (204,176) (378,007)
EXTRAORDINARY ITEM
Gain on extinguishment of debt 976,185
----------- ----------- -----------
NET INCOME (LOSS) $ 794,125 $ (204,176) $ (378,007)
=========== =========== ===========
ALLOCATION OF INCOME (LOSS)
General Partners $ 7,941 $ (2,042) $ (3,780)
Limited Partners 786,184 (202,134) (374,227)
----------- ----------- -----------
$ 794,125 $ (204,176) $ (378,007)
=========== =========== ===========
PARTNERSHIP INCOME (LOSS) PER
LIMITED PARTNERSHIP UNIT $ 81.18 $ (20.87) $ (38.64)
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
16
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
General Limited
Partners Partners Total
-------- -------- -----
PARTNERS' DEFICIT, JANUARY 1, 1996 $ (44,229) $ (663,193) $ (707,422)
Partnership loss (3,780) $ (374,227) (378,007)
----------- ----------- -----------
PARTNERS' DEFICIT, DECEMBER 31, 1996 (48,009) (1,037,420) (1,085,429)
Partnership loss (2,042) (202,134) (204,176)
----------- ----------- -----------
PARTNERS' DEFICIT, DECEMBER 31, 1997 (50,051) (1,239,554) (1,289,605)
Partnership income (loss) 7,941 786,184 794,125
----------- ----------- -----------
PARTNERS' DEFICIT, DECEMBER 31, 1998 $ (42,110) $ (453,370) $ (495,480)
=========== =========== ===========
</TABLE>
17
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 794,125 $ (204,176) $ (378,007)
Items not requiring (providing) cash:
Depreciation and amortization 436,759 605,175 605,578
Extraordinary item (976,185)
Gain on sale of assets (114,531)
Changes in:
Rent and other receivables (2,241) (1,321)
Prepaid expenses (17) (1,534) (1,992)
Accounts payable and accrued expenses (1,270) 56,400 (339,486)
Unearned revenue 13,255 (15,911) 2,881
Accrued interest (11,177) (385,973) 141,726
Tenant security deposits (11,964) 3,863 19,840
----------- ----------- -----------
Net cash provided by (used in) 243,526 (58,928) 49,219
operating activities ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Repayments from related parties 107,457
Net change in restricted deposits (71,934) (59,063) (34,490)
Proceeds from sale of assets 1,083,068
Income on investments (70,514) (70,514)
Purchase of property and equipment (147,375) (66,341) (102,145)
----------- ----------- -----------
Net cash provided by (used in) (111,852) 887,150 (207,149)
investing activities ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs (321,890)
Principal payments on long-term debt (262,366) (586,543) 79,621
Cash payments on foreclosure (56,562)
Note receivable from related parties (7,349) (3,702)
----------- ----------- -----------
Net cash used in financing activities (318,928) (593,892) (245,971)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (187,254) 234,330 (404,901)
CASH, BEGINNING OF YEAR 317,315 82,985 486,886
----------- ----------- -----------
CASH, END OF YEAR $ 130,061 $ 317,315 $ 82,985
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
Secured Investment Resources Fund, L.P. III (Partnership) is a Missouri limited
partnership formed pursuant to the Missouri Revised Uniform Limited Partnership
Act on April 20, 1988. The Partnership invested in two apartment complexes in
the metropolitan Kansas City, Missouri area (see Note 6). It extends unsecured
credit, subject to security deposits, to its tenants. Tenant leases are
generally subject to annual renewals. The General Partners' and Limited
Partners' interest in Partnership earnings or loss initially amounts to 1% and
99%, respectively. The allocation of the 1% interest between the General
Partners is discretionary. At such point in time cash distributions to the
Limited Partners equal their original invested capital plus interest at a rate
of the greater of 12% (14% for those investors who subscribed for units on or
before 90 days after December 7, 1988) or the increase in the Consumer Price
Index per annum, cumulative non-compounded on their adjusted invested capital,
net income or loss will be allocated 15% to the General Partners and 85% to the
Limited Partners. Upon dissolution of the Partnership, the General Partners must
have capital accounts greater than or equal to 1.01% of the original invested
capital. If a deficiency exists, the General Partners will be required to fund
the necessary amounts. Effective January 7, 1998, one of the two apartment
complexes was foreclosed by the mortgage holder.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the 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.
Partnership Loss Per Limited Partnership Unit
Partnership loss per limited partnership unit is computed by dividing the loss
allocated to the Limited Partners by the weighted average number of limited
partnership units sold. The per unit information has been computed based on
9,685 weighted average limited partnership units outstanding.
Principles of Consolidation
The Partnership is the sole limited partner of a single asset partnership,
Bicycle Club Joint Venture, L.P. The consolidated financial statements include
the accounts of the Partnership and Bicycle Club Joint Venture, L.P. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
19
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Depreciation and Amortization
Depreciation and amortization methods and lives are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Estimated
Useful Life Method
----------- ------
Building and land improvements 30 years Straight-line
Equipment 5 years Straight-line
</TABLE>
Debt issue costs are being amortized over the lives of the related mortgage note
using a method that approximates the interest method. Amortization expense was
$63,254, $75,767 and $98,336 for the years ended December 31, 1998, 1997 and
1996, respectively.
Impairment
The Partnership evaluates long-lived assets to be held and used for impairment
when events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Impairment is recognized if expected
undiscounted future cash flows are less than the carrying amount of those
assets.
Income Taxes
Income taxes on the income of the Partnership are assumed by the individual
partners. Therefore, no provision for income taxes is reflected in the
accompanying consolidated financial statements.
Restricted Deposits
Restricted deposits consist of cash accounts held for debt service payments and
repair and replacement costs.
Future Changes in Accounting Principle
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998. The Statement is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. This pronouncement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. The Partnership anticipates no material
impact of SFAS No. 133 on its consolidated results of operations or financial
position.
20
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 financial statement presentation. These
reclassifications had no effect on net income/loss.
NOTE 2: INVESTMENT PROPERTIES
Major classifications of investment properties, stated at cost, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---- ----
Greenhills Bicycle Club Apartments $11,192,743 $11,045,368
KC Club Apartments 5,050,435
Office Equipment 12,180 12,180
---------- -----------
11,204,923 16,107,983
Less accumulated depreciation 3,985,075 5,273,994
---------- -----------
$ 7,219,848 $10,833,989
=========== ===========
Depreciation expense was $373,505, $541,921, and $529,408 for the years ended
December 31, 1998, 1997 and 1996 respectively.
NOTE 3: MORTGAGES PAYABLE
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---- ----
Real Estate Mortgages:
Greenhills Bicycle Club Apartments (A) $ 7,962,718 $ 8,025,084
KC Club Apartments (B) 3,922,211
Greenhills Bicycle Club Apartments (C) 397,165
----------- -----------
$ 7,962,718 $12,344,460
=========== ===========
</TABLE>
21
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3: MORTGAGES PAYABLE (Continued)
(A) Mortgage payable, bank, original balance of $8,100,000, payable in monthly
installments of $65,174 including principal and interest. Due August 2001 with
interest at 9%; collateralized by investment property.
(B) Mortgage payable, bank, original balance of $4,550,000, payable in monthly
payments including interest at 8.45%. Collateralized by a deed of trust. (see
Note 6)
(C) Mortgage payable, bank, original balance of $400,000, payable in monthly
payments including interest at 9%. Principal due July 2001. (see Note 6)
The carrying values for the above mortgages payable approximate fair values.
Aggregate annual maturities of long-term debt at December 31, 1998 are as
follows:
1999 $ 68,217
2000 74,616
2001 7,819,885
-------------
$ 7,962,718
=============
NOTE 4: LAND LEASE
The Partnership entered into a land lease agreement for the land underlying the
KC Club Apartments for a term of 20 years. The lease payments for years 1 to 15
were calculated at 50% of that year's net operating income from the leased
premises in excess of an ascending scale from $650,000 to $800,000. During years
16 to 20, the annual lease payments were 10% of the land's then appraised value.
For the years ended December 31, 1997 and 1996, the net operating income did not
exceed the land lease requirements, which resulted in no lease payments. The
property was lost to foreclosure on January 7, 1998 and the lease was
effectively terminated.
The Partnership invested $500,000 (held as a Certificate of Accrual with a
market value of $1,037,000 as of December 31, 1996) which was pledged as
collateral until the property's net operating income achieves the level of 120%
of the debt service on the first mortgages for a consecutive 24-month period or
May 31, 2004, whichever is earlier. The Certificate of Accrual was sold on
August 1, 1997 for $1,083,000. The proceeds were used to pay $553,000 of accrued
interest and $530,000 of principal on the KC Club Apartments.
22
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5: RELATED PARTY TRANSACTIONS
Through December 31, 1998, SPECS, Inc., a Kansas corporation in which the
individual General Partner has a majority interest, received property management
fees for providing property management services. SPECS, Inc. also performed
various professional services for the Partnership, primarily tax accounting,
audit preparation, SEC 10-Q and 10-K preparation, and investor services. Amounts
paid by the Partnership to SPECS, Inc. are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Property Management Fee $95,549 $ 137,445 $ 137,449
Professional Services 16,672 42,707 45,335
--------- --------- ---------
$ 112,221 $ 180,152 $ 182,784
========= ========= =========
</TABLE>
The General Partners are entitled to receive a Partnership management fee equal
to 5% of total operating cash flows (as defined) for managing the normal
operations of the Partnership. The Partnership paid partnership management fees
of $17,549 for the year ended December 31, 1998. There was no partnership
management fee due for years ended December 31, 1997 and 1996.
On January 1, 1999, the Partnership entered into a new property management
agreement with Maxus Properties, Inc. (Maxus). Under this agreement, Maxus will
provide management and other services for the Partnership similar to those
services described above. Maxus will be entitled to receive a management fee of
5% of the monthly gross receipts.
Funds due from Secured Investment Resources Fund, L.P. (a related partnership)
were being repaid beginning May 1, 1995, including 9% interest. The balance due
from Secured Investment Resources Fund, L.P. was $85,694 at December 31, 1997.
The entire balance on the note was repaid in full in July 1998.
Excess syndication costs paid by the Partnership and due from the General
Partner of $21,751 were paid in full in July 1998.
NOTE 6: EXTRAORDINARY ITEM
During the year ended December 31, 1998, the Partnership realized a gain of
$976,185 as the result of the foreclosure by the mortgage holder on the KC Club
Apartments in satisfaction of the related debt (see Notes 1 and 3), and the
exercise of an option to pay off the second mortgage related to the Greenhills
Bicycle Club Apartments (see Note 3).
23
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
(A Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6: EXTRAORDINARY ITEM (Continued)
Under the terms of the foreclosure, net assets with a net book value of
$3,143,191 were surrendered to the KC Club Apartments mortgage holder and the
Partnership was relieved of the mortgage obligation amounting to $3,922,211. The
resulting gain amounted to $779,020.
Under the exercise of the option, the Partnership settled the remaining
principal balance of $397,165 due on the second mortgage of $200,000, resulting
in a $197,165 gain.
NOTE 7: CASH DISTRIBUTIONS
No distributions have been made since July, 1990. Future distributions, if any,
will be made from excess cash flow not needed for working capital purposes.
NOTE 8: ADDITIONAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Non-Cash Investing and Financing Activities
Net assets surrendered in exchange for
debt forgiveness in foreclosure transaction $3,143,191
Additional Cash Payment Information
Interest paid 740,778 $1,498,393 $984,531
</TABLE>
Item 9. Changes in and Disagreements with Registrant's Certifying
Accountants on Accounting and Financial Disclosure.
A Form 8-K was filed on November 13, 1998 reporting the dismissal of the
Registrants auditors, BDO Seidman, LLP, and the resulting selection of Baird
Kurtz & Dobson as auditors for the year ending December 31, 1998. Amendment No.
1 to such Form 8-K, which included a letter from BDO Seidman, LLP, regarding the
change in certifying accountant, was filed on December 1, 1998.
24
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant.
The General Partners of the Partnership are James R. Hoyt (individual), SIR
Partners III, L.P. (partnership) and Nichols Resources, Ltd. (corporation).
Nichols Resources, Ltd. (a corporate General Partner) is a Missouri corporation
formed on August 22, 1988 for the purpose of acting as a general partner of
public real estate programs and otherwise investing in and dealing with limited
partnerships, property management and the real estate syndication business.
Nichols Resources, Ltd. was a wholly-owned subsidiary of the J.C. Nichols
Company until January, 1998. It is now a wholly-owned subsidiary of MJS
Associates, Inc., a Missouri corporation with executive offices located at 1100
Main Street, Ste 2100 Kansas City, Missouri 64105. MJS Associates, Inc. acquired
all of the outstanding stock of Nichols Resources, Ltd. in January 1998 from
J.C. Nichols company. Nichols Resources, Ltd. issued 15,000 shares of common
stock for $1,500,000 on August 22, 1988.
James R. Hoyt ( Managing General Partner), age 60, holds a Bachelor's Degree in
Business Administration and is a licensed real estate broker in two states. Mr.
Hoyt has been actively involved for more than the past twenty years in various
real estate endeavors including development, syndication, property management
and brokerage.
Mr. Hoyt is the Managing General Partner and sponsor of Secured Investment
Resources Fund, L.P. (S.I.R.) and Secured Investment Resources Fund. L.P. II
(S.I.R. II). Since 1983, Mr. Hoyt has been involved as the Individual General
Partner in ten specified real estate private placement offerings. As of December
31, 1998, these partnerships, including Secured Investment Resources Fund, L.P.
III, have raised a total of $60,710,000. Mr. Hoyt has agreed to withdraw as
Managing General Partner, pursuant to the Settlement Agreement and Mutual
Release described in item 12, and has not been active in the management of the
Partnership since July, 1998.
SIR Partners III, L.P. f/k/a Hoyt Partners III, L.P., (a limited partnership
General Partner) is a limited partnership organized on February 23, 1988 under
the statutes of the State of Missouri. James R. Hoyt is the General Partner. The
Partnership was formed for the purpose of acting as a general partner and
acquisition agent of Secured Investment Resources Fund, L.P. III.
Item 11. Management Compensation
During 1998, The Partnership paid $96,000 in fees to related parties for
property management services. The Partnership also paid $17,000 to Nichols
Resources, Ltd, for professional services as described in Note 5 to the
accompanying Consolidated Financial Statements.
25
<PAGE>
Item 12. Security ownership of Certain Beneficial owners and
Management,
(a) Security Ownership of certain beneficial owners.
No individual or group as defined by Section 13 (b) (3) of the Securities
Exchange Act of 1934, known to the registrant is the beneficial owner of more
than 5 percent of the registrant's securities.
(b) Security ownership of Management.
The General Partners do not own any limited partner units, although together
they own a 1% general partnership interest in the Partnership. As of December
31, 1998, officers and directors of Nichols Resources, Ltd. as a group
beneficially own 20 limited partnership units of the Partnership, which
represent less than 1% of the outstanding limited partner units.
(c ) Change in Control.
On July 21st, 1998, Nichols Resources Ltd., a general partner of the Partnership
("Nichols"), Bond Purchase, L.L.C. ("Bond") and David L. Johnson ("Johnson ")
and other affiliates of Johnson, along with the Partnership, SIR Partners III,
L.P., General Partner of the Partnership ("SIR Partners III"), SPECS, Inc., the
company which provides the Partnership management and investor services
("SPECS") and James R. Hoyt, Managing General Partner of the Partnership
("Hoyt"), entered into a certain Settlement Agreement and Mutual Release (the
"Agreement"). The Agreement settled a dispute which had arisen between Nichols,
SIR Partners III and Hoyt, general partners of the Partnership over the proper
course of action to be taken for the Partnership. This dispute resulted in the
filing of a civil action in the Circuit Court of Jackson County, Missouri.
Pursuant to the Agreement, Nichols has agreed (i) to pay $100,000 in cash to SIR
Partners III and Hoyt, $22,000 of which was paid in July, 1998 by Hoyt to the
Partnership to pay a receivable owed by affiliates of the Partnership for unpaid
excess syndication costs and expenses currently shown on the Partnership's
financial statements and (ii) to dismiss the civil actions filed. In exchange
for the $100,000 in cash and the dismissal of the civil actions, SIR Partners
III and Hoyt have agreed (i) to transfer their General Partnership interests to
Nichols and (ii) to withdraw as Managing General Partner and general partners.
Under the Partnership's Amended and Restated Agreement of Limited Partnership
dated December 6, 1988 (the "Partnership Agreement"), such transfers and
withdrawals are subject to the majority vote of the Partnership's limited
partners (the "Limited
26
<PAGE>
Item 12. Security ownership of Certain Beneficial owners and
Management --Cont'd
Partners"). Hoyt and SIR Partners III have also agreed that Nichols, as general
partner of the Partnership, shall have the right to designate the management
company to manage the assets of the Partnership and to execute all documents to
effectuate the release of the current management contract.
Nichols, as a general partner of the Partnership, intends to call for a vote
without a meeting of the Limited Partners, file a proxy statement with the
Securities and Exchange Commission and solicit proxies from the Limited Partners
to seek approval from the Limited Partners to the transfer of the general
partnership interests, the withdrawal of Hoyt and SIR Partners III as general
partners of the Partnership and the replacement of Hoyt as Managing General
Partner in favor of Nichols. Hoyt and SIR Partners III have agreed to use their
best efforts to assist in obtaining approval from the limited partners of the
withdrawal of Hoyt and SIR Partners III as General Partners of the partnership.
In the event the majority approval is obtained, Nichols shall be the sole
general partner of the Partnership. Nichols has been the acting Managing General
Partner of the Partnership since July, 1998.
Item 13. Certain Relationships and Related Transactions.
See Notes to Financial Statements, Note 5 to the accompanying Consolidated
Financial Statements.
(The remainder of this page left blank intentionally)
27
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) The following Financial Statements of Secured Investment Resources Fund,
L.P. III, are included in Item 8:
SECURED INVESTMENT RESOURCES FUND, L.P. III
Page
(i) Independent Accountants' Report
Baird, Kurtz & Dobson 12
BDO Seidman, LLP 13
(ii) Consolidated Balance Sheets- December 31, 1998 and 1997 14-15
(iii) Consolidated Statements of Income-Years Ended
December 31, 1998, 1997, and 1996 16
(iv) Consolidated Statements of Changes in Partnership Equity
(Deficit) - Years Ended December 31, 1998, 1997, and 1996 17
(v) Consolidated Statements of Cash Flows-Years Ended
December 31, 1998, 1997, and 1996 18
(vi) Notes to Consolidated Financial Statements 19-24
(a)(2) The following Financial Statement Schedules as part of this report:
(i) Report of Independent Accountants on Financial
Statement Schedules 32
(i) Schedule II - Allowance For Doubtful Accounts Information 33
(ii) Schedule III - Real Estate and Accumulated Depreciation 34-35
All schedules other than those indicated in the index have been omitted as the
required information is presented in the financial statements, related notes or
is inapplicable.
28
<PAGE>
(a)(3) The following Exhibits are Incorporated by Reference and are an integral
part of this Form 10-K.
Exhibit Number Description
- -------------- -----------
(3) (a) Amended and Restated Agreement of Limited Partnership.
(iii)
(b) Certificate of Limited Partnership. (i)
(4) (a) Form of Subscription Agreement. (iii)
(b) Form of Certificate evidencing units. (i)
(10) (a) Property Management Agreement As amended. (ii)
(b) Escrow Agreement between the Partnership and The Mission
Bank. (i)
(c) Real Estate Contract of Sale for the Brywood Hills
Apartments. (iv)
(d) Real Estate Contract of Sale for The Greenhills Bicycle
Club (formerly Candlewyck Apartments). (v)
(e) Deed of Trust and Promissory Note for Brywood Hills
Apartments. (vii)
(f) Deed of Trust and Promissory Notes for Greenhills
Bicycle Club (formerly Candlewyck Apartments). (vii)
(16) (a) Letter regarding change in certifying accountant. (vi)
(b) Letter regarding change in certifying accountant. (viii)
(25) (a) Power of Attorney. (i)
(27) (a) Secured Investment Resources Fund, L.P. III Financial
Data Schedule at December 31, 1998 and for the year then
ended.
(28) (b) Guarantee of General Partners. (i)
29
<PAGE>
(i) Previously filed on September 13, 1988 as an Exhibit to the Registration
Statement on Form S-11 (file no. 3324235) such Exhibit and Registration
Statement incorporated herein by reference.
(ii) Previously filed on December 7, 1988 as an Exhibit to Amendment #1 to
registration Statement of Form S-11 such Exhibit and Registration Statement
incorporated herein by reference.
(iii) Previously filed on December 7, 1988 as part of Amendment #1 to
Registration Statement and incorporated herein by reference.
(iv) Previously filed as an exhibit to a current report on Form 8-K dated June
12, 1989 which exhibit and Form is incorporated herein by reference.
(v) Previously filed as an exhibit to a current report on Form 8-K dated October
30, 1989 which exhibit and Form is incorporated herein by reference.
(vi) Previously filed as an exhibit to a current report on Form 8-K dated
December 4, 1989 which exhibit and Form is incorporated herein by reference.
(vii) Previously filed as an exhibit to an annual report on Form 10-K dated
December 31, 1989 which exhibit and Form is incorporated herein by reference.
(viii) Previously filed as an exhibit to a current report on Form 8-K (Amendment
No. 1) dated December 1, 1998 which exhibit and Form is incorporated herein by
reference.
(b) Report of Form 8-K filed during the fourth quarter.
A Form 8-K was filed on November 13, 1998 (file no. 000-18475), such Form 8-K is
incorporated herein by reference. Amendment No. 1 to such Form 8-K was filed on
December 1, 1998 (file no. 000-18475), such Amendment No. 1 is incorporated
herein by reference.
(c ) See Exhibit Index contained herein.
(d) See (a)(2) above.
30
<PAGE>
SIGNATURES
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 hereunto duly authorized.
Secured Investment Resources
Fund, L.P., III, a Missouri limited
partnership (Registrant)
Date: March 31, 1999 By: Nichols Resources, Ltd., its
general partner
By: /s/ Christine A. Robinson
-------------------------
Christine A. Robinson
President
Pursuant to the requirements of the Securities Exchanged Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
No annual report of proxy material has been sent to security holders during the
Registrant's last fiscal year, but an annual report and proxy material will be
furnished to security holders subsequent to the filing of the annual report on
this form.
/s/James R. Hoyt
- ---------------------------- Individual general March 31, 1999
James R. Hoyt partner of the Registrant
/s/ David L. Johnson
- ---------------------------- Director of Nichols March 31, 1999
David L. Johnson Resources, Ltd., a
corporate general partner
of the Registrant
/s/ John W. Alvey
- --------------------------- Director of Nichols March 31, 1999
John W. Alvey Resources, Ltd., a
corporate general partner
of the Registrant
/s/ Daniel W. Pishny
- --------------------------- Director of Nichols March 31, 1999
Daniel W. Pishny Resources, Ltd., a
corporate general partner
of the Registrant
31
<PAGE>
Report of Independent Accountants
on Financial Statement Schedules
The Partners
Secured Investment Resources Fund, L.P. III
Kansas City, Missouri
In connection with our audit of the consolidated financial statements of Secured
Investment Resources Fund, L.P. III for the year ended December 31, 1998, we
have also audited the information in the following financial statement schedules
for the year ended December 31, 1998. These financial statement schedules are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statement schedules based on our audits of
the basic financial statements. The schedules are presented for purposes of
complying with the Securities and Exchange Commission's rules and regulations
and are not a required part of the consolidated financial statements.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Baird, Kurtz & Dobson
-------------------------------
Kansas City, Missouri
January 21, 1999
32
<PAGE>
Secured Investment Resources Fund L.P. III
Schedule II - Allowance for Doubtful Accounts
December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Balance at Bad Debt Write Balance at
Beginning of Charged to Offs Deducted End
Period Operations From Allowance of Period
------ ---------- -------------- ---------
For Years Ended December 31,
1996 $ 7,150 $ 4,850 $ --- $ 12,000
1997 $ 12,000 $ 62,400 $ 58,200 $ 16,200
1998 $ 16,200 $ --- $ 16,200 $ ---
</TABLE>
(the remainder of this page left blank intentionally)
33
<PAGE>
Secured Investment Resource Fund, L.P. III
Schedule III Real Estate & Accumulated Depreciation
December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Initial Cost to Partnership (a) Subsequent to Acquisition
------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Building & Furniture Reduction
Encumbrances Land Improvement Equipment Improvements of Basis (b)
------------ ---- ----------- --------- ------------ ------------
Garden Apartments:
KC Club Apartments 3,922,211 0 4,775,465 295,527 195,464 (216,021)
Kansas City, MO
Green Hills Bicycle Club 8,422,249 430,937 9,988,057 832,619 379,597 (576,842)
Kansas City, MO ---------- ------- ---------- --------- ------- ---------
Other Equipment 0 0 0 0 12,180 0
---------- ------- ---------- --------- ------- ---------
TOTAL 12,344,460 430,937 14,763,522 1,128,146 587,241 (792,863)
========== ======= ========== ========= ======= ========
<S> <C>
Gross Amount at Which
Carried at Close of Period
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Building & Furniture Accumulated Date Depreciation
Land Improvements Equipment Total Depreciation Acquired Life
---- ------------ --------- ----- ------------ -------- ----
Garden Apartments:
KC Club Apartments 0 0 0 0 0 06/30/89 30 Yrs (1)
Kansas City, MO 5 Yrs (2)
Green Hills Bicycle 407,226 9,605,002 1,180,515 11,192,743 3,972,895 10/27/89 30 Yrs (1)
Club 5 Yrs (2)
Kansas City, MO
Other Equipment 0 0 12,180 12,180 12,180 5 Yrs (2)
------- --------- --------- ---------- ---------
TOTAL 407,226 9,605,002 1,192,695 11,204,923 3,985,075
======= ========= ========= ========== =========
</TABLE>
(1) Estimated useful life of buildings
(2) Estimated useful life of furniture and fixtures
NOTES:
(a) The initial cost to the Partnership represents the original purchase price
of the properties, including $205,562 and $145,578 of improvements incurred in
1986 and 1987, respectively, which were contemplated at the time the property
was acquired.
(b) Receipts received under the terms of certain guarantee agreement are
recorded by the Partnership as a reduction of the basis of the property to which
the guaranteed income relates.
34
<PAGE>
Secured Investment Resource Fund, LP III
Schedule III Real Estate & Accumulated Depreciation--Cont'd.
December 31, 1997
(c) Reconciliation of Real Estate Owned:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Buildings & Furniture
Total Land Improvement Equipment
----- ---- ----------- ---------
Balance at January 1, 1996 15,939,497 407,226 14,154,310 1,377,961
Additions during year:
Reclassification 0 0 0 0
Improvements 102,145 0 8,163 93,982
---------- ------- --------- ---------
Balance at December 31, 1996 16,041,642 407,226 14,162,473 1,471,943
Additions during year:
Improvements 102,145 0 21,304 45,037
---------- ------- --------- ---------
Balance at December 31, 1997 16,107,983 407,226 14,183,777 1,516,980
Additions during year:
Improvements 147,375 0 62,471 84,904
Disposition (50,050,435) 0 (4,641,246) (409,189)
---------- ------- --------- ---------
Balance at December 31, 1998 11,204,923 407,226 9,605,002 1,192,695
</TABLE>
(d) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Balance at January 1, 1996 4,202,665 0 3,012,364 1,190,301
Additions during year:
Depreciation Expense 529,408 435,991 93,417
---------- ------- --------- ---------
Balance at December 31, 1996 4,732,073 0 3,448,355 1,283,718
Additions during year:
Depreciation Expense 541,921 462,547 79,374
---------- ------- --------- ---------
Balance at December 31, 1997 5,273,994 0 3,910,902 1,363,092
Additions during year:
Depreciation Expense 373,505 328,148 45,357
Disposition (1,662,424) (1,315,166) (347,258)
---------- ------- --------- ---------
Balance at December 31, 1998 3,985,075 0 2,923,884 1,061,191
========= ======= ========= =========
</TABLE>
(e) The total gross amount of real estate at December 31, 1997 includes $566,888
of acquisition fees paid to affiliates.
35
<PAGE>
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 130,061
<SECURITIES> 0
<RECEIVABLES> 1,867
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 314,858
<PP&E> 11,204,923
<DEPRECIATION> 3,985,075
<TOTAL-ASSETS> 7,689,559
<CURRENT-LIABILITIES> 222,321
<BONDS> 7,962,718
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,689,559
<SALES> 0
<TOTAL-REVENUES> 1,967,331
<CGS> 0
<TOTAL-COSTS> 1,421,801
<OTHER-EXPENSES> (13,186)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 740,776
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 976,185
<CHANGES> 0
<NET-INCOME> 794,125
<EPS-PRIMARY> 81.18
<EPS-DILUTED> 0
</TABLE>
