INLAND MORTGAGE INVESTORS FUND III LP
10-Q, 1998-05-15
ASSET-BACKED SECURITIES
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q



[X] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
    Exchange Act of 1934

                 For the Quarterly Period Ended March 31, 1998

                                      or

[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
    Exchange Act of 1934

          For the transition period from             to             


                           Commission File #0-18456


                   Inland Mortgage Investors Fund III, L.P.
            (Exact name of registrant as specified in its charter)


         Delaware                              #36-3604866
(State or other jurisdiction        (I.R.S. Employer Identification Number)
 of incorporation or organization)


2901 Butterfield Road, Oak Brook, Illinois                 60523
(Address of principal executive office)                   (Zip code)


       Registrant's telephone number, including area code:  630-218-8000


                                    N/A                    
                (Former name, former address and former fiscal
                      year, if changed since last report)


Indicate by  check  mark  whether  the  registrant  (1)  has  filed all reports
required to be filed by Section 13 or  15 (d) of the Securities Exchange Act of
1934 during the  preceding  12  months  (or  for  such  shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X  No    







                                      -1-



                   INLAND MORTGAGE INVESTORS FUND III, L.P.
                            (a limited partnership)

                                Balance Sheets

                     March 31, 1998 and December 31, 1997
                                  (unaudited)

                                    Assets
                                    ------
                                                       1998          1997
                                                       ----          ----
Cash and cash equivalents (Note 1)................ $    78,629        93,296
Accrued interest receivable.......................       8,088         8,383
Mortgage loans receivable (Note 3)................     939,268       958,356
                                                   ------------  ------------
Total assets...................................... $ 1,025,985     1,060,035
                                                   ============  ============

                       Liabilities and Partner's Capital
                       ---------------------------------
Liabilities:
  Accounts payable................................ $     5,241          -
  Distributions payable...........................      31,861        44,236
  Due to Affiliates (Note 2)......................       3,380           837
                                                   ------------  ------------
    Total liabilities.............................      40,482        45,073
                                                   ------------  ------------
Partners' capital (Notes 1 and 2):
  General Partner:
    Capital contribution..........................         500           500
    Supplemental Capital Contributions............     306,874       306,874
    Supplemental distributions to Limited Partners    (306,874)     (306,874)
    Cumulative net income.........................      23,841        23,202
    Cumulative distributions......................     (18,776)      (18,137)
                                                   ------------  ------------
                                                         5,565         5,565
  Limited Partners:                                ------------  ------------
    Units of $500.  Authorized 40,000 Units,
      5,674.50 Units outstanding at March 31, 1998
      and December 31, 1997 (net of offering costs
      of $422,642, of which $115,754 was paid to
      Affiliates).................................   2,414,607     2,414,607
    Supplemental Capital Contributions from
      General Partner.............................     306,874       306,874
    Cumulative net income.........................     850,979       849,216
    Cumulative distributions......................  (2,592,522)   (2,561,300)
                                                   ------------  ------------
                                                       979,938     1,009,397
                                                   ------------  ------------
    Total Partners' capital.......................     985,503     1,014,962
                                                   ------------  ------------
Total liabilities and Partners' capital........... $ 1,025,985     1,060,035
                                                   ============  ============


                See accompanying notes to financial statements.


                                      -2-



                   INLAND MORTGAGE INVESTORS FUND III, L.P.
                            (a limited partnership)

                           Statements of Operations

              For the three months ended March 31, 1998 and 1997
                                  (unaudited)

                                                       1998          1997
                                                       ----          ----
Income:
  Interest on mortgage loans receivable (Note 3).. $    24,198        26,427
  Interest on investments.........................         988         1,609
                                                   ------------  ------------
                                                        25,186        28,036
                                                   ------------  ------------
Expenses:
  Professional services to Affiliates.............       1,063         1,487
  Professional services to non-affiliates.........      15,200        16,370
  General and administrative expenses to
    Affiliates....................................       5,583         8,659
  General and administrative expenses to
    non-affiliates................................         938         1,137
                                                   ------------  ------------
                                                        22,784        27,653
                                                   ------------  ------------
Net income........................................ $     2,402           383
                                                   ============  ============
Net income allocated to:
  General Partner.................................         639           540
  Limited Partners................................       1,763          (157)
                                                   ------------  ------------
Net income........................................ $     2,402           383
                                                   ============  ============

Net income allocated to the one
  General Partner Unit............................ $       639           540
                                                   ============  ============

Net income (loss) allocated to Limited Partners
  per weighted average Limited Partnership
  Units of 5,674.50, basic and diluted............ $       .31          (.03)
                                                   ============  ============












                See accompanying notes to financial statements.


                                      -3-



                   INLAND MORTGAGE INVESTORS FUND III, L.P.
                            (a limited partnership)

                           Statements of Cash Flows

              For the three months ended March 31, 1998 and 1997
                                  (unaudited)



                                                       1998          1997
                                                       ----          ----
Cash flows from operating activities:
  Net income...................................... $     2,402           383
  Adjustments to reconcile net income to net
      cash provided by operating activities:
    Changes in assets and liabilities:
      Accrued interest receivable.................         295           634
      Accounts payable............................       5,241         6,100
      Due to Affiliates...........................       2,543         7,184
                                                   ------------  ------------
Net cash provided by operating activities.........      10,481        14,301
                                                   ------------  ------------
Cash flows from investing activities:
  Principal payments collected....................      19,088        71,827
                                                   ------------  ------------
Net cash provided by investing activities.........      19,088        71,827
                                                   ------------  ------------
Cash flows from financing activities:
  Cash distributions..............................     (44,236)     (171,208)
                                                   ------------  ------------
Net cash used in financing activities.............     (44,236)     (171,208)
                                                   ------------  ------------
Net decrease in cash and cash equivalents.........     (14,667)      (85,080)
Cash and cash equivalents at beginning of period..      93,296       219,645
                                                   ------------  ------------
Cash and cash equivalents at end of period........ $    78,629       134,565
                                                   ============  ============

Supplemental schedule of non-cash investing and
  financing activities:

Accrued distributions payable..................... $    31,861        82,623
                                                   ============  ============











                See accompanying notes to financial statements.


                                      -4-



                   INLAND MORTGAGE INVESTORS FUND III, L.P.
                            (a limited partnership)

                         Notes to Financial Statements

                                March 31, 1998
                                  (unaudited)


Readers of this  Quarterly  Report  should  refer  to the Partnership's audited
financial statements for the  fiscal  year  ended  December 31, 1997, which are
included  in  the  Partnership's   1997   Annual  Report  as  certain  footnote
disclosures which would substantially duplicate those contained in such audited
financial statements have been omitted from this Report.

(1) Organization and Basis of Accounting

Inland Mortgage Investors Fund  III,  L.P.  (the  "Partnership"), was formed in
September 1988 pursuant to the Delaware Revised Uniform Limited Partnership Act
to make  or  acquire  loans  collateralized  by  mortgages  on improved, income
producing  properties  generally  located   in   or   near  Chicago  and  other
metropolitan areas.  On January 9,  1989, the Partnership commenced an Offering
of 40,000 (subject  to  an  increase  up  to  50,000) Limited Partnership Units
("Units")  pursuant  to  a  Registration  Statement  on  Form  S-11  under  the
Securities Act of 1933.   The  Offering  terminated January 9, 1991, with total
sales of 5,674.50 Units,  resulting  in  gross offering proceeds of $2,837,749,
which includes the General Partner's $500  contribution.  All of the holders of
these Units were admitted  to  the  Partnership.    The Limited Partners of the
Partnership share in the benefits of  ownership  in proportion to the number of
Units held.  Inland Real Estate Investment Corporation is the General Partner.

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 periods.
Actual results could differ from those estimates.

Offering costs have been offset against the Limited Partners' capital accounts.

The Partnership  considers  all  highly  liquid  investments  purchased with an
original maturity of three months or less to be cash equivalents.

Interest income on  mortgage  loans  receivable  is  accrued  when earned.  The
accrual of interest, on loans that are in default, is discontinued when, in the
opinion of the General Partner, the  borrower  has not complied with loan work-
out arrangements.  Once a  loan  has  been  placed on a non-accrual status, all
cash received is applied against  the  outstanding loan balance until such time
as the borrower has demonstrated an ability to make payments under the terms of
the original or renegotiated loan agreement.  The Partnership intends to pursue
collection of all amounts currently due from the borrowers. 

The Partnership believes that the  interest rates associated with the mortgages
receivable approximate the market  interest  rates,  and  as such, the carrying
amount of the mortgages receivable approximate their fair value.


                                      -5-



                   INLAND MORTGAGE INVESTORS FUND III, L.P.
                            (a limited partnership)

                         Notes to Financial Statements
                                  (continued)

                                March 31, 1998
                                  (unaudited)



No provision for Federal income taxes  has  been made as the liability for such
taxes is that of the Partners rather than the Partnership.

In  the  opinion  of  management,  the  financial  statements  contain  all the
adjustments necessary, which  are  of  a  normal  recurring  nature, to present
fairly the financial position and  results  of operations.  Interim periods are
not necessarily indicative of results to be expected for the year.


(2) Transactions with Affiliates

The General  Partner  and  its  Affiliates  are  entitled  to reimbursement for
salaries and expenses of employees  of  the  General Partner and its Affiliates
relating to the administration of the  Partnership.  Such costs are included in
professional services to Affiliates and  general and administrative expenses to
Affiliates, of which $3,380  and  $837  remained  unpaid  at March 31, 1998 and
December 31, 1997, respectively.

The General Partner was required to make Supplemental Capital Contributions, if
necessary, from time to time in  sufficient amounts to allow the Partnership to
make cumulative return to the  Limited  Partners  amounting  to at least 8% per
annum on their Invested Capital through January 9, 1994.  The cumulative amount
of such Supplemental Capital Contributions  is  $306,874, all of which has been
paid.

The Partnership  has  arranged  for  Inland  Mortgage  Servicing Corporation, a
subsidiary of the General Partner,  to service the Partnership's mortgage loans
receivable.  The services  include  processing  mortgage collections and escrow
deposits and maintaining related records.   For these services, the Partnership
is obligated to  pay  fees  at  an  annual  rate  equal  to  1/4  of  1% of the
outstanding mortgage loans receivable of  the  Partnership.   Such fees of $591
and $647 for the three months ended March 31, 1998 and 1997, respectively, have
been incurred and paid to the  subsidiary and are included in the Partnership's
general and administrative expenses to Affiliates.












                                      -6-



                   INLAND MORTGAGE INVESTORS FUND III, L.P.
                            (a limited partnership)

                         Notes to Financial Statements
                                  (continued)

                                March 31, 1998
                                  (unaudited)



(3) Mortgage Loans Receivable

Mortgage loans receivable are  collateralized  by  first mortgages on improved,
income producing properties  located  in  Chicago,  Illinois or its surrounding
metropolitan area.  As additional collateral, the Partnership holds assignments
of rents and leases or  personal  guarantees  of the borrowers.  Generally, the
mortgage notes are payable in equal monthly installments based on 20 or 30 year
amortization periods.

The borrower  on  the  loan  collateralized  by  the  property  located at 7432
Washington made additional partial paydowns  on  the mortgage.  The Partnership
received $17,143 in the  first  quarter  1998  and  $93,429  for the year ended
December 31, 1997, its proportionate share of the total paydowns.


(4) Subsequent Events

During April 1998,  the  Partnership  paid  a  distribution  of  $31,861 to the
Partners, of which $639 was distributed  to the General Partner and $31,222 was
distributed to the Limited  Partners,  including  $19,088 of repayment proceeds
and $12,134 of net interest income.

























                                      -7-



Item 2.  Management's  Discussion  and  Analysis  of  Financial  Condition  and
         Results of Operations

Certain statements in this  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" and  elsewhere in this quarterly report on
Form 10-Q constitute  "forward-looking  statements"  within  the meaning of the
Federal Private Securities  Litigation  Reform  Act  of  1995.   These forward-
looking statements involve  known  and  unknown  risks, uncertainties and other
factors which  may  cause  the  Partnership's  actual  results,  performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied  by  these forward-looking statements.  These
factors include,  among  other  things,  federal,  state  or local regulations;
adverse changes in general economic  or local conditions; inability of borrower
to meet financial  obligations;  uninsured  losses;  and potential conflicts of
interest between the  Partnership  and  its  Affiliates,  including the General
Partner.

Liquidity and Capital Resources

On January 9, 1989, the Partnership commenced an Offering of 40,000 (subject to
an increase to 50,000)  Limited  Partnership  Units  pursuant to a Registration
Statement on  Form  S-11  under  the  Securities  Act  of  1933.   The Offering
terminated on January 9, 1991 with total  sales of 5,674.50 Units being sold to
the public at $500 per Unit  resulting in gross offering proceeds of $2,837,749
which includes the General Partner's  $500 contribution. The Partnership funded
seven loans between October 1990 and  June 1992 utilizing $2,302,064 of capital
proceeds collected.  As  of  March  31,  1998,  cumulative distributions to the
Limited Partners totaled $2,592,522,  of  which $1,423,835 represents principal
amortization  and  repayments  and  $306,874  represents  Supplemental  Capital
Contributions from the General Partner.

As of March 31, 1998, the Partnership had cash and cash equivalents of $78,629.
The Partnership intends to use such  funds to pay distributions and for working
capital requirements.

The mortgage  loans  receivable  of  the  Partnership  are currently generating
sufficient cash flow to cover  the  operating  expenses of the Partnership.  To
the extent that cash flow  was  insufficient  to meet the minimum 8% annualized
return to investors through January  9,  1994,  as  well as any other financial
needs, the Partnership  received  Supplemental  Capital  Contributions from the
General Partner.  The  sources  of  future  liquidity  and distributions to the
Limited and General Partners are expected to be from the collection of interest
and repayment of principal of the  Partnership's mortgage loan investments.  To
the extent that cash flow is  insufficient to meet the Partnership's needs, the
Partnership may rely on advances from  Affiliates of the General Partner, other
short-term financing, or may liquidate certain mortgage loans or other assets. 

At March 31, 1998, the Partnership had three mortgage loans receivable totaling
$939,268.  The maturity dates range from  October 2000 to April 2002.  When and
as the Partnership receives  Repayment  Proceeds  as  a  result  of the sale or
repayment  of  a  loan,  the   Repayment   Proceeds  which  are  available  for
distribution will be distributed to the  Limited  Partners.  When the loans are
repaid, cash flows from operating activities  will  decrease as a result of the
decrease in interest income earned by the Partnership.



                                      -8-



Results of Operations

The decrease in interest  on  mortgage  loans  receivable  for the three months
ended March 31, 1998, as compared to  the three months ended March 31, 1997, is
due to the partial paydowns of  the loan collateralized by the property located
at 7432 Washington in  the  first  and  fourth  quarters  of 1997 and the first
quarter of 1998.

Professional services to Affiliates decreased  for the three months ended March
31, 1998, as compared  to  the  three  months  ended  March  31, 1997, due to a
decrease in accounting services required by the Partnership.

Professional services to non-affiliates  decreased  for  the three months ended
March 31, 1998, as compared to the three  months ended March 31, 1997, due to a
decrease in accounting fees.

The decrease in general and administrative expenses to Affiliates for the three
months ended March 31, 1998, as  compared  to  the three months ended March 31,
1997, is due to a decrease in investor service charges, mortgage servicing fees
and data processing expense.

Year 2000 Compliance

The  Partnership  has  reviewed  its  current  computer  systems  and  does not
anticipate any future problems relating to the year 2000.






                          PART II - Other Information

Items 1 through 6 (b) are  omitted  because  of the absence of conditions under
which they are required.






















                                      -9-



                                  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, thereunto duly authorized.



                            INLAND MORTGAGE INVESTORS FUND III, L.P.

                            By:   Inland Real Estate Investment Corporation
                                  General Partner


                                  /S/ ROBERT D. PARKS

                            By:   Robert D. Parks
                                  Chairman
                            Date: May 15, 1998


                                  /S/ MARK ZALATORIS

                            By:   Mark Zalatoris
                                  Vice President
                            Date: May 15, 1998


                                  /S/ KELLY TUCEK

                            By:   Kelly Tucek
                                  Principal Financial Officer and
                                  Principal Accounting Officer
                            Date: May 15, 1998





















                                     -10-


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<ARTICLE> 5
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-END>                               MAR-31-1998
<CASH>                                           78629
<SECURITIES>                                         0
<RECEIVABLES>                                   947356
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                 86717
<PP&E>                                               0
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                                 1025985
<CURRENT-LIABILITIES>                            40482
<BONDS>                                              0
                                0
                                          0
<COMMON>                                             0
<OTHER-SE>                                      985503
<TOTAL-LIABILITY-AND-EQUITY>                   1025985
<SALES>                                              0
<TOTAL-REVENUES>                                 25186
<CGS>                                                0
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                                 22784
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                   2402
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                               2402
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                      2402
<EPS-PRIMARY>                                      .31
<EPS-DILUTED>                                      .31
        

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