UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1999
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 number: 0-19217
American Tax Credit Properties III L.P.
(Exact name of Registrant as specified in its charter)
Delaware 13-3545006
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Richman Tax Credit Properties III L.P.
599 West Putnam Avenue, 3rd Floor
Greenwich, Connecticut 06830
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 869-0900
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 filing requirements
for the past 90 days.
Yes X No .
--- ---
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Table of Contents Page
Balance Sheets.................................................................3
Statements of Operations.......................................................4
Statements of Cash Flows.......................................................5
Notes to Financial Statements..................................................7
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES III L.P.
BALANCE SHEETS
(UNAUDITED)
September 29, March 30,
Notes 1999 1999
----- ------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 771,666 $ 567,613
Investments in bonds available-for-sale 2 2,560,674 2,890,010
Investment in local partnerships 3 5,145,187 6,032,392
Interest receivable 16,846 21,531
------------- -----------
$ 8,494,373 $ 9,511,546
============= ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses 4 $ 1,156,132 $ 1,105,703
Payable to general partner 1,126,470 1,061,185
Other 11,700 11,700
------------- -----------
2,294,302 2,178,588
------------- -----------
Commitment and contingencies 3,4
Partners' equity (deficit)
General partner (252,574) (242,419)
Limited partners (35,883 units of limited partnership
interest outstanding) 6,524,820 7,530,193
Accumulated other comprehensive income (loss), net 2 (72,175) 45,184
------------- -----------
6,200,071 7,332,958
------------- -----------
$ 8,494,373 $ 9,511,546
============= ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES III L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Six Months Ended Three Months Six Months Ended
Ended September 29, September 29, Ended September 29, September 29,
Notes 1999 1999 1998 1998
----- ------------------ ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
REVENUE
Interest $ 55,843 $ 112,609 $ 61,673 $ 123,532
Other income from local
partnerships 3 2,587 6,759 1,580 5,752
------------- ------------- ------------- -------------
TOTAL REVENUE 58,430 119,368 63,253 129,284
------------- ------------- ------------- -------------
EXPENSES
Administration fees 4 57,642 115,285 57,642 115,285
Management fees 57,642 115,285 57,642 115,285
Professional fees 14,316 20,671 8,937 21,349
Printing, postage and other 3,950 9,858 4,042 13,897
------------- ------------- ------------- -------------
TOTAL EXPENSES 133,550 261,099 128,263 265,816
------------- ------------- ------------- -------------
Loss from operations (75,120) (141,731) (65,010) (136,532)
Equity in loss of investment
in local partnerships 3 (466,503) (873,797) (434,420) (890,071)
------------- ------------- ------------- -------------
NET LOSS (541,623) (1,015,528) (499,430) (1,026,603)
Other comprehensive income (loss) 2 (36,062) (117,359) 125,219 152,093
------------- ------------- ------------- -------------
COMPREHENSIVE LOSS $ (577,685) $ (1,132,887) $ (374,211) $ (874,510)
============= ============= ============= =============
NET LOSS ATTRIBUTABLE TO
General partner $ (5,416) $ (10,155) $ (4,994) $ (10,266)
Limited partners (536,207) (1,005,373) (494,436) (1,016,337)
------------- ------------- ------------- -------------
$ (541,623) $ (1,015,528) $ (499,430) $ (1,026,603)
============= ============= ============= =============
NET LOSS per unit of limited
partnershipinterest (35,883
units of limited partnership
interest) $ (14.95) $ (28.02) $ (13.78) $ (28.32)
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES III L.P.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 29, 1999 AND 1998
(UNAUDITED)
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 80,507 $ 88,247
Cash used for local partnerships for deferred expenses (4,750)
Cash paid for
administration fees (50,000) (50,000)
management fees (50,000) (50,000)
professional fees (44,829) (42,099)
printing, postage and other expenses (556) (13,087)
----------- ----------
Net cash used in operating activities (64,878) (71,689)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash distributions and other income from local partnerships 20,167 22,293
Maturity/redemption of bonds 248,764 125,000
----------- ----------
Net cash provided by investing activities 268,931 147,293
----------- ----------
Net increase in cash and cash equivalents 204,053 75,604
Cash and cash equivalents at beginning of period 567,613 419,372
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 771,666 $ 494,976
=========== ==========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain (loss) on investments in bonds available-for-sale, net $ (117,359) $ 152,093
=========== ==========
See reconciliation of net loss to net cash used in operating activities on page 6.
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES III L.P.
STATEMENTS OF CASH FLOWS - (Continued)
SIX MONTHS ENDED SEPTEMBER 29, 1999 AND 1998
(UNAUDITED)
1999 1998
------------ ------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES
Net loss $ (1,015,528) $ (1,026,603)
Adjustments to reconcile net loss to net cash used in operating activities
Equity in loss of investment in local partnerships 873,797 890,071
Distributions from local partnerships classified as other income (6,759) (5,752)
Loss on maturity/redemption of investments in bonds 677
Amortization of net premium on investments in bonds 6,577 6,629
Accretion of zero coupon bonds (43,364) (43,364)
Decrease in interest receivable 4,685 773
Increase in accounts payable and accrued expenses 50,429 45,345
Increase in payable to general partner 65,285 65,285
Decrease in other liabilities (4,750)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES $ (64,878) $ (71,689)
============ ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 29, 1999
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
They do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. The results of
operations are impacted significantly by the combined results of operations of
the Local Partnerships, which are provided by the Local Partnerships on an
unaudited basis during interim periods. Accordingly, the accompanying financial
statements are dependent on such unaudited information. In the opinion of the
General Partner, the financial statements include all adjustments necessary to
present fairly the financial position as of September 29, 1999 and the results
of operations and cash flows for the interim periods presented. All adjustments
are of a normal recurring nature. The results of operations for the three and
six month periods ended September 29, 1999 are not necessarily indicative of the
results that may be expected for the entire year.
2. Investments in Bonds Available-For-Sale
As of September 29, 1999, certain information concerning investments in bonds
available-for-sale is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair value
------------------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate debt securities
Within one year $ 75,183 $ 861 $ -- $ 76,044
After one year through five years 458,767 2,441 (1,394) 459,814
After five years through ten years 703,755 8,436 (17,841) 694,350
After ten years 255,933 -- (5,213) 250,720
----------- ---------- ---------- -----------
1,493,638 11,738 (24,448) 1,480,928
----------- ---------- ---------- -----------
U.S. Treasury debt securities
After five years through ten years 1,139,211 -- (59,465) 1,079,746
----------- ---------- ---------- -----------
$ 2,632,849 $ 11,738 $ (83,913) $ 2,560,674
=========== ========== ========== ===========
</TABLE>
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1999
(UNAUDITED)
3. Investment in Local Partnerships
The Partnership owns limited partnership interests in forty-three Local
Partnerships representing capital contributions in the aggregate amount of
$29,264,476, all of which have been paid. As of June 30, 1999, the Local
Partnerships have outstanding mortgage loans payable totaling approximately
$86,078,000 and accrued interest payable on such loans totaling approximately
$2,627,000, which are secured by security interests and liens common to mortgage
loans on the Local Partnerships' real property and other assets.
For the six months ended September 29, 1999, the investment in local
partnerships activity consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Investment in local partnerships as of March 30, 1999 $ 6,032,392
Equity in loss of investment in local partnerships (873,797)*
Cash distributions received from Local Partnerships (20,167)
Cash distributions from Local Partnerships classified as other income 6,759
-------------
Investment in local partnerships as of September 29, 1999 $ 5,145,187
=============
</TABLE>
* Equity in loss of investment in local partnerships is limited to the
Partnership's investment balance in each Local Partnership; any excess is
applied to other partners' capital in any such Local Partnership. The
amount of such excess losses applied to other partners' capital was
$727,932 for the six months ended June 30, 1999 as reflected in the
combined statement of operations of the Local Partnerships reflected herein
Note 3.
The combined unaudited balance sheets of the Local Partnerships as of June 30,
1999 and December 31, 1998 and the combined unaudited statements of operations
of the Local Partnerships for the three and six month periods ended June 30,
1999 and 1998 are reflected on pages 9 and 10, respectively.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES III L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1999
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of June 30, 1999 and
December 31, 1998 are as follows:
June 30, December 31,
1999 1998
-------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,330,020 $ 1,396,493
Rents receivable 335,423 429,688
Capital contributions receivable 84,433
Escrow deposits and reserves 4,871,336 4,657,419
Land 3,910,215 3,910,215
Buildings and improvements (net of accumulated
depreciation of $33,064,084 and $31,057,575) 80,059,080 82,003,262
Intangible assets (net of accumulated amortization
of $641,784 and $618,890) 693,830 716,724
Other 923,877 804,785
-------------- ------------
$ 92,123,781 $ 94,003,019
============== ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 763,315 $ 619,342
Due to related parties 4,974,955 5,154,179
Mortgage loans 86,077,898 86,358,980
Notes payable 22,738 26,990
Accrued interest 2,626,930 2,420,323
Other 616,390 613,520
-------------- ------------
95,082,226 95,193,334
-------------- ------------
Partners' equity (deficit)
American Tax Credit Properties III L.P.
Capital contributions, net of distributions (includes
receivable of $84,433 as of December 31, 1998) 28,979,022 29,004,177
Cumulative loss (23,850,263) (22,976,466)
-------------- ------------
5,128,759 6,027,711
-------------- ------------
General partners and other limited partners, including ATCP II
Capital contributions, net of distributions (196,921) (177,871)
Cumulative loss (7,890,283) (7,040,155)
-------------- ------------
(8,087,204) (7,218,026)
-------------- ------------
(2,958,445) (1,190,315)
-------------- ------------
$ 92,123,781 $ 94,003,019
============== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN TAX CREDIT PROPERTIES III L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1999
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the three
and six month periods ended June 30, 1999 and 1998 are as follows:
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1999 1998 1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Rental $ 2,647,066 $ 5,341,777 $ 2,650,051 $ 5,265,766
Interest and other 79,217 156,361 84,687 163,966
------------- ------------ ------------ ------------
TOTAL REVENUE 2,726,283 5,498,138 2,734,738 5,429,732
------------- ------------ ------------ ------------
EXPENSES
Administrative 538,111 1,035,871 498,220 993,705
Utilities 243,980 549,911 233,713 513,644
Operating, maintenance and other 732,981 1,322,589 556,042 1,143,828
Taxes and insurance 307,508 628,286 318,121 647,946
Financial (including amortization of
$11,446, $22,894, $12,285 and $24,577) 839,031 1,678,897 855,385 1,713,980
Depreciation 1,006,085 2,006,509 1,003,726 2,007,309
------------- ------------ ------------ ------------
TOTAL EXPENSES 3,667,696 7,222,063 3,465,207 7,020,412
------------- ------------ ------------ ------------
NET LOSS $ (941,413) $ (1,723,925) $ (730,469) $ (1,590,680)
============= ============ ============ ============
NET LOSS ATTRIBUTABLE TO
American Tax Credit Properties III L.P. $ (466,503) $ (873,797) $ (434,420) $ (890,071)
General partners and other limited partners,
including ATCP II, which includes $401,694,
$727,932, $236,063 and $592,085 of Partnership
loss in excess of investment (474,910) (850,128) (296,049) (700,609)
------------- ------------ ------------ ------------
$ (941,413) $ (1,723,925) $ (730,469) $ (1,590,680)
============= ============ ============ ============
</TABLE>
The combined results of operations of the Local Partnerships for the three and
six month periods ended June 30, 1999 are not necessarily indicative of the
results that may be expected for an entire operating period.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1999
(UNAUDITED)
4. Administration Fees
Pursuant to the Partnership Agreement, the Partnership is authorized to pay
ML Fund Administrators Inc. ("MLFA"), an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, an annual administration fee (the
"Administration Fee") and an annual additional administration fee (the
"Additional Administration Fee") for its administrative services provided
to the Partnership pursuant to an Administrative Services Agreement. The
annual Administration Fee is equal to .14% of all proceeds as of December
31 of any year, invested or committed for investment in Local Partnerships
plus all debts of the Local Partnerships related to the Properties
("Invested Assets"), and the annual Additional Administration Fee, which is
subject to certain provisions of the Partnership Agreement, is equal to
.06% of Invested Assets. MLFA has notified the Partnership that effective
November 23, 1999, it will discontinue the performance of its services
under the Adminstrative Services Agreement. The General Partner is
considering transition of such services to an affiliate of the General
Partner without any changes to the terms of the Administrative Services
Agreement. Under the terms of the Partnership Agreement, the Partnership
currently incurs an annual Administration Fee and an annual Additional
Administration Fee of $161,400 and $69,171, respectively. Unpaid cumulative
Administration Fees and additional Administration Fees in the amount of
$1,126,470 and $1,061,185 are included in accounts payable and accrued
expenses in the accompanying balance sheets as of September 29, 1999 and
March 30, 1999, respectively.
5. Additional Information
Additional information, including the audited March 30, 1999 Financial
Statements and the Organization, Purpose and Summary of Significant
Accounting Policies, is included in the Partnership's Annual Report on Form
10-K for the fiscal year ended March 30, 1999 on file with the Securities
and Exchange Commission.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Material Changes in Financial Condition
As of September 29, 1999, American Tax Credit Properties III L.P. (the
"Registrant") has not experienced a significant change in financial condition as
compared to March 30, 1999. Principal changes in assets are comprised of
periodic transactions and adjustments and anticipated equity in loss from
operations of the local partnerships (the "Local Partnerships") which own
low-income multifamily residential complexes (the "Properties") which qualify
for the low-income tax credit in accordance with Section 42 of the Internal
Revenue Code (the "Low-income Tax Credit"). During the six months ended
September 29, 1999, Registrant received cash from interest revenue,
maturity/redemption of bonds and distributions from Local Partnerships and
utilized cash for operating expenses. Cash and cash equivalents and investments
in bonds available-for-sale decreased, in the aggregate, by approximately
$125,000 during the six months ended September 29, 1999 (which includes a net
unrealized loss on investments in bonds of approximately $117,000, the
amortization of net premium on investments in bonds of approximately $7,000 and
the accretion of zero coupon bonds of approximately $43,000). Notwithstanding
circumstances that may arise in connection with the Properties, Registrant does
not expect to realize significant gains or losses on its investments in bonds,
if any. During the six months ended September 29, 1999, the investment in Local
Partnerships decreased as a result of Registrant's equity in the Local
Partnerships' net loss for the six months ended June 30, 1999 of $873,797 and
cash distributions received from Local Partnerships of $13,408 (exclusive of
distributions from Local Partnerships of $6,759 classified as other income from
local partnerships). Accounts payable and accrued expenses includes deferred
administration fees of $1,126,470 and payable to general partner represents
deferred management fees in the accompanying balance sheet as of September 29,
1999.
Results of Operations
Registrant's operating results are dependent upon the operating results of the
Local Partnerships and are significantly impacted by the Local Partnerships'
policies. In addition, the operating results herein are not necessarily the same
for tax reporting. Registrant accounts for its investment in Local Partnerships
in accordance with the equity method of accounting. Accordingly, the investment
is carried at cost, which includes capital contributions payable, and is
adjusted for Registrant's share of each Local Partnership's results of
operations and by cash distributions received. Equity in loss of each investment
in Local Partnership allocated to Registrant is recognized to the extent of
Registrant's investment balance in each Local Partnership. Equity in loss in
excess of Registrant's investment balance in a Local Partnership is allocated to
other partners' capital in any such Local Partnership. As a result, the reported
equity in loss of investment in local partnerships is expected to decrease as
Registrant's investment balances in the respective Local Partnerships become
zero. The combined statements of operations of the Local Partnerships reflected
in Note 3 to Registrant's financial statements include the operating results of
all Local Partnerships, irrespective of Registrant's investment balances.
Cumulative losses and cash distributions in excess of investment in local
partnerships may result from a variety of circumstances, including a Local
Partnership's accounting policies, subsidy structure, debt structure and
operating deficits, among other things. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of a Local Partnership. See discussion below under
Local Partnership Matters regarding certain Local Partnerships currently
operating below economic break even levels.
Registrant's operations for the three months ended September 29, 1999 and 1998
resulted in net losses of $541,623 and $499,430, respectively. The increase in
net loss is primarily attributable to an increase in equity in loss of
investment in local partnerships of approximately $32,000. Other comprehensive
income (loss) for the three months ended September 29, 1999 and 1998 resulted
from a net unrealized gain (loss) on investments in bonds available-for-sale of
($36,062) and $125,219, respectively.
The Local Partnerships' net loss of approximately $941,000 for the three months
ended June 30, 1999 was attributable to rental and other revenue of
approximately $2,726,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $2,650,000 and approximately
$1,017,000 of depreciation and amortization expense. The Local Partnerships' net
loss of approximately $730,000 for the three months ended June 30, 1998 was
attributable to rental and other revenue of approximately $2,735,000, exceeded
by operating and interest expense (including interest on non-mandatory debt) of
approximately $2,449,000 and approximately $1,016,000 of depreciation and
amortization expense. The results of operations of the Local Partnerships for
the three months ended June 30, 1999 are not necessarily indicative of the
results that may be expected in future periods.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Registrant's operations for the six months ended September 29, 1999 and 1998
resulted in net losses of $1,015,528 and $1,026,603, respectively. The decrease
in net loss is primarily attributable to a decrease in equity in loss of
investment in local partnerships of approximately $16,000. Other comprehensive
income (loss) for the six months ended September 29, 1999 and 1998 resulted from
a net unrealized gain (loss) on investments in bonds available-for-sale of
($117,359) and $152,093, respectively.
The Local Partnerships' net loss of approximately $1,724,000 for the six months
ended June 30, 1999 was attributable to rental and other revenue of
approximately $5,498,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $5,193,000 and approximately
$2,029,000 of depreciation and amortization expense. The Local Partnerships' net
loss of approximately $1,591,000 for the six months ended June 30, 1998 was
attributable to rental and other revenue of approximately $5,430,000, exceeded
by operating and interest expense (including interest on non-mandatory debt) of
approximately $4,989,000 and approximately $2,032,000 of depreciation and
amortization expense. The results of operations of the Local Partnerships for
the six months ended June 30, 1999 are not necessarily indicative of the results
that may be expected in future periods.
Local Partnership Matters
Registrant's primary objective is to provide Low-income Tax Credits to limited
partners generally over a ten year period. The required holding period of each
Property, in order to avoid Low-income Tax Credit recapture, is fifteen years
from the year in which the Low-income Tax Credits commence on the last building
of the Property (the "Compliance Period"). In addition, certain of the Local
Partnerships have entered into agreements with the relevant state tax credit
agencies whereby the Local Partnerships must maintain the low-income nature of
the Properties for a period which exceeds the Compliance Period, regardless of
any sale of the Properties by the Local Partnerships after the Compliance
Period. The Properties must satisfy various requirements including rent
restrictions and tenant income limitations (the "Low-income Tax Credit
Requirements") in order to maintain eligibility for the recognition of the
Low-income Tax Credit at all times during the Compliance Period. Once a Local
Partnership has become eligible for the Low-income Tax Credit, it may lose such
eligibility and suffer an event of recapture if its Property fails to remain in
compliance with the Low-income Tax Credit Requirements. Through December 31,
1998, none of the Local Partnerships have suffered an event of recapture of
Low-income Tax Credits.
The Properties are principally comprised of subsidized and leveraged low-income
multifamily residential complexes located throughout the United States and
Puerto Rico. Many of the Local Partnerships receive rental subsidy payments,
including payments under Section 8 of Title II of the Housing and Community
Development Act of 1974 ("Section 8"). The subsidy agreements expire at various
times during and after the Compliance Periods of the Local Partnerships. In
October 1997, Congress passed the Multifamily Assisted Housing and Reform and
Affordability Act, whereby the United States Department of Housing and Urban
Development ("HUD") was given the authority to renew certain project based
Section 8 contracts expiring during HUD's fiscal year 1998, where requested by
an owner, for an additional one year term generally at or below current rent
levels, subject to certain guidelines. In October 1998, HUD issued a directive
related to project based Section 8 contracts expiring during HUD's fiscal year
1999 which defines owners' notification responsibilities, advises owners of
project based Section 8 properties of what their options are regarding the
renewal of Section 8 contracts, provides guidance and procedures to owners,
management agents, contract administrators and HUD staff on renewing Section 8
contracts, provides guidance on setting renewal rents and handling renewal rent
increases and provides the requirements and procedures for opting-out of a
Section 8 project based contract. Registrant cannot reasonably predict
legislative initiatives and governmental budget negotiations, the outcome of
which could result in a reduction in funds available for the various federal and
state administered housing programs including the Section 8 program. Such
changes could adversely affect the future net operating income and debt
structure of any or all Local Partnerships currently receiving such subsidy or
similar subsidies. One Local Partnership's Section 8 contract is currently
subject to annual year-to-year renewals.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Local Partnerships have various financing structures which include (i)
required debt service payments ("Mandatory Debt Service") and (ii) debt service
payments which are payable only from available cash flow subject to the terms
and conditions of the notes, which may be subject to specific laws, regulations
and agreements with appropriate federal and state agencies ("Non-Mandatory Debt
Service or Interest"). In the event rents are not sufficient to cover operating
expenses, Mandatory Debt Service requirements and other charges, certain general
partners of the Local Partnerships (the "Local General Partners") are obligated
to provide advances to cover deficits for a certain period of time up to certain
amounts (the "Deficit Guarantee"). A Local General Partner's funding of such
Deficit Guarantee is dependent on its liquidity or ability to borrow the
required funds. During the six months ended June 30, 1999, revenue from
operations of the Local Partnerships have generally been sufficient to cover
operating expenses and Mandatory Debt Service. Substantially all of the Local
Partnerships are effectively operating at or near break even levels, although
certain Local Partnerships' operating information reflects operating deficits
that do not represent cash deficits due to their mortgage and financing
structure and the required deferral of property management fees. However, as
discussed below, certain Local Partnerships' operating information indicates
below break even operations after taking into account their mortgage and
financing structure and any required deferral of property management fees.
The terms of the partnership agreement of Westminster Apartments Limited
Partnership ("Westminster") require the Local General Partner to advance funds
to cover operating deficits through 2009. Westminster reported an operating
deficit of approximately $20,000 for the six months ended June 30, 1999. In
addition, as of June 30, 1999, Westminster is seven months in arrears on its
mortgage, and eleven to thirteen months in arrears on its replacement reserve
and escrow requirements. The Local General Partner is conducting discussions
with the lender, which has acknowledged the arrearages but has not declared a
default. Current proposals include the potential utilization of replacement
reserves to reduce the arrearages. There can be no assurance that the Local
General Partner will be successful in its negotiations with the lender.
Registrant's investment balance in Westminster, after the cumulative equity
losses, became zero during the year ended March 30, 1999. Of Registrant's total
annual Low-income Tax Credits, approximately 4% is allocated from Westminster.
Fulton Street Houses Limited Partnership ("Fulton Street") has an escrow of
approximately $293,000 as of June 30, 1999 to cover operating deficits, and
there are no Mandatory Debt Service payments or real estate taxes required
during the Compliance Period. Fulton Street reported an operating deficit of
approximately $20,000 for the six months ended June 30, 1999. Of Registrant's
total annual Low-income Tax Credits, approximately 8% is allocated from Fulton
Street.
The terms of the partnership agreement of Batesville Family, L.P. ("Batesville")
require the management agent to defer property management fees in order to avoid
a default under the mortgage. Batesville reported an operating deficit of
approximately $6,000 for the six months ended June 30, 1999, which includes
property management fees of approximately $1,000. Payments on the mortgage and
real estate taxes are current. Registrant's investment balance in Batesville,
after cumulative equity losses, became zero during the year ended March 30,
1997. Of Registrant's total annual Low-income Tax Credits, approximately 1% is
allocated from Batesville.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the year 2000 compliance ("Y2K") issue. As
the year 2000 approaches, such systems may be unable to accurately process
certain data-based information. Many businesses may need to upgrade existing
systems or purchase new ones to correct the Y2K issue. Registrant has performed
an assessment of its computer software and hardware and believes it has made the
necessary upgrades in an effort to ensure compliance. However, there can be no
assurance that the systems of other entities on which Registrant relies,
including the Local Partnerships which report to Registrant on a periodic basis
for the purpose of Registrant's reporting to its investors, will be timely
converted. Registrant has corresponded with the Local Partnerships to ensure
their awareness of the Y2K issue and has requested details regarding their
efforts to ensure compliance. The total cost associated with Y2K implementation
is not expected to materially impact Registrant's financial position or results
of operations in any given year. However, there can be no assurance that a
failure to convert by Registrant or another entity would not have a material
adverse impact on Registrant.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Registrant has invested a significant portion of its working capital reserves in
corporate bonds and U.S. Treasury instruments. The market value of such
investments is subject to fluctuation based upon changes in interest rates
relative to each investment's maturity date. Since Registrant's investments in
bonds have various maturity dates through 2023, the value of such investments
may be adversely impacted in an environment of rising interest rates in the
event Registrant decides to liquidate any such investment prior to its maturity.
Although Registrant may utilize reserves to assist an underperforming Property,
it otherwise intends to hold such investments to their respective maturities.
Therefore, Registrant does not anticipate any material adverse impact in
connection with such investments.
The Properties are generally located where there is a demand for low-income
housing. Accordingly, there is a significant likelihood that new low-income
properties could be built in the general vicinity of the respective Properties.
As a result, the respective Properties' ability to operate at high occupancy
levels is subject to competition from newly built low-income housing.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
As discussed in Part I, Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations, the local general
partner of Westminster Apartments Limited Partnership ("Westminster")
reports that Westminster is seven months in arrears on its first
mortgage obligation as of June 30, 1999. The local general partner is
conducting discussions with the lender, which has not declared a
default.
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AMERICAN TAX CREDIT PROPERTIES III L.P.
(a Delaware limited partnership)
By: Richman Tax Credit Properties III L.P.,
General Partner
by: Richman Housing Credits Inc.,
general partner
Dated: November 15, 1999 /s/ Richard Paul Richman
------------------------------------
by: Richard Paul Richman
President, Chief Executive
Officer and Director of the
general partner of the
General Partner
Dated: November 15, 1999 /s/ Neal Ludeke
------------------------------------
by: Neal Ludeke
Vice President and
Treasurer of the general partner
of the General Partner
(Principal Financial and Accounting
Officer of Registrant)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the quarter ended September 29, 1999 Form 10Q Balance Sheets and
Statements of Operations and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000856135
<NAME> American Tax Credit Properties III L.P.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-30-2000
<PERIOD-START> MAR-30-1999
<PERIOD-END> SEP-29-1999
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