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 December 30, 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: 0-24600
American Tax Credit Trust 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 American Credit Corp.
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
2
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 30, March 30,
Notes 1999 1999
----- ----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 762,358 $ 567,613
Investments in bonds available-for-sale 2 2,486,975 2,890,010
Investment in local partnerships 3 4,828,881 6,032,392
Interest receivable 30,138 21,531
----------- -----------
$ 8,108,352 $ 9,511,546
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses 4 $ 1,159,245 $ 1,105,703
Payable to general partner 1,186,074 1,061,185
Other 6,950 11,700
----------- -----------
2,352,269 2,178,588
----------- -----------
Commitment and contingencies 4
Partners' equity (deficit)
General partner (256,361) (242,419)
Limited partners (35,883 units of limited partnership
interest outstanding) 6,149,939 7,530,193
Accumulated other comprehensive income (loss), net 2 (137,495) 45,184
----------- -----------
5,756,083 7,332,958
----------- -----------
$ 8,108,352 $ 9,511,546
=========== ===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
December 30, December 30, December 30, December 30,
Notes 1999 1999 1998 1998
----- ----------- ----------- ----------- -----------
REVENUE
<S> <C> <C> <C> <C>
Interest $ 55,858 $ 168,467 $ 61,700 $ 185,232
Other income from local partnerships 3 6,459 13,218 5,752
----------- ----------- ----------- -----------
TOTAL REVENUE 62,317 181,685 61,700 190,984
----------- ----------- ----------- -----------
EXPENSES
Administration fees 4 57,646 172,931 57,646 172,931
Management fees 57,646 172,931 57,646 172,931
Professional fees 5,557 26,228 13,251 34,600
Printing, postage and other 6,330 16,188 8,807 22,704
----------- ----------- ----------- -----------
TOTAL EXPENSES 127,179 388,278 137,350 403,166
----------- ----------- ----------- -----------
Loss from operations (64,862) (206,593) (75,650) (212,182)
Equity in loss of investment in
local partnerships 3 (313,806) (1,187,603) (432,042) (1,322,113)
----------- ----------- ----------- -----------
NET LOSS (378,668) (1,394,196) (507,692) (1,534,295)
Other comprehensive income (loss) 2 (65,320) (182,679) (50,421) 101,672
----------- ----------- ----------- -----------
COMPREHENSIVE LOSS $ (443,988) $(1,576,875) $ (558,113) $(1,432,623)
=========== =========== =========== ===========
NET LOSS ATTRIBUTABLE TO
General partner $ (3,787) $ (13,942) $ (5,077) $ (15,343)
Limited partners (374,881) (1,380,254) (502,615) (1,518,952)
----------- ----------- ----------- -----------
$ (378,668) $(1,394,196) $ (507,692) $(1,534,295)
=========== =========== =========== ===========
NET LOSS per unit of limited
partnership interest (35,883
units of limited partnership
interest) $ (10.45) $ (38.47) $ (14.01) $ (42.33)
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 105,212 $ 121,225
Cash used for local partnerships for deferred expenses (4,750) (4,750)
Cash paid for
administration fees (85,586) (75,000)
management fees (75,000) (75,000)
professional fees (40,233) (44,225)
printing, postage and other expenses (9,028) (23,708)
--------- ---------
Net cash used in operating activities (109,385) (101,458)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash distributions and other income from local partnerships 29,126 26,389
Maturity/redemption of bonds 275,004 142,918
--------- ---------
Net cash provided by investing activities 304,130 169,307
--------- ---------
Net increase in cash and cash equivalents 194,745 67,849
Cash and cash equivalents at beginning of period 567,613 419,372
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 762,358 $ 487,221
========= =========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain (loss) on investments in bonds
available-for-sale, net $(182,679) $ 101,672
========= =========
</TABLE>
- --------------------------------------------------------------------------------
See reconciliation of net loss to net cash used in operating activities on page
6.
See Notes to Financial Statements.
5
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
STATEMENTS OF CASH FLOWS - (Continued)
NINE MONTHS ENDED DECEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING
ACTIVITIES
Net loss $(1,394,196) $(1,534,295)
Adjustments to reconcile net loss to net cash used in
operating activities
Equity in loss of investment in local partnerships 1,187,603 1,322,113
Distributions from local partnerships classified as other (13,218) (5,752)
income
Loss on maturity/redemption of investments in bonds 677
Amortization of net premium on investments in bonds 10,517 9,919
Accretion of zero coupon bonds (65,165) (65,165)
Increase in interest receivable (8,607) (9,438)
Increase in accounts payable and accrued expenses 53,542 87,302
Increase in payable to general partner 124,889 97,931
Decrease in other liabilities (4,750) (4,750)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $ (109,385) $ (101,458)
=========== ===========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 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 December 30, 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 nine month
periods ended December 30, 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 December 30, 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 $ 75,416 $ -- $ (51) $ 75,365
After one year through five years 455,994 745 (1,995) 454,744
After five years through ten years 697,509 2,181 (37,587) 662,103
After ten years 229,432 -- (10,307) 219,125
1,458,351 2,926 (49,940) 1,411,337
----------- ----------- ----------- -----------
U.S. Treasury debt securities
After five years through ten years 1,166,119 -- (90,481) 1,075,638
----------- ----------- ----------- -----------
$ 2,624,470 $ 2,926 $ (140,421) $ 2,486,975
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 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 September 30, 1999, the
Local Partnerships have outstanding mortgage loans payable totaling
approximately $85,934,000 and accrued interest payable on such loans
totaling approximately $2,725,000, which are secured by security interests
and liens common to mortgage loans on the Local Partnerships' real property
and other assets.
For the nine months ended December 30, 1999, the investment in local
partnerships activity consists of the following:
Investment in local partnerships as of March 30, 1999 $ 6,032,392
Equity in loss of investment in local partnerships (1,187,603)
Cash distributions received from Local Partnerships (29,126)
Cash distributions from Local Partnerships classified as
other income 13,218
-----------
Investment in local partnerships as of December 30, 1999 $ 4,828,881
===========
* 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
$1,080,602 for the nine months ended September 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
September 30, 1999 and December 31, 1998 and the combined unaudited
statements of operations of the Local Partnerships for the three and nine
month periods ended September 30, 1999 and 1998 are reflected on pages 9 and
10, respectively.
8
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of September 30,
1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,581,554 $ 1,396,493
Rents receivable 418,120 429,688
Capital contributions receivable 84,433
Escrow deposits and reserves 4,764,552 4,657,419
Land 3,910,215 3,910,215
Buildings and improvements (net of accumulated depreciation of
$34,066,334 and $31,057,575) 79,090,774 82,003,262
Intangible assets (net of accumulated amortization of $653,224
and $618,890) 682,390 716,724
Other 871,219 804,785
------------ ------------
$ 91,318,824 $ 94,003,019
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 775,771 $ 619,342
Due to related parties 4,928,537 5,154,179
Mortgage loans 85,934,150 86,358,980
Notes payable 21,297 26,990
Accrued interest 2,724,945 2,420,323
Other 622,769 613,520
------------ ------------
95,007,469 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) 28,972,778 29,004,177
Cumulative loss (24,164,069) (22,976,466)
------------ ------------
4,808,709 6,027,711
------------ ------------
General partners and other limited partners, including ATCP II
Capital contributions, net of distributions (197,587) (177,871)
Cumulative loss (8,299,767) (7,040,155)
------------ ------------
(8,497,354) (7,218,026)
------------ ------------
(3,688,645) (1,190,315)
------------ ------------
$ 91,318,824 $ 94,003,019
============ ============
</TABLE>
9
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the
three and nine month periods ended September 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September September September September
30, 30, 30, 30,
1999 1999 1998 1998
------------ ------------ ------------ ------------
REVENUE
<S> <C> <C> <C> <C>
Rental $ 2,670,422 $ 8,012,199 $ 2,667,212 $ 7,932,978
Interest and other 177,737 334,098 89,304 253,270
------------ ------------ ------------ ------------
Total Revenue 2,848,159 8,346,297 2,756,516 8,186,248
------------ ------------ ------------ ------------
EXPENSES
Administrative 528,353 1,564,224 534,207 1,527,912
Utilities 279,100 829,011 172,918 686,562
Operating, maintenance and other 616,049 1,938,638 770,033 1,913,861
Taxes and insurance 314,206 942,492 317,192 965,138
Financial (including amortization of
$11,440, $34,334, $11,868 and $36,445) 831,491 2,510,388 842,157 2,556,137
Depreciation 1,002,250 3,008,759 1,005,677 3,012,986
------------ ------------ ------------ ------------
Total Expenses 3,571,449 10,793,512 3,642,184 10,662,596
------------ ------------ ------------ ------------
NET LOSS $ (723,290) $ (2,447,215) $ (885,668) $ (2,476,348)
============ ============ ============ ============
NET LOSS ATTRIBUTABLE TO
American Tax Credit Properties III L.P. $ (313,806) $ (1,187,603) $ (432,042) $ (1,322,113)
General partners and other limited
partners, including ATCP II, which
includes $352,670, $1,080,602,
$380,527 and $972,612 of Partnership
loss in excess of investment (409,484) (1,259,612) (453,626) (1,154,235)
------------ ------------ ------------ ------------
$ (723,290) $ (2,447,215) $ (885,668) $ (2,476,348)
============ ============ ============ ============
</TABLE>
The combined results of operations of the Local Partnerships for the three and
nine month periods ended September 30, 1999 are not necessarily indicative of
the results that may be expected for an entire operating period.
10
<PAGE>
AMERICAN TAX CREDIT PROPERTIES III L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
4. Administration Fees
Pursuant to the Partnership Agreement, the Partnership is authorized to
contract for administrative services provided to the Partnership. Since
the inception of the Partnership, such administrative services have been
provided by ML Fund Administrators Inc. ("MLFA"), pursuant to an
Administrative Services Agreement. MLFA discontinued the performance of
its basic services under the Administrative Services Agreement effective
November 23, 1999 with certain transitional services to be continued until
April 30, 2000. The General Partner has transitioned the administrative
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
69,171, 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.
11
<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 December 30, 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 nine months ended
December 30, 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
$208,000 during the nine months ended December 30, 1999 (which includes a net
unrealized loss on investments in bonds of approximately $183,000, the
amortization of net premium on investments in bonds of approximately $11,000 and
the accretion of zero coupon bonds of approximately $65,000). 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 nine months ended December 30, 1999, the investment in Local
Partnerships decreased as a result of Registrant's equity in the Local
Partnerships' net loss for the nine months ended September 30, 1999 of
$1,187,603 and cash distributions received from Local Partnerships of $15,908
(exclusive of distributions from Local Partnerships of $13,218 classified as
other income from local partnerships). Accounts payable and accrued expenses
includes deferred administration fees of $1,121,572 and payable to general
partner represents deferred management and administration fees in the
accompanying balance sheet as of December 30, 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 December 30, 1999 and 1998
resulted in net losses of $378,668 and $507,692, respectively. The decrease in
net loss is primarily attributable to a decrease in equity in loss of investment
in local partnerships of approximately $118,000. Other comprehensive loss for
the three months ended December 30, 1999 and 1998 resulted from a net unrealized
loss on investments in bonds available-for-sale of $65,320 and $50,421,
respectively.
The Local Partnerships' net loss of approximately $723,000 for the three months
ended September 30, 1999 was attributable to rental and other revenue of
approximately $2,848,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $2,557,000 and approximately
$1,014,000 of depreciation and amortization expense. The Local Partnerships' net
loss of approximately $886,000 for the three months ended September 30, 1998 was
attributable to rental and other revenue of approximately $2,757,000, exceeded
by operating and interest expense (including interest on non-mandatory debt) of
approximately $2,625,000 and approximately $1,018,000 of depreciation and
amortization expense. The results of operations of the Local Partnerships for
the three months ended September 30, 1999 are not necessarily indicative of the
results that may be expected in future periods.
12
<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 nine months ended December 30, 1999 and 1998
resulted in net losses of $1,394,196 and $1,534,295, respectively. The decrease
in net loss is primarily attributable to a decrease in equity in loss of
investment in local partnerships of approximately $135,000. Other comprehensive
income (loss) for the nine months ended December 30, 1999 and 1998 resulted from
a net unrealized gain (loss) on investments in bonds available-for-sale of
($182,679) and $101,672, respectively.
The Local Partnerships' net loss of approximately $2,447,000 for the nine months
ended September 30, 1999 was attributable to rental and other revenue of
approximately $8,346,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $7,750,000 and approximately
$3,043,000 of depreciation and amortization expense. The Local Partnerships' net
loss of approximately $2,476,000 for the nine months ended September 30, 1998
was attributable to rental and other revenue of approximately $8,186,000,
exceeded by operating and interest expense (including interest on non-mandatory
debt) of approximately $7,613,000 and approximately $3,049,000 of depreciation
and amortization expense. The results of operations of the Local Partnerships
for the nine months ended September 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 defined owners' notification responsibilities, advised owners of
project based Section 8 properties of what their options are regarding the
renewal of Section 8 contracts, provided guidance and procedures to owners,
management agents, contract administrators and HUD staff on renewing Section 8
contracts, provided guidance on setting renewal rents and handling renewal rent
decreases and provided the requirements and procedures for opting-out of a
Section 8 project based contract. In January 2000, HUD issued a new notice that
provides updated guidance for those project based Section 8 contracts expiring
during HUD's fiscal year 2000. 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.
13
<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 nine months ended September 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 above 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 $49,000 for the nine months ended September 30, 1999.
In addition, as of September 30, 1999, Westminster is ten months in arrears on
its mortgage, and fourteen to sixteen 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 $296,000 as of September 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 $30,000 for the nine months ended September 30, 1999. Of
Registrant's total annual Low-income Tax Credits, approximately 8% is allocated
from Fulton Street.
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 unfolds, certain 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 sufficiently
converted. To date, Registrant is not aware of any problems caused by Y2K. 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.
14
<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.
15
<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 ten months in arrears on its first mortgage
obligation as of September 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
16
<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: February 14, 2000 /s/ Richard Paul Richman
by: Richard Paul Richman
President, Chief Executive
Officer and Director of the
general partner of the
General Partner
Dated: February 14, 2000 /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)
- ------------------------------
17
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<ARTICLE> 5
<LEGEND>
This article contains summary information extracted from the nine months ended
December 30, 1999 Form 10-Q and is qualified in its entirety by reference to
such financial statements.
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<NAME> Neal Ludeke
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