-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MXIPe9VNdmWRSBacGaC4p6ZCYzwZ+q5ETjJ3RmBtUeg56bh/BmjhR5Dvgv2zN2cU gy6wZXsRQeqmjoBg8E6liQ== 0000950148-98-000924.txt : 19980416 0000950148-98-000924.hdr.sgml : 19980416 ACCESSION NUMBER: 0000950148-98-000924 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980415 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REAL ESTATE ASSOCIATES LTD III CENTRAL INDEX KEY: 0000318986 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953547611 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-10673 FILM NUMBER: 98594233 BUSINESS ADDRESS: STREET 1: 9090 WILSHIRE BLVD STREET 2: STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 BUSINESS PHONE: 3102782192 MAIL ADDRESS: STREET 1: 9090 WILSHIRE BLVD STREET 2: STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 10-K405 1 FORM 10-K405 1 Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1997 Commission File Number 0-10673 REAL ESTATE ASSOCIATES LIMITED III A CALIFORNIA LIMITED PARTNERSHIP I.R.S. Employer Identification No. 95-3547611 9090 Wilshire Blvd., Suite 201, Beverly Hills, California 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Securities Registered Pursuant to Section 12(b) or 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed with the Commission by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 2 PART I. ITEM 1. BUSINESS: Real Estate Associates Limited III ("REAL III" or the "Partnership") is a limited partnership which was formed under the laws of the State of California on July 25, 1980. On January 5, 1981, Real Estate Associates Limited III offered 3,000 units consisting of 6,000 Limited Partnership Interests and Warrants to purchase a maximum of 6,000 Additional Limited Partnership Interests through a public offering managed by E.F. Hutton Inc. The general partners of Real Estate Associates Limited III are National Partnership Investments Corp. ("NAPICO"), a California Corporation (the "Corporate General Partner"), and Coast Housing Investments Associates, a Limited Partnership formed under the California Limited Partnership Act and consisting of Messrs. Nicholas G. Ciriello, an unrelated individual, as general partner, and Charles H. Boxenbaum as limited partner. The business of REAL III is conducted primarily by NAPICO. NAPICO is a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. The current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce E. Nelson, Alan I. Casden and Henry C. Casden. REAL III holds limited partnership interests in 26 local limited partnerships as of December 31, 1997, and a general partner interest in Real Estate Associates ("REA") which in turn holds limited partnership interests in an additional 6 limited partnerships; therefore, REAL III holds directly or indirectly through REA, investments in thirty-two local limited partnerships. The general partners of REA are REAL III and NAPICO. Each of the limited partnerships owns a low income housing project which is subsidized and/or has a mortgage note payable to or insured by agencies of the federal or local government. In order to stimulate private investment in low income housing, the federal government and certain state and local agencies have provided significant ownership incentives, including among others, interest subsidies, rent supplements, and mortgage insurance, with the intent of reducing certain market risks and providing investors with certain tax benefits, plus limited cash distributions and the possibility of long-term capital gains. There remain, however, significant risks. The long-term nature of investments in government assisted housing limits the ability of REAL III to vary its portfolio in response to changing economic, financial and investment conditions; such investments are also subject to changes in local economic circumstances and housing patterns, as well as rising operating costs, vacancies, rent collection difficulties, energy shortages and other factors which have an impact on real estate values. These projects also require greater management expertise and may have higher operating expenses than conventional housing projects. Under recent adopted law and policy, HUD has determined not to renew HAP contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the FHA will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (the "MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA. 3 Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. The partnerships in which REAL III has invested were, at least initially, organized by private developers who acquired the sites, or options thereon, and applied for applicable mortgage insurance and subsidies. REAL III became the principal limited partner in these local limited partnerships pursuant to arm's-length negotiations with these developers, or others, who act as general partners. As a limited partner, REAL III's liability for obligations of the local limited partnership is limited to its investment. The local general partner of the local limited partnership retains responsibility for developing, constructing, maintaining, operating and managing the Project. Under certain circumstances of default, REAL III has the right to replace the general partner of the local limited partnerships but otherwise does not have control of sale, refinancing, etc. Although each of the partnerships in which REAL III has invested generally owns a project which must compete in the market place for tenants, interest subsidies and rent supplements from governmental agencies make it possible to offer these dwelling units to eligible "low income" tenants at a cost significantly below the market rate for comparable conventionally financed dwelling units in the area. 4 During 1997, the projects in which REAL III had invested were substantially rented. The following is a schedule of the status as of December 31, 1997, of the projects owned by local limited partnerships in which REAL III is a limited partner. SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL III HAS AN INVESTMENT DECEMBER 31, 1997
Units Authorized For Rental Assistance Under Section 8 or Other Rent No. of Supplement Units Percentage of Name & Location Units Program Occupied Total Units - --------------- ----- ------- -------- ----------- Bowin Place 193 191/0 191 99% Detroit, MI Casa de las Hermanitas 88 88/0 88 100% Los Angeles, CA Charlotte Lakeview, Riverview 553 114/153 514 93% Residential Project Rochester, NY Creekview Apts 80 80/0 80 100% Stroudsburg, PA Foothill Gardens 54 54/0 54 100% Los Angeles, CA Frazier Park Apts 60 60/0 60 100% Baldwin Park, CA Gary Manor 198 198/0 196 99% Gary, IN Grandview Homes 26 26/0 26 100% Los Angeles, CA Hidden Pines Apts 40 40/0 35 88% Greenville, MI Highlawn Place Apartments 133 133/0 133 100% Huntington, WV Jenks School Apts 83 82/0 83 100% Pawtucket, RI
5 SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL III HAS AN INVESTMENT DECEMBER 31, 1997 (Continued)
Units Authorized For Rental Assistance Under Section 8 or Other Rent No. of Supplement Units Percentage Name & Location Units Program Occupied Total Units - --------------- ----- ----------- -------- ----------- Kern Villa 49 49/0 49 100% Los Angeles, CA Lakeside Apts 32 0/13 32 100% Stuart, FL New Baltimore 101 101/0 99 98% New Baltimore, MI Panorama Park Apts 66 66/0 64 97% Bakersfield, CA Ramblewood Apts 64 0/13 59 92% Fort Payne, AL Santa Maria Apts 86 86/0 86 100% San German, Puerto Rico Senior Chateau on the Hill 185 183/0 181 98% Cincinnati, OH Sheraton Towers 97 97/0 97 100% High Point, NC South Bay Villa 80 80/0 80 100% Los Angeles, CA Sunset Grove Apts 22 22/0 22 100% Carson City, MI Sunshine Canyon 26 26/0 26 100% Stanton, MI Tujunga Gardens 54 53/0 54 100% Los Angeles, CA Twenty-nine Palms 48 47/0 40 83% Twenty-nine Palms, CA
6 SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL III HAS AN INVESTMENT DECEMBER 31, 1997 (Continued)
Units Authorized For Rental Assistance Under Section 8 or Other Rent No. of Supplement Units Percentage Name & Location Units Program Occupied Total Units - --------------- ----- ------- -------- ----------- Village Apts 51 51/0 49 96% La Follette, TN Village of Kaufman 68 68/0 66 97% Kaufman, TX Village Grove Apts 104 None 97 93% Corona, CA Vincente Geigel 80 80/0 80 100% Polanco Apts Isabela, Puerto Rico Vista De Jagueyes 73 73/0 73 100% Aguas Buenas, PR Westgate Apts 72 33/16 62 86% Albertville, AL Wilderness Trail Manor 124 124/0 124 100% Pineville, KY Wilkes Towers 72 72/0 70 97% Wilkesboro, NC ----- --------- ----- -- TOTALS 3,062 2,376/195 2,970 97% ===== ========= ===== ==
7 ITEM 2. PROPERTIES: Through local limited partnerships in which REAL III holds interests own various multi-family rental properties. See Item 1 for information pertaining to these properties and Schedule XI. ITEM 3. LEGAL PROCEEDINGS: As of December 31, 1997, REAL III's Corporate General Partner was plaintiff or defendant in several lawsuits. None of these suits were related to REAL III. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: Not applicable. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS The Limited Partnership Interests are not traded on a public exchange but were sold through a public offering managed by E.F. Hutton Inc. It is not anticipated that any public market will develop for the purchase and sale of any Partnership interest. Limited Partnership Interests may be transferred only if certain requirements are satisfied. At December 31, 1997 there were 2,086 registered holders of units in REAL III. One distribution in the aggregate amount of $3,345,000 (or $584 per unit) was made in 1989. This represented the proceeds from the sale of one of the Partnership's real estate investments. The Partnership has invested in certain government assisted projects under programs which in many instances restrict the cash return available to Project owners. The Partnership was not designed to provide cash distributions to investors in circumstances other than refinancing or disposition of its investment in the limited partnerships. 8 ITEM 6. SELECTED FINANCIAL DATA:
Year Ended December 31, -------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ Loss From Operations $ (443,767) $ (518,472) $ (567,421) $ (577,031) $ (586,269) Distributions From Limited Partnerships Recognized as Income 1,072,912 858,869 765,514 683,491 987,697 Equity in Income of Limited Partnerships and Amortization of Acquisition Costs 255,652 383,682 887,919 539,729 708,865 ------------ ------------ ------------ ------------ ------------ Net Income $ 884,797 $ 724,079 $ 1,086,012 $ 646,189 $ 1,110,293 ============ ============ ============ ============ ============ Net Income per Limited Partnership Interest $ 77 $ 63 $ 95 $ 56 $ 96 ============ ============ ============ ============ ============ Total assets $ 11,960,231 $ 10,933,018 $ 10,185,039 $ 9,095,839 $ 8,489,578 ============ ============ ============ ============ ============ Investments in Limited Partnerships $ 1,249,421 $ 1,063,487 $ 930,576 $ 690,570 $ 679,271 ============ ============ ============ ============ ============ Notes Payable $ 1,510,000 $ 1,510,000 $ 1,510,000 $ 1,510,000 $ 1,510,000 ============ ============ ============ ============ ============
9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Liquidity The Partnership's primary sources of funds include interest income on money market investments and certificates of deposit and distributions from local partnerships in which the Partnership has invested. Capital Resources REAL III received $14,320,000 in subscriptions for units of Limited Partnership Interests (at $5,000 per unit) during the period March 31, l981 to October 30, 1981, pursuant to a registration statement on Form S-11. As of March 10, 1982, REAL III received an additional $14,320,000 in subscriptions pursuant to the exercise of warrants and the sale of Additional Limited Partnership Interests. Results of Operations The Partnership was formed to provide various benefits to its partners as discussed in Item 1. It is anticipated that the local limited partnerships in which REAL III has invested could produce tax losses for as long as 20 years. Tax benefits will decline over time as the advantages of accelerated depreciation are greatest in the earlier years, as deductions for interest expense will decrease as mortgage principal is amortized and as the Tax Reform Act of 1986 limits the deductions available. At December 31, 1997, the Partnership has investments in 32 limited partnerships, all of which own housing projects that were substantially all rented. The Partnership, as a limited partner, is entitled to 75% to 99% of the profits and losses of the local limited partnerships. The Partnership accounts for its investments in the local limited partnerships on the equity method, thereby adjusting its investment balance by its proportionate share of the income or loss of the local limited partnerships. Equity in losses of limited partnerships is recognized in the financial statements until the limited partnership investment account is reduced to a zero balance. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. Limited partners are not liable for losses beyond their contributed capital. The Partnership has a positive investment balance in only two local limited partnerships. Distributions received from limited partnerships are recognized as return of capital until the investment balance has been reduced to zero or to a negative amount equal to future capital contributions required. Subsequent distributions received are recognized as income. The total income (losses) from the 32 local limited partnerships that were allocated to the Partnership were $55,000, $(453,000), $(184,000) for the years ended December 31, 1997, 1996 and 1995, respectively. However, because losses incurred after the investment account is reduced to a zero balance are not recognized and subsequent income is not recognized until the investment account becomes positive again, the Partnership recognized equity in income of limited partnerships of $255,652, $383,682 and $887,919 for the years ended December 31, 1997, 1996 and 1995, respectively. Included in recognized equity in income of limited partnerships for 1997, 1996 and 1995 is $0, $149,000 and $592,000, respectively, in income from partnerships in which the Partnership does not have a positive investment balance, but it was able to recognize this income because it received cash distributions from these partnerships equal to these amounts. The balance of the income recognized is from the partnerships with positive investment balances. The cumulative amount of the unrecognized equity in losses of certain limited partnerships was approximately $20,770,000 and $20,515,000 as of December 31, 1997 and 1996, respectively. Distributions from the local limited partnerships in which the Partnership did not have a positive investment balance were $1,072,912, $858,869 and $765,514 for the years ended December 31, 1997, 1996 and 1995, respectively. These 10 amounts were recognized as income on the accompanying statements of operations, in accordance with the equity method of accounting. As of December 31, 1997, 1996 and 1995, the Partnership has cash and cash equivalents of $10,575,810, $9,734,531, and $9,028,963, respectively. Substantially all of these amounts are on deposit with two high credit quality financial institutions, earning interest. In addition, as a result of changing financial institutions where the cash and cash equivalents are on deposit, the interest rate earned on such deposits in 1997 was significantly greater than in prior years. This resulted in the Partnership earning $478,000, $302,000 and $267,000 in interest income for the years ended December 31, 1997, 1996 and 1995, respectively. The amount of interest income varies with market rates available on deposits and with the amount of funds available for investment. Cash equivalents can be converted to cash to meet obligations of the Partnership as they arise. The Partnership intends to continue investing available funds in this manner. A recurring partnership expense is the annual management fee. The fee is payable to the Corporate General Partner of the Partnership and is calculated at .4 percent of the Partnership's invested assets. The management fee is paid to the Corporate General Partner for its continuing management of partnership affairs. The fee is payable beginning with the month following the Partnership's initial investment in a local limited partnership. Since the invested assets have not changed during each of the three years in the period ended December 31, 1997, management fees have remained constant at $454,800 for each of these years. The Partnership is obligated on non-recourse notes payable of $1,510,000 which bear interest at 10 percent per annum and have principal maturities ranging from June 2020 to March 2024. The notes and related interest are payable from cash flow generated from operations of the related rental properties as defined in the notes. These obligations are collateralized by the Partnership's investments in the limited partnerships. Unpaid interest is due at maturity of the notes. Because no payments have been made on these notes, interest expense has remained constant at $151,000 for each of the three years in the period ended December 31, 1997. Under recent adopted law and policy, HUD has determined not to renew HAP Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the FHA will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (the "MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. As a result of the foregoing, the Partnership is undergoing an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $140,915 for the year ended December 31, 1997. 11 A real estate investment trust ("REIT") organized by an affiliate of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partner interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partner interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL III; and (v) the consummation of a minimum number of purchase transactions with other Casden affiliated partnerships. As of March 31, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A proxy is contemplated to be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the transaction. Operating expenses, other than management fees and interest expense, consist of legal and accounting fees for services rendered to the Partnership and administrative expenses, which were generally consistent for the three years presented. Legal and accounting fees were $76,993, $150,156 and $135,191 for the years ended December 31, 1997, 1996 and 1995, respectively. Administrative expenses were $238,598, $64,982 and $93,619 for the years ended December 31, 1997, 1996 and 1995, respectively. Included in administrative expenses are reimbursements to NAPICO for certain expenses, which totalled $35,227, $32,176 and $29,927 for the years ended December 31, 1997, 1996 and 1995, respectively. Also included in administrative expenses for 1997 is $140,915, approximately $112,000 of which is included in accounts payable at December 31, 1997, related to the aforementioned third party review of the properties owned by the local partnerships. The results of operations of the local limited partnerships were fairly constant during the years ended December 31, 1997, 1996 and 1995. Contributing to the relative stability of operations at the local partnerships is the fact that substantially all of the local partnerships are operating apartment projects which are subsidized and have mortgage notes payable to or insured by agencies of the federal or local government. Total revenue for the 32 local partnerships has remained fairly constant, and was $23,173,000, $22,387,000 and $22,082,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Revenue increased in 1997 primarily as a result of retroactive Housing Assistance Payments of $669,000 received by five local partnerships pursuant to the terms of a settlement agreement with HUD. Total expenses for the 32 local partnerships remained fairly consistent, and were $22,652,000, $23,222,000 and $22,278,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Expenses were greater in 1996 than in 1997 and 1995 primarily as a result of bad debt of $454,000 charged to expense in 1996 related to loans receivable from an unrelated general partner of two local partnerships. The total net income (loss) for the 32 local partnerships for 1997, 1996 and 1995 aggregated $59,000, $(835,000) and $(196,000), respectively. The income (losses) allocated to the Partnership were $55,000, $(453,000) and $(184,000) for 1997, 1996 and 1995, respectively. The Partnership, as a Limited Partner in the local limited partnerships in which it has invested, is subject to the risks incident to the construction, management, and ownership of improved real estate. The Partnership investments are also subject to adverse general economic conditions, and, accordingly, the status of the national economy, including substantial unemployment and concurrent inflation, could increase vacancy levels, rental payment defaults, and operating expenses, which in turn, could substantially increase the risk of operating losses for the projects. 12 The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: The Financial Statements and Supplementary Data are listed under Item 14. ITEM 9. CHANGES WITH AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: Not applicable. 13 REAL ESTATE ASSOCIATES LIMITED III (A California limited partnership) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT DECEMBER 31, 1997 14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Real Estate Associates Limited III (A California limited partnership) We have audited the accompanying balance sheets of Real Estate Associates Limited III (a California limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' equity (deficiency) and cash flows for each of the three years in period ended December 31, 1997. Our audits also included the financial statement schedules listed in the index on item 14. These financial statements and financial statement schedules are the responsibility of the management of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We did not audit the financial statements of certain limited partnerships, the investments in which are reflected in the accompanying financial statements using the equity method of accounting. The investments in these limited partnerships represent 4 percent and 4 percent of total assets as of December 31, 1997 and 1996, respectively, and the equity in income of these limited partnerships represents 19 percent, 23 percent and 33 percent of the total net income of the Partnership for the years ended December 31, 1997, 1996 and 1995, respectively, and represent a substantial portion of the investee information in Note 2 and the financial statement schedules. The financial statements of these limited partnerships are audited by other auditors. Their reports have been furnished to us and our opinion, insofar as it relates to the amounts included for these limited partnerships, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Real Estate Associates Limited III as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, based on our audits and the reports of other auditors, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Los Angeles, California April 6, 1998 15 [COOPERS & LYBRAND LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Bowin Place Associates Limited Dividend Housing Association We have audited the accompanying balance sheets of Bowin Place Associates Limited Dividend Housing Association (A Michigan Limited Partnership, MSHDA Development Number 551), as of December 31, 1997 and 1996, and the related statements of operations, changes in partners' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bowin Place Associates Limited Dividend Housing Association, MSHDA No. 551, as of December 31, 1997 and 1996, and the results of its operations, and its cash flows for the years then ended in conformity with generally accepted accounting principles. Our 1997 audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The other financial information of Bowin Place Associates Limited Dividend Housing Association, MSHDA No. 551, on pages 9 through 18 is presented for purposes of additional analysis and is not a required part of the basic financial statements. This additional information is the responsibility of the Partnership's management. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated February 2, 1998 on our consideration of Bowin Place Associates Limited Dividend Housing Association's internal control structure and a report dated February 2, 1998 on its compliance with laws and regulations. /s/ COOPERS & LYBRAND, L.L.P. Cleveland, Ohio February 2, 1998 16 [COOPERS & LYBRAND LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Bowin Place Associates Limited Dividend Housing Association We have audited the accompanying balance sheets of Bowin Place Associates Limited Dividend Housing Association (A Michigan Limited Partnership, MSHDA Development Number 551), as of December 31, 1996 and 1995, and the related statements of operations, changes in partners' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bowin Place Associates Limited Dividend Housing Association, MSHDA No. 551, as of December 31, 1996 and 1995, and the results of its operations, and its cash flows for the years then ended in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The other financial information of Bowin Place Associates Limited Dividend Housing Association, MSHDA No. 551, on pages 8 through 16 is presented for purposes of additional analysis and is not a required part of the basic financial statements. This additional information is the responsibility of the Partnership's management. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated January 27, 1997 on our consideration of Bowin Place Associates Limited Dividend Housing Association's internal control structure and a report dated January 27, 1997 on its compliance with laws and regulations. /s/ COOPERS & LYBRAND L.L.P. Cleveland, Ohio January 27, 1997 17 D'AMBRA & ASSOCIATES, P.C. CERTIFIED PUBLIC ACCOUNTANTS ELEVEN VANDERBILT AVENUE NORWOOD, MA 02062 PHONE (781) 551-0070 FAX (781) 551-3424 INDEPENDENT AUDITORS' REPORT To the Partners of 300 Broadway Associates (a Limited Partnership) We have audited the accompanying balance sheet of 300 Broadway Associates (a Limited Partnership), HUD Project No. RI-43-H023-110, as of December 31, 1997, and the related statements of income, partners' equity (deficiency) and cash flow for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 300 Broadway Associates (a Limited Partnership) as of December 31, 1997, and the results of its operations, the changes in partners' equity (deficiency) and its cash flow for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, we have also issued a report dated January 17, 1998, on our consideration of 300 Broadway Associates' internal control and reports dated January 17, 1998 on its compliance with specific requirements applicable to major HUD program and specific requirements applicable to Fair Housing and Non-discrimination. /s/ D'AMBRA & ASSOCIATES Norwood, Massachusetts January 17, 1998 18 D'AMBRA & ASSOCIATES, P.C. CERTIFIED PUBLIC ACCOUNTANTS ELEVEN VANDERBILT AVENUE NORWOOD, MA 02062 PHONE (781) 551-0070 FAX (781) 551-3424 INDEPENDENT AUDITORS' REPORT To the Partners of 300 Broadway Associates (a Limited Partnership) We have audited the accompanying balance sheet of 300 Broadway Associates (a Limited Partnership), HUD Project No. RI-43-H023-110, as of December 31, 1996, and the related statements of income, partners' equity (deficiency) and cash flow for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 300 Broadway Associates (a Limited Partnership) as of December 31, 1996, and the results of its operations, the changes in partners' equity (deficiency) and its cash flow for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, we have also issued a report dated February 3, 1997, on our consideration of 300 Broadway Associates' internal control structure and reports dated February 3, 1997, on its compliance with specific requirements applicable to major HUD program and specific requirements applicable to Affirmative Fair Housing. /s/ D'AMBRA & ASSOCIATES Norwood, Massachusetts January 23, 1997 19 REAL ESTATE ASSOCIATES LIMITED III (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1996 ------------ ------------ ASSETS INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 1,249,421 $ 1,063,487 CASH AND CASH EQUIVALENTS (Note 1) 10,575,810 9,734,531 OTHER ASSETS 135,000 135,000 ------------ ------------ TOTAL ASSETS $ 11,960,231 $ 10,933,018 ============ ============ LIABILITIES AND PARTNERS' EQUITY LIABILITIES: Notes payable (Notes 3 and 7) $ 1,510,000 $ 1,510,000 Interest payable (Notes 3 and 7) 414,277 374,603 Accounts payable 110,192 7,450 ------------ ------------ 2,034,469 1,892,053 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 4 and 5) PARTNERS' EQUITY (DEFICIENCY): General partners (99,718) (108,566) Limited partners 10,025,480 9,149,531 ------------ ------------ 9,925,762 9,040,965 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY $ 11,960,231 $ 10,933,018 ============ ============
The accompanying notes are integral part of these financial statements. 20 REAL ESTATE ASSOCIATES LIMITED III (a California limited partnership) STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- INTEREST AND OTHER INCOME $ 477,624 $ 302,466 $ 267,189 ----------- ----------- ----------- OPERATING EXPENSES: Legal and accounting 76,993 150,156 135,191 Management fees - general partner (Note 4) 454,800 454,800 454,800 Interest (Note 3) 151,000 151,000 151,000 Administrative (Note 4) 238,598 64,982 93,619 ----------- ----------- ----------- Total operating expenses 921,391 820,938 834,610 ----------- ----------- ----------- LOSS FROM OPERATIONS (443,767) (518,472) (567,421) DISTRIBUTIONS FROM LIMITED PARTNERSHIPS RECOGNIZED AS INCOME (Note 2) 1,072,912 858,869 765,514 EQUITY IN INCOME OF LIMITED PARTNERSHIPS AND AMORTI- ZATION OF ACQUISITION COSTS (Note 2) 255,652 383,682 887,919 ----------- ----------- ----------- NET INCOME $ 884,797 $ 724,079 $ 1,086,012 =========== =========== =========== NET INCOME PER LIMITED PARTNERSHIP INTEREST (Note 1) $ 77 $ 63 $ 95 =========== =========== ===========
The accompanying notes are integral part of these financial statements. 21 REAL ESTATE ASSOCIATES LIMITED III (a California limited partnership) STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
General Limited Partners Partners Total ----------- ----------- ----------- EQUITY (DEFICIENCY), January 1, 1995 $ (126,667) $ 7,357,541 $ 7,230,874 Net income for 1995 10,860 1,075,152 1,086,012 ----------- ----------- ----------- EQUITY (DEFICIENCY), December 31, 1995 (115,807) 8,432,693 8,316,886 Net income for 1996 7,241 716,838 724,079 ----------- ----------- ----------- EQUITY (DEFICIENCY), December 31, 1996 (108,566) 9,149,531 9,040,965 Net income for 1997 8,848 875,949 884,797 ----------- ----------- ----------- EQUITY (DEFICIENCY), December 31, 1997 $ (99,718) $10,025,480 $ 9,925,762 =========== =========== ===========
The accompanying notes are integral part of these financial statements. 22 REAL ESTATE ASSOCIATES LIMITED III (a California limited partnership) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 884,797 $ 724,079 $ 1,086,012 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income of limited partnerships and amortization of acquisition costs (255,652) (383,682) (887,919) Increase in other assets -- (34,500) (50,500) Increase (decrease) in interest and other payables 142,416 23,900 3,188 ------------ ------------ ------------ Net cash provided by operating activities 771,561 329,797 150,781 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Distribution from limited partnerships recognized as return of capital 69,718 255,471 647,913 Capital contributions and advances to limited partnerships -- (4,700) -- Decrease in short term investments -- 125,000 1,021,022 ------------ ------------ ------------ Net cash provided by investing activities 69,718 375,771 1,668,935 ------------ ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 841,279 705,568 1,819,716 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,734,531 9,028,963 7,209,247 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,575,810 $ 9,734,531 $ 9,028,963 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 111,326 $ 121,159 $ 150,245 ============ ============ ============
The accompanying notes are integral part of these financial statements. 23 REAL ESTATE ASSOCIATES LIMITED III (A California limited partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Real Estate Associates Limited III (the Partnership) was formed under the California Limited Partnership Act on July 25, 1980. The Partnership was formed to invest either directly or indirectly in other partnerships which own and operate primarily federal, state and local government-assisted housing projects. The general partners are National Partnership Investments Corp. (NAPICO), the corporate general partner, and Coast Housing Investment Associates (CHIA), a limited partnership. Casden Investment Corporation owns 100 percent of NAPICO's stock. The limited partner of CHIA is an officer of NAPICO. The business of REAL IV is conducted primarily by NAPICO. These financial statements include the accounts of Real Estate Associates Limited III and Real Estate Associates ("REA"), a California general partnership in which the Partnership holds a 99.9 percent general partner interest. Losses in excess of the minority interest in equity that would otherwise be attributed to the minority interest are being allocated to the Partnership. The Partnership offered 3,000 units and issued 2,864 units of limited partner interests through a public offering. Each unit was comprised of two limited partner interests and a warrant granting the investor the right to purchase two additional limited partner interests. An additional 5,728 interests were issued from the exercise of the warrants and the sale of interests associated with warrants not exercised. The general partners have a 1 percent interest in profits and losses of the Partnership. The limited partners have the remaining 99 percent interest in proportion to their respective investments. The Partnership shall be dissolved only upon the expiration of 52 complete calendar years (December 31, 2032) from the date of the formation of the Partnership or the occurrence of other events as specified in the terms of the Partnership agreement. Upon total or partial liquidation of the Partnership or the disposition or partial disposition of a project or project interest and distribution of the proceeds, the general partners will be entitled to a liquidation fee as stipulated in the Partnership agreement. The limited partners will have a priority return equal to their invested capital attributable to the project(s) or project interest(s) sold and shall receive from the sale of the project(s) or project interest(s) an amount sufficient to pay state and federal income taxes, if any, calculated at the maximum rate then in effect. The general partners' liquidation fee may accrue but shall not be paid until the limited partners have received distributions equal to 100 percent of their capital contributions. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 5 24 REAL ESTATE ASSOCIATES LIMITED III (A California limited partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Method of Accounting for Investments in Limited Partnerships The investments in limited partnerships are accounted for on the equity method. Acquisition, selection and other costs related to the acquisition of the projects are capitalized as part of the investment account and are being amortized on a straight line basis over the estimated lives of the underlying assets, which is generally 30 years. Net Income Per Limited Partnership Interest Net income per limited partnership interest was computed by dividing the limited partners' share of net income by the number of limited partnership interests outstanding during the year. The number of limited partnership interests was 11,456 for all years presented. Cash and Cash Equivalents Cash and cash equivalents consist of cash and bank certificates of deposit with an original maturity of three months or less. The Partnership has its cash and cash equivalents on deposit primarily with two high credit quality financial institutions. Such cash and cash equivalents are in excess of the FDIC insurance limit. Impairment of Long-Lived Assets The Partnership reviews long-lived assets to determine if there has been any permanent impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the assets, the Partnership recognizes an impairment loss. 2. INVESTMENTS IN LIMITED PARTNERSHIPS The Partnership holds limited partnership interests in 26 limited partnerships. In addition, the Partnership holds a general partner interest in REA. NAPICO is also a general partner in REA. REA, in turn, holds limited partner interests in six additional limited partnerships. In total, therefore, the Partnership holds interests, either directly or indirectly through REA, in 32 partnerships which own residential low income rental projects consisting of 3,062 apartment units. The mortgage loans of these projects are payable to or insured by various governmental agencies. The Partnership, as a limited partner, is entitled to between 75 percent and 99 percent of the profits and losses of the limited partnerships it has invested in directly. The Partnership is also entitled to 99.9 percent of the profits and losses of REA. REA holds a 99 percent interest in each of the limited partnerships in which it has invested. 6 25 REAL ESTATE ASSOCIATES LIMITED III (A California limited partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) Equity in losses of limited partnerships is recognized in the financial statements until the limited partnership investment account is reduced to a zero balance. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. The cumulative amount of the unrecognized equity in losses of certain limited partnerships was approximately $20,770,000 and $20,515,000 as of December 31, 1997 and 1996, respectively. Distributions from limited partnerships are recognized as a reduction of capital until the investment balance has been reduced to zero. Subsequent distributions received are recognized as income. The following is a summary of the investments in limited partnerships and reconciliation to the limited partnership accounts:
1997 1996 ----------- ----------- Investment balance, beginning of year $ 1,063,487 $ 930,576 Equity in income of limited partnerships 261,625 389,655 Amortization of capitalized acquisition costs and fees (5,973) (5,973) Capital contributions to limited partnerships -- 4,700 Cash distributions recognized as return of capital (69,718) (255,471) ----------- ----------- Investment balance, end of year $ 1,249,421 $ 1,063,487 =========== ===========
The difference between the investment in the accompanying balance sheets at December 31, 1997 and 1996, and the deficiency per the limited partnerships' combined financial statements is due primarily to the cumulative unrecognized equity in losses of certain limited partnerships, costs capitalized to the investment account and cumulative distributions recognized as income. Selected financial information from the combined financial statements at December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, of the limited partnerships in which the Partnership has invested directly or indirectly, is as follows: 7 26 REAL ESTATE ASSOCIATES LIMITED III (A California limited partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) Balance Sheets --------------
1997 1996 -------- -------- (in thousands) Land and buildings, net $ 52,667 $ 55,007 ======== ======== Total assets $ 65,203 $ 68,387 ======== ======== Mortgages payable $ 88,765 $ 88,987 ======== ======== Total liabilities $ 93,510 $ 95,492 ======== ======== Deficiency of Real Estate Associates Limited III $(28,535) $(27,400) ======== ======== Equity of other partners $ 229 $ 295 ======== ========
Statements of Operations ------------------------
1997 1996 1995 -------- -------- -------- (in thousands) Total revenue $ 23,173 $ 22,387 $ 22,082 ======== ======== ======== Interest expense $ 6,929 $ 7,032 $ 6,914 ======== ======== ======== Depreciation $ 3,674 $ 3,757 $ 3,722 ======== ======== ======== Total expenses $ 23,114 $ 23,222 $ 22,278 ======== ======== ======== Net loss $ 59 $ (835) $ (196) ======== ======== ======== Net income (loss) allocable to the Partnership $ 55 $ (453) $ (184) ======== ======== ========
Land and buildings, above, have been adjusted for the amount by which the investments in the limited partnerships exceed the Partnership's share of the net book value of the underlying net assets of the investee which are recorded at historical costs. Depreciation on the adjustment is provided for over the estimated remaining useful lives of the properties. An affiliate of NAPICO is the general partner in one of the limited partnerships included above, and another affiliate receives property management fees of 5 percent of its revenue. The affiliate received property management fees of $17,408, $16,128 and $16,128 in 1997, 1996 and 1995, respectively. 8 27 REAL ESTATE ASSOCIATES LIMITED III (A California limited partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) The following sets forth the significant data for this partnership, reflected in the accompanying financial statements using the equity method of accounting:
1997 1996 1995 ------- ------- ------- (in thousands) Total assets $ 944 $ 1,023 ======= ======= Total liabilities $ 1,785 $ 1,775 ======= ======= Deficiency of Real Estate Associates Limited III $ (963) $ (875) ======= ======= Equity of other partners $ 122 $ 123 ======= ======= Total revenues $ 335 $ 366 $ 370 ======= ======= ======= Net loss $ (87) $ (47) $ (46) ======= ======= =======
Under recent adopted law and policy, HUD has determined not to renew HAP Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the FHA will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (the "MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. 9 28 3. NOTES PAYABLE As a result of the foregoing, the Partnership is undergoing an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $140,915 for the year ended December 31, 1997. A real estate investment trust ("REIT") organized by an affiliate of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partner interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partner interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL III; and (v) the consummation of a minimum number of purchase transactions with other Casden affiliated partnerships. As of March 31, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A proxy is contemplated to be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the transaction. Certain of the Partnership's investments involved purchases of partnership interests from partners who subsequently withdrew from the operating partnership. The Partnership is obligated on non-recourse notes payable of $1,510,000, bearing interest at 10 percent, to the sellers of the partnership interests. These notes are payable by the Partnership through REA, and have principal maturity dates in June 2020 and March 2024 or upon the sale or refinancing of the underlying partnership properties. These notes and the related interest are collaterized by REA's investment in the respective limited partnerships and are payable only out of cash distributions from the investee partnerships, as defined in the notes. Unpaid interest is due at maturity of the notes. 10 29 REAL ESTATE ASSOCIATES LIMITED III (A California limited partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 3. NOTES PAYABLE (CONTINUED) Maturity dates on the notes payable are as follows:
Years Ending December 31 ------------------------ 1998 $ - 1999 - 2000 - 2001 - 2002 - Thereafter 1,510,000 ---------- $1,510,000 ==========
REAL ESTATE ASSOCIATES LIMITED III (A California limited partnership) NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 4. FEES AND EXPENSES DUE GENERAL PARTNER Under the terms of the Restated Certificate and Agreement of Limited Partners, the Partnership is liable to NAPICO for an annual management fee equal to .4 percent of the original invested assets of the limited partnerships. Invested assets is defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interest in the capital accounts of the respective partnerships. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $35,227, $32,176 and $29,927 in 1997, 1996 and 1995, respectively, and is included in operating expenses. 5. CONTINGENCIES The corporate general partner of the Partnership is a plaintiff in various lawsuits and has also been named a defendant in other lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the corporate general partner, the claims will not result in any material liability to the Partnership. The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition. 11 30 6. INCOME TAXES No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. The major differences in tax and financial reporting result from the use of different bases and depreciation methods for the properties held by the limited partnerships. Differences in tax and financial losses also arise as losses are not recognized for financial reporting purposes when the investment balance has been reduced to zero. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, when it is practicable to estimate that value. The notes payable are collateralized by the Partnership's investments in the investee limited partnerships and are payable only out of cash distributions from the investee partnerships. The operations generated by the investee limited partnerships are subject to various government rules, regulations and restrictions which make it impracticable to estimate the fair value of the notes payable and related accrued interest. The carrying amount of other assets and liabilities reported on the balance sheets that require such disclosure approximates fair value due to their short-term maturity. 8. FOURTH QUARTER ADJUSTMENT The Partnership's policy is to record its equity in income of limited partnerships on a quarterly basis, using estimated financial information furnished by the various local operating general partners. The equity in income reflected in the accompanying annual financial statements is based primarily upon audited financial statements of the investee limited partnerships. The increase of approximately $64,000, between the estimated nine-month equity in income and the actual total for 1997 equity in income has been recorded in the fourth quarter. 12 31 SCHEDULE REAL ESTATE ASSOCIATES LIMITED III INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Year Ended December 31, 1997 ----------------------------------------------------------------------- Cash Equity Balance Distri- in Balance January Capital butions Income December Limited Partnerships 1, 1997 Contributions Received (Loss) 31, 1997 ---------- ------------- ---------- ---------- ---------- Bowin Place $ 596,966 $ $ (28,489) $ 114,803 $ 683,280 Casa de las Hermanitas Charlotte Creekview Apartments Foothill Gardens Frazier Park Apartments Gary Manor Grandview Homes Hidden Pines Apartments Highlawn Place Jenks School Apartments 466,521 (41,229) 140,849 566,141 Kern Villa Lakeside Apartments New Baltimore Towers Panorama Park Apartments Ramblewood Apartments Santa Maria Apartments Senior Chateau Sheraton Towers South Bay Villa Sunset Grove Apartments Sunshine Canyon Apartments Tujunga Gardens Twenty-Nine Palms Apartments Vicente Geigel Polanco Apts Village Apartments Village Apartments (Kaufman) Village Grove Apartments Vista De Jagueyes Westgate Apartments Wilderness Trail Manor Wilkes Towers ---------- -------- ---------- ---------- ---------- $1,063,487 $ - $ (69,718) $ 255,652 $1,249,421 ========== ======== ========== ========== ==========
32 SCHEDULE (CONTINUED) REAL ESTATE ASSOCIATES LIMITED III INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Year Ended December 31, 1996 ----------------------------------------------------------------------------- Cash Equity Balance Distri- in Balance January Capital butions Income December Limited Partnerships 1, 1996 Contributions Received (Loss) 31, 1996 ----------- ------------- ----------- ----------- ----------- Bowin Place $ 519,960 $ $ (39,860) $ 116,865 $ 596,965 Casa de las Hermanitas 21,171 (21,171) Charlotte Creekview Apartments Foothill Gardens Frazier Park Apartments Gary Manor Grandview Homes (19,948) 19,948 Hidden Pines Apartments Highlawn Place (154,434) 154,434 Jenks School Apartments 389,445 (41,229) 118,306 466,522 Kern Villa Lakeside Apartments 4,700 (4,700) New Baltimore Towers Panorama Park Apartments Ramblewood Apartments Santa Maria Apartments Senior Chateau Sheraton Towers South Bay Villa Sunset Grove Apartments Sunshine Canyon Apartments Tujunga Gardens Twenty-Nine Palms Apartments Vicente Geigel Polanco Apts Village Apartments Village Apartments (Kaufman) Village Grove Apartments Vista De Jagueyes Westgate Apartments Wilderness Trail Manor Wilkes Towers ----------- ------ ----------- ----------- ----------- $ 930,576 $4,700 $ (255,471) $ 383,682 $ 1,063,487 =========== ====== =========== =========== ===========
33 SCHEDULE (CONTINUED) REAL ESTATE ASSOCIATES LIMITED III INVESTMENTS IN LIMITED PARTNERSHIPS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Year Ended December 31, 1995 ------------------------------------------------------------ Cash Equity Balance Distri- in Balance January Capital butions Income December Limited Partnerships 1, 1995 Contributions Received (Loss) 31, 1995 --------- ------------- --------- --------- --------- Bowin Place $ 365,973 $ $ (39,861) $ 193,848 $ 519,960 Casa de las Hermanitas (76,359) 97,530 21,171 Charlotte Creekview Apartments Foothill Gardens (23,532) 23,532 Frazier Park Apartments Gary Manor Grandview Homes (36,969) 36,969 Hidden Pines Apartments Highlawn Place (122,066) 122,066 Jenks School Apartments 324,597 (36,972) 101,820 389,445 Kern Villa Lakeside Apartments New Baltimore Towers (53,207) 53,207 Panorama Park Apartments (14,448) 14,448 Ramblewood Apartments Santa Maria Apartments Senior Chateau (146,237) 146,237 Sheraton Towers South Bay Villa (98,262) 98,262 Sunset Grove Apartments Sunshine Canyon Apartments Tujunga Gardens Twenty-Nine Palms Apartments Vicente Geigel Polanco Apts Village Apartments Village Apartments (Kaufman) Village Grove Apartments Vista De Jagueyes Westgate Apartments Wilderness Trail Manor Wilkes Towers --------- --------- --------- --------- --------- TOTAL $ 690,570 $ - $(647,913) $ 887,919 $ 930,576 ========= ========= ========= ========= =========
34 SCHEDULE (CONTINUED) REAL ESTATE ASSOCIATES LIMITED III INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED FROM AFFILIATES AND OTHER PERSONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 NOTES: 1. Equity in losses of the limited partnerships represents the Partnership's allocable share of the net loss from the limited partnerships for the year. Equity in losses of the limited partnerships will be recognized until the investment balance is reduced to zero or below zero to an amount equal to future capital contributions to be made by the Partnership. 2. Cash distributions from the local limited partnerships will be treated as a return on the investment and will reduce the investment balance until such time as the investment is reduced to an amount equal to additional contributions. Distributions subsequently received will be recognized as income. 35 SCHEDULE III (Continued) REAL ESTATE ASSOCIATES LIMITED III REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL III HAS INVESTMENTS DECEMBER 31, 1997
Buildings, Furnishings & Equipment - Initial Cost to Partnership Number Outstanding and Amount Carried of Mortgage at Close of Accumulated Construction Partnership/Location Units Loan Land Period Total Depreciation Period - ---------------------- ------ ----------- ---- ---------------------- ------- ------------- ------------ Browin Place 193 $5,161,300 $752,729 $5,952,911 $6,705,640 $4,109,134 (A) Detroit, Michigan Casa De Las Hermanitas 88 3,023,523 405,578 3,809,605 4,215,183 2,127,233 1981 Los Angeles, California Charlottle Lakeview 553 12,467,799 551,500 19,012,123 19,563,623 14,799,743 (A) Rochester, NY Creekview Apartments 80 2,028,703 239,673 2,412,899 2,652,572 1,082,395 1981-1982 Stroudsburg, Pennsylvania Foothill Gardens 54 2,029,056 309,626 2,443,612 2,753,238 1,388,825 1981 Los Angeles, California Frazier Park Apartments 60 2,686,364 439,987 3,276,813 3,716,800 1,778,992 1981-1982 Baldwin Park, California Gary Manor 198 5,487,281 403,285 7,015,228 7,418,513 4,837,489 (A) Gary, Indiana Grandview Homes 26 1,234,724 324,293 1,377,730 1,702,023 775,157 1981 Los Angeles, California Hidden Pines Apartments 40 1,375,624 43,954 1,648,093 1,692,047 1,633,328 1981 Greenville, Michigan Highlawn Place 133 2,812,446 310,653 3,355,812 3,666,465 2,435,963 (A) Huntington, West Virginia Jenks School Apartments 83 2,279,313 96,740 3,603,639 3,700,379 1,828,275 1981-1982 Pawtucket, Rhode Island Kern Villa 49 2,333,343 384,091 2,795,915 3,180,006 1,569,529 1981-1982 Los Angeles, California Lakeside Apartments 32 914,132 72,336 946,139 1,018,475 780,522 1980-1981 Stuart, Florida New Baltimore Towers 101 2,134,604 455,282 3,152,866 3,608,148 2,451,958 (A) New Baltimore, MD Panorama Park Apartments 66 2,827,525 680,296 3,253,405 3,933,701 1,784,311 1981-1982 Bakerfield, California Ramblewood Apartments 64 1,486,095 53,267 2,073,447 2,126,714 1,007,165 1980-1981 Fort Payne, Alabama Santa Maria Apartments 86 2,823,515 86,106 3,361,352 3,447,458 1,979,704 1981-1982 San German, Puerto Rico Senior Chateau 185 4,073,872 408,863 5,021,679 5,430,542 3,523,958 (A) Cincinnati, Ohio Sheraton Towers 97 2,785,694 50,546 3,486,396 3,536,942 1,433,597 1981-1982 High Point, North Carolina South Bay Villa 80 3,586,962 365,333 4,609,170 4,974,503 2,587,654 1980-1981 San Pedro, California Sunset Groove Apartments 22 661,452 19,432 811,214 830,646 788,523 1981-1982 Carson City, Michigan Sunshine Canyon Apartments 26 841,243 20,262 999,551 1,019,813 969,696 1981-1982 Stanton, Michigan The Village Apartments 68 1,700,816 152,573 1,955,690 2,108,263 1,067,502 1980-1981 Kaufman, Texas Tujunga Gardens 54 2,009,777 325,492 2,390,317 2,715,809 1,352,996 1981 Los Angeles, California Twenty-Nine Palms Apts. 48 1,606,688 111,617 1,921,064 2,032,681 1,237,981 1981-1982 Twenty-Nine Palms, California Village Apartments 51 1,439,868 65,245 1,708,223 1,773,468 1,181,058 1981-1982 La Follette, Tennessee Village Grove Apartments 104 3,454,706 416,000 4,559,583 4,975,583 2,672,565 1974 Corona, California Vicente Geigel Polanco Apts. 80 2,579,965 107,685 2,936,652 3,044,337 1,716,445 1981-1982 Issabela, Puerto Rico Vista De Jagueyes 73 2,597,665 102,554 3,244,694 3,347,248 2,029,340 1981-1982 Aguas Buenas, Puerto Rico Westgate Apartments 72 1,058,378 80,000 1,480,833 1,560,833 740,089 1980-1981 Albertville, Alabama Wilderness Trail Manor 124 5,231,477 191,542 6,567,303 6,758,845 4,071,213 1982 Pineville, Kentucky Wilkes Towers 72 2,031,360 32,471 2,303,197 2,335,668 949,985 1981-1982 Wilkesboro, North Carolina Additional basis of real estate due to REAL III's capital contribution to investee limited partnership 769,172 9,502,360 10,271,532 6,458,758 ----- ----------- ---------- ------------ ------------ ----------- TOTAL 3,062 $88,765,270 $8,828,183 $122,989,515 $131,817,698 $79,151,083 ===== =========== ========== ============ ============ ===========
36 SCHEDULE III (CONTINUED) REAL ESTATE ASSOCIATES LIMITED III REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL III HAS INVESTMENTS DECEMBER 31, 1997, 1996 AND 1995 NOTES: 1. Each local limited partnership has developed, owns and operates the housing project. Substantially all projects costs, including construction period interest expense, were capitalized by the limited partnerships. 2. Depreciation is provided for by various methods over the estimated useful lives of Projects. The estimated composite useful lives of the buildings are generally from 25 to 40 years. 3. Investments in property and equipment:
Buildings, Furnishings, Land and Equipment Total ------------ ------------ ------------ Balance, January 1, 1995 $ 8,606,844 $119,708,271 $128,315,115 Net additions during 1995 79,359 826,700 906,059 ------------ ------------ ------------ Balance, December 31, 1995 8,686,203 120,534,971 129,221,174 Net additions during 1996 136,210 1,183,455 1,319,665 ------------ ------------ ------------ Balance, December 31, 1996 8,822,413 121,718,426 130,540,839 Net additions during 1997 5,770 1,271,089 1,276,859 ------------ ------------ ------------ Balance, December 31, 1997 $ 8,828,183 $122,989,515 $131,817,698 ============ ============ ============
37 SCHEDULE III (CONTINUED) REAL ESTATE ASSOCIATES LIMITED III REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL III HAS INVESTMENTS DECEMBER 31, 1997
Buildings, Furnishings, And Equipment ----------- Accumulated Depreciation: ------------------------- Balance, January 1, 1995 $68,343,869 Net additions during 1995 3,423,206 ----------- Balance, December 31, 1995 71,767,075 Net additions during 1996 3,766,356 ----------- Balance, December 31, 1996 75,533,431 Net additions during 1997 3,617,652 ----------- Balance, December 31, 1997 $79,151,083 ===========
38 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: REAL ESTATE ASSOCIATES LIMITED III (the "Partnership") has no directors or executive officers of its own. National Partnership Investment Corp. ("NAPICO" or "the Managing General Partner") is a wholly-owned subsidiary of Casden Investment Company, an affiliate of The Casden Company. The following biographical information is presented for the directors and executive officers of NAPICO with principal responsibility for the Partnership's affairs. CHARLES H. BOXENBAUM, 68, Chairman of the Board of Directors and Chief Executive Officer of NAPICO. Mr. Boxenbaum has been associated with the NAPICO since its inception. He has been active in the real estate industry since 1960, and prior to joining NAPICO was a real estate broker with the Beverly Hills firm of Carl Rhodes Company. Mr. Boxenbaum has been a guest lecturer at national and state realty conventions, certified properties exchanger's seminars, Los Angeles Town Hall, National Association of Home Builders, International Council of Shopping Centers, Society of Conventional Appraisers, California Real Estate Association, National Institute of Real Estate Brokers, Appraisal Institute, various mortgage banking seminars, and the North American Property Forum held in London, England. In 1963, he was the winner of the Snyder Award, the highest annual award offered by the National Association of Real Estate Boards for Best Exchange. He is one of the founders and a past director of the First Los Angeles Bank, organized in November 1974. Mr. Boxenbaum was a member of the Board of Directors of the National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree from the University of Chicago. BRUCE E. NELSON, 46, President and a director of NAPICO. Mr. Nelson joined the NAPICO in 1980 and became President in February 1989. He is responsible for the operations of all NAPICO sponsored limited partnerships. Prior to that he was primarily responsible for the securities aspects of the publicly offered real estate investment programs. Mr. Nelson is also involved in the identification, analysis, and negotiation of real estate investments. From February 1979 to October 1980, Mr. Nelson held the position of Associate General Counsel at Western Consulting Group, Inc., private residential and commercial real estate syndicators. Prior to that time Mr. Nelson was engaged in the private practice of law in Los Angeles. Mr. Nelson received his Bachelor of Arts degree from the University of Wisconsin and is a graduate of the University of Colorado School of Law. He is a member of the State Bar of California and is a licensed real estate broker in California and Texas. ALAN I. CASDEN, 52, Chairman of The Casden Company, an affiliate of Casden Properties (formerly CoastFed Properties), a director and member of the audit committee of NAPICO, and chairman of the Executive Committee of NAPICO. Mr. Casden is Chairman of the Board, Chief Executive Officer and sole shareholder of The Casden Company and Casden Investment Company. Prior to that, he was the president and chairman of Mayer Group, Inc., which he joined in 1975. He is also chairman of Mayer Management, Inc., a real estate management firm. Mr. Casden has been involved in approximately $3 billion of real estate financings and sales and has been responsible for the development and construction of more than 12,000 apartment units and 5,000 single-family homes and condominiums. 39 Mr. Casden is a member of the American Institute of Certified Public Accountants and of the California Society of Certified Public Accountants. Mr. Casden is a member of the advisory board of the National Multi-Family Housing Conference, the Multi-Family Housing Council, and the President's Council of the California Building Industry Association. He also serves on the advisory board to the School of Accounting of the University of Southern California. He holds a Bachelor of Science and a Masters in Business Administration degree from the University of Southern California. HENRY C. CASDEN, 54, President, Chief Operating Officer and Secretary of The Casden Company and a director and secretary of NAPICO. Mr. Casden has been President and Chief Operating Officer of The Casden Company, as well as a director of NAPICO since February 1988. He became secretary of both companies in late 1994. From 1982 to 1988, Mr. Casden was of counsel and a partner in the Los Angeles law firm of Troy, Casden & Gould. From 1978 to 1981, he was of counsel and a partner in the Los Angeles law firm of Loeb & Loeb. From 1972 to 1978, Mr. Casden was a member of the Beverly Hills law firm of Fink & Casden, Professional Corporation. Mr. Casden received his Bachelor of Arts degree from the University of California at Los Angeles, and is a graduate of the University of San Diego Law School. Mr. Casden is a member of the State Bar of California and has numerous professional affiliations. BOB SCHAFER, 56, Senior Vice President of Finance Mr. Schafer joined NAPICO in 1984 and is the Corporate Controller responsible for the financial reporting function of the Company. Prior to this, he was a Group and Division Controller at Bergen Brunswig for over eight years, Controller at a Flintkote subsidiary for over four years, and Assistant Controller at an electronics subsidiary of General Electric for two years. Mr. Schafer is a member of the California Society of Certified Public Accountants. He holds a Bachelor of Science degree in accounting from Woodbury University, Los Angeles. PATRICIA W. TOY, 68, Senior Vice President - Communications and Assistant Secretary. Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a U.S. Naval Officer in communications and personnel assignments. She holds a Bachelor of Arts Degree from the University of Nebraska. MARK L. WALTHER, 37, Executive Vice President, General Counsel and Assistant Secretary. Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of the NAPICO sponsored limited partnerships. Prior to joining NAPICO, Mr. Walther worked in the San Francisco law firm of Browne and Kahn which specialized in construction litigation. Mr. Walther received his Bachelor of Arts Degree in Political Science from the University of California, Santa Barbara and is a graduate of the University of California, Davis, School of Law. He is a member of the State Bar of Hawaii. NAPICO and several of its officers, directors and affiliates, including Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on June 25, 1997, of an administrative cease and desist order by the U.S. Securities and Exchange Commission (the "Commission"), without admitting or denying any of the findings made by the Commission. The Commission found that NAPICO and others had violated certain federal securities laws in connection with transactions unrelated to the Partnership. The Commission's order did not impose any cost, burden or penalty on any partnership managed by NAPICO and does not impact NAPICO's ability to serve as the Partnership's Managing General Partner. 40 ITEM 11. MANAGEMENT RENUMERATION AND TRANSACTIONS Real Estate Associates Limited III has no officers, employees or directors. However, under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to pay the Corporate General Partner an annual management fee The annual management fee is approximately equal to .4 percent of the invested assets, including the Partnership's allocable share of the mortgages related to real estate properties held by local limited partnerships is to be paid to the general partners. The fee is earned beginning in the month the Partnership makes its initial contribution to the limited partnership. In addition, the Partnership reimburses the Corporate General Partner for certain expenses. An affiliate of the Corporate General Partner is responsible for the on-site property management for a property owned by a limited partnership in which the Partnership has invested. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: (a) Security Ownership of Certain Beneficial Owners The general partners own all of the outstanding general partnership interests of REAL III; no person is known to own beneficially in excess of 5% of the outstanding limited partnership interests. (b) At December 31, 1997, security ownership of management is as listed:
Amount and Percentage of Nature of Outstanding Name of Beneficial Limited Title of Class Beneficial Owner Owner Partner Interests - -------------- ---------------- ---------- ----------------- Limited Partnership Interest Coast Housing Investments Associates (CHIA) 9090 Wilshire Blvd., #201 Beverly Hills, CA 90211 30,000 * Limited Partnership Interest Charles H. Boxenbaum 780 Latimer Road Santa Monica, CA 90402 17,500 * Limited Partnership Interest Bruce E. Nelson 7036 Grasswood Avenue Malibu, CA 90265 5,000 *
* Cumulative Limited Partnership interests owned by corporate officers or the general partner is less than 1% interest of total outstanding Limited Partnership interests. 41 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: The Partnership has no officers, directors or employees of its own. All of its affairs are managed by the Corporate General Partner, National Partnership Investments Corp. The Partnership is obligated to NAPICO for an annual management fee equal to .4 percent of the original invested assets of the limited partnerships. Invested assets is defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interest in the capital accounts of the respective partnerships. The management fee was $454,800 for each of the three years in the period ended December 31, 1997. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $35,227, $32,176 and $29,927 in 1997, 1996 and 1995, respectively, and is included in operating expenses. An affiliate of NAPICO is the general partner in one of the limited partnerships in which the Partnership has an investment, and another affiliate receives property management fees of approximately 5 percent of its revenue. The affiliate received property management fees of $17,408, $16,128 and $16,128 in 1997, 1996 and 1995, respectively. A real estate investment trust ("REIT") organized by an affiliate of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partner interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partner interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL III; and (v) the consummation of a minimum number of purchase transactions with other Casden affiliated partnerships. As of March 31, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A proxy is contemplated to be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the transaction. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: FINANCIAL STATEMENTS Report of Independent Public Accountants. Balance Sheets as of December 31, 1997 and 1996. Statements of Operations for the years ended December 31, 1997, 1996 and 1995. Statements of Partners' Equity (Deficiency) for the years ended December 31, 1997, 1996 and 1995. Statements of Cash Flow for the years ended December 31, 1997, 1996 and 1995. Notes to Financial Statements. FINANCIAL STATEMENT SCHEDULES APPLICABLE TO REAL ESTATE ASSOCIATES LIMITED III, REAL ESTATE ASSOCIATES AND THE LIMITED PARTNERSHIPS IN WHICH REAL ESTATE ASSOCIATES LIMITED III AND REAL ESTATE ASSOCIATES HAVE INVESTMENTS: Schedule - Investments in Limited Partnerships, December 31, 1997, 1996 and 1995. Schedule III - Real estate and accumulated depreciation, December 31, 1997. The remaining schedules are omitted because the required information is included in the financial statements and notes thereto or they are not applicable or not required. 42 EXHIBITS (3) Articles of incorporation and bylaws: The registrant is not incorporated. The Partnership Agreement was filed with Form S-11 #268983 incorporated herein by reference. (10) Material contracts: The registrant is not party to any material contracts, other than the Restated Certificate and Agreement of Limited Partnership dated January 5, 1981, and the thirty-three contracts representing the Partnership investment directly or indirectly in local limited partnerships as previously filed at the Securities Exchange Commission, File 268983 which is hereby incorporated by reference. REPORTS ON FORM 8-K A report on Form 8-K dated February 14, 1997, was filed with the Securities and Exchange Commission. This Form 8-K disclosed that the registrant became aware of an entity conducting a tender offer for units in the registrant. The general partners on behalf of the registrant, by letter, transmitted on or about February 14, 1997, advised the limited partners that the general partners expressed no opinion regarding this offer, but urged the limited partners to consult with their tax advisors about the tax consequences that could result from a sale of their units. 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Los Angeles, State of California. REAL ESTATE ASSOCIATES LIMITED III By: NATIONAL PARTNERSHIP INVESTMENTS CORP. The General Partner /s/ CHARLES H. BOXENBAUM - ------------------------------------------ Charles H. Boxenbaum Chairman of the Board of Directors and Chief Executive Officer /s/ BRUCE E. NELSON - ------------------------------------------ Bruce E. Nelson Director and President /s/ ALAN I. CASDEN - ------------------------------------------ Alan I. Casden Director /s/ HENRY C. CASDEN - ------------------------------------------ Henry C. Casden Director /s/ BOB E. SCHAFER - ------------------------------------------ Bob E. Schafer Senior Vice President of Finance EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 10,575,810 0 0 0 0 10,575,810 0 0 11,960,231 110,192 0 0 0 0 9,925,762 11,960,231 0 1,806,188 0 0 770,391 0 151,000 884,797 0 884,797 0 0 0 884,797 0 0
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