Item 1. Business
Formation
American Tax Credit Properties III L.P. ("Registrant"), a Delaware limited partnership, was formed on September 21, 1989 to invest primarily in leveraged low-income multifamily residential complexes (the "Property" or "Properties") which qualify for the low-income tax credit in accordance with Section 42 of the Internal Revenue Code (the "Low-income Tax Credit"), through the acquisition of limited partnership equity interests in partnerships (the "Local Partnership" or "Local Partnerships") that are the owners of the Properties. Registrant considers its activity to constitute a single industry segment.
Richman Tax Credit Properties III L.P. (the "General Partner"), a Delaware limited partnership, was formed on September 21, 1989 to act as the general partner of Registrant. The general partner of the General Partner is Richman Housing Credits Inc. ("Richman Housing"), a Delaware corporation that is wholly owned by Richard Paul Richman. Richman Housing is an affiliate of The Richman Group, Inc. ("Richman Group"), a Delaware corporation founded by Richard Paul Richman in 1988.
The Amendment No. 2 to the Registration Statement on Form S-11 was filed with the Securities and Exchange Commission (the "Commission") on February 1, 1990 pursuant to the Securities Act of 1933 under Registration Statement File No. 33-31390 and was declared effective on February 2, 1990. Reference is made to the prospectus dated February 7, 1990, as supplemented by Supplement No. 1, Supplement No. 2, Supplement No. 3, Supplement No. 4, Supplement No. 5 and Supplement No. 6 dated June 6, 1990, November 21, 1990, December 20, 1990, October 30, 1991, December 26, 1991 and January 15, 1992, respectively, filed with the Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 (the "Prospectus"). Pursuant to Rule 12b-23 of the Commission's General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the description of Registrant's business set forth under the heading "Investment Objectives and Policies" at pages 44 through 66 of the Prospectus is incorporated herein by reference.
On March 12, 1990, Registrant commenced, through Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), the offering of up to 150,000 units of limited partnership interest ("Unit") at $1,000 per Unit to investors. On June 13, 1990, December 27, 1990, December 31, 1991 and January 23, 1992 the closings for 19,730, 9,622, 5,227 and 1,304 Units, respectively, took place, amounting to aggregate limited partners' capital contributions of $35,883,000.
Competition
Pursuant to Rule 12b-23 of the Commission's General Rules and Regulations promulgated under the Exchange Act, the description of Registrant's competition, general risks, tax risks and partnership risks set forth under the heading "Risk Factors" at pages 20 through 31 of the Prospectus is incorporated herein by reference.
Employees
Registrant employs no personnel and incurs no payroll costs. All management activities of Registrant are conducted by the General Partner. An affiliate of the General Partner employs individuals who perform the management activities of Registrant. This entity also performs similar services for other affiliates of the General Partner.
Tax Reform Act of 1986, Revenue Act of 1987, Technical and Miscellaneous Revenue Act of 1988, Omnibus Budget Reconciliation Act of 1989, Omnibus Budget Reconciliation Act of 1990, Tax Extension Act of 1991, Omnibus Budget Reconciliation Act of 1993, Uruguay Round Agreements Act, Tax and Trade Relief Extension Act of 1998, Tax and Trade Relief Extension Act of 1999, Community Renewal Tax Relief Act of 2000, Economic Growth and Tax Relief Reconciliation Act of 2001 and Job Creation and Worker Assistance Act of 2002 (collectively the "Tax Acts")
Registrant is organized as a limited partnership and is a "pass through" tax entity that does not, itself, pay federal income tax. However, the partners of Registrant who are subject to federal income tax may be affected by the Tax Acts. Registrant will consider the effect of certain aspects of the Tax Acts on the partners when making decisions regarding its investments. Registrant does not anticipate that the Tax Acts will currently have a material adverse impact on Registrant's business operations, capital resources and plans or liquidity.
Item 2.
Item 2. Properties
The executive offices of Registrant and the General Partner are located at 599 West Putnam Avenue, 3rd floor, Greenwich, Connecticut 06830. Registrant does not own or lease any properties. Registrant pays no rent; all charges for leased space are borne by an affiliate of the General Partner.
Registrant's primary objective is to provide Low-income Tax Credits to limited partners generally over a ten year period. The relevant state tax credit agency has allocated each of Registrant's Local Partnerships an amount of Low-income Tax Credits, which are generally available for a ten year period from the year the Property is placed in service (the "Ten Year Credit Period"). The Ten Year Credit Period is expected to be fully exhausted by the Local Partnerships as of December 31, 2003. 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, 2002, none of the Local Partnerships have suffered an event of recapture of Low-income Tax Credits.
Although Registrant generally owns a 98.9%-99% limited partnership interest ("Local Partnership Interest") in the Local Partnerships, Registrant and American Tax Credit Properties II L.P. ("ATCP II"), a Delaware limited partnership and an affiliate of Registrant, together, in the aggregate, own a 99% Local Partnership Interest in the following Local Partnerships:
Registrant ATCP II ---------- -------
Batesville Family, L.P. 61.75% 37.25% Bruce Housing Associates, L.P. 61.75 37.25 Carrington Limited Dividend Housing Association Limited Partnership 65.95 33.05 Ivy Family, L.P. 61.75 37.25 Lawrence Road Properties, Ltd. 61.75 37.25 Mirador del Toa Limited Partnership 59.06 39.94 Purvis Heights Properties, L.P. 61.75 37.25 Queen Lane Investors 48.50 50.50
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") (see descriptions of subsidies on page 7). The subsidy agreements expire at various times during and after the Compliance Periods of the Local Partnerships. Since October 1997, the United States Department of Housing and Urban Development ("HUD") has issued a series of directives related to project based Section 8 contracts that define owners' notification responsibilities, advise owners of project based Section 8 properties of what their options are regarding the renewal of Section 8 contracts, provide guidance and procedures to owners, management agents, contract administrators and HUD staff concerning renewal of Section 8 contracts, provide policies and procedures on setting renewal rents and handling renewal rent adjustments and provide the requirements and procedures for opting-out of a Section 8 project based contract. Registrant cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future net operating income before debt service and debt structure of any or all Local Partnerships currently receiving such subsidy or similar subsidies. One Local Partnership's Section 8 contracts are currently subject to renewal under applicable HUD guidelines.
Item 2. Properties (continued)
(1) Description of subsidies:
(a) Section 8 of Title II of the Housing and Community Development Act of 1974 allows qualified low-income tenants to pay thirty percent of their monthly income as rent with the balance paid by the federal government.
(b) The Local Partnership's debt structure includes a principal or interest payment subsidy.
(c) The Michigan State Housing Development Authority allows tenants, who would otherwise pay more than 40% of their income for rent and utilities, to receive rental subsidies.
(d) The Rural Housing Service (formerly the Farmers Home Administration) of the United States Department of Agriculture Rental Assistance Program allows qualified low-income tenants to receive rental subsidies.
(e) The City of Philadelphia Housing Authority allows qualified low-income tenants to receive rental certificates.
(f) The Commonwealth of Massachusetts participates in a rental assistance program.
(g) The Local Partnership's Section 8 contracts are currently subject to renewal under applicable HUD guidelines.
(2) Reflects amount attributable to Registrant only.
Item 3.
Item 3. Legal Proceedings
Registrant is not aware of any material legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the limited partners of Registrant during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Security Holder Matters
Market Information and Holders
There is no established public trading market for Registrant's Units. Accordingly, accurate information as to the market value of a Unit at any given date is not available. The number of owners of Units as of May 31, 2003 was approximately 1,633, holding 35,883 Units.
Merrill Lynch follows internal guidelines for providing estimated values of limited partnerships and other direct investments reported on client account statements. Pursuant to such guidelines, estimated values for limited partnership interests reported on Merrill Lynch client account statements (such as Registrant's Units) are provided to Merrill Lynch by independent valuation services. These estimated values are based on financial and other information available to the independent services (i) on the prior August 15th for reporting on December year-end and subsequent client account statements through the following May's month-end client account statements and (ii) on March 31st for reporting on June month-end and subsequent client account statements through the November month-end client account statements of the same year. In addition, Registrant may provide an estimate of value to Unit holders from time to time in Registrant's reports to limited partners. The estimated values provided by the independent services and Registrant, which may differ, are not market values and Unit holders may not be able to sell their Units or realize either amount upon a sale of their Units. In addition, Unit holders may not realize such estimated values upon the liquidation of Registrant.
Distributions
Registrant owns a limited partnership interest in Local Partnerships that are the owners of Properties that are leveraged and receive government assistance in various forms of rental and debt service subsidies. The distribution of cash flow generated by the Local Partnerships may be restricted, as determined by each Local Partnership's financing and subsidy agreements. Accordingly, Registrant does not anticipate that it will provide significant cash distributions to its partners. There were no cash distributions to the partners during the years ended March 30, 2003 and 2002.
Low-income Tax Credits, which are subject to various limitations, may be used by partners to offset federal income tax liabilities. The Low-income Tax Credits per Unit generated by Registrant and allocated to the limited partners for the tax years ended December 31, 2002 and 2001 and the cumulative Low-income Tax Credits allocated from inception through December 31, 2002 are as follows:
Low-income Tax Credits -----------
Tax year ended December 31, 2002 $ 21.61 Tax year ended December 31, 2001 $ 87.38
Cumulative totals $1,555.22
Notwithstanding future circumstances which may give rise to recapture or loss of future benefits (see Part I, Item 2 - Properties, herein), Registrant expects to generate total Low-income Tax Credits from investments in Local Partnerships of approximately $1,558 per Unit through December 31, 2003.
Item 6.
Item 6. Selected Financial Data
The information set forth below presents selected financial data of Registrant. Additional detailed financial information is set forth in the audited financial statements included under Part II, Item 8 herein.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Capital Resources and Liquidity
Registrant admitted limited partners in four closings with aggregate limited partners' capital contributions of $35,883,000. In connection with the offering of the sale of units, Registrant incurred organization and offering costs of approximately $4,419,000 and established a working capital reserve of approximately $2,153,000. The remaining net proceeds of approximately $29,311,000 (the "Net Proceeds") were available to be applied to the acquisition of limited partnership interests in local partnerships (the "Local Partnerships") that own low-income multifamily residential complexes (the "Property" or "Properties") that qualify for the low-income tax credit in accordance with Section 42 of the Internal Revenue Code (the "Low-income Tax Credit"). The Net Proceeds were utilized in acquiring an interest in forty-three Local Partnerships.
As of March 30, 2003, Registrant has cash and cash equivalents and investments in bonds totaling $2,896,108, which is available for operating expenses of Registrant and circumstances which may arise in connection with the Local Partnerships. As of March 30, 2003, Registrant's investments in bonds represent corporate bonds of $1,198,059 and U.S. Treasury debt securities of $1,588,499 with various maturity dates ranging from 2003 to 2008. Registrant acquired such investments in bonds with the intention of utilizing proceeds generated by such investments to meet its annual obligations. Future sources of Registrant funds are expected to be primarily from interest earned on working capital and limited cash distributions from Local Partnerships.
During the year ended March 30, 2003, Registrant received cash from interest revenue, maturity/redemption and sale of bonds and distributions from Local Partnerships and utilized cash for operating expenses. Cash and cash equivalents and investments in bonds decreased, in the aggregate, by approximately $33,000 during the year ended March 30, 2003 (which includes a net unrealized gain on investments in bonds of approximately $226,000, the amortization of net premium on investments in bonds of approximately $3,000 and the accretion of zero coupon bonds of approximately $86,000). 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 year ended March 30, 2003, the investment in local partnerships decreased as a result of Registrant's equity in the Local Partnerships' net loss for the year ended December 31, 2002 of $536,158 (including an adjustment to Registrant's carrying value of its investment in three Local Partnerships of $103,063 in accordance with applicable accounting guidelines) (see discussion below under Results of Operations) and cash distributions received from Local Partnerships of $15,639 (exclusive of distributions from Local Partnerships of $21,713 classified as other income). Payable to general partner and affiliate in the accompanying balance sheet as of March 30, 2003 represents deferred management and administration fees.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
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, 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 5 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. In addition, the carrying value of Registrant's investment in local partnerships may be reduced if the book value (the "Local Partnership Carrying Value") is considered to exceed the estimated value derived by management. Accordingly, cumulative losses and cash distributions in excess of the investment or an adjustment to a Local Partnership's Carrying Value 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 years ended March 30, 2003, 2002, and 2001 resulted in net losses of $875,199, $1,509,355, and $1,519,430, respectively. The decrease in net loss from fiscal 2002 to fiscal 2003 is primarily attributable to a decrease in equity in loss of investment in local partnerships of approximately $658,000. Equity in loss of investment in local partnerships has fluctuated over the last three years as a result of (i) Registrant adjusting the Local Partnership Carrying Value in connection with its investments in certain Local Partnerships during the each of the three years ended March 30, 2003 as reflected in Note 5 to the financial statements, changes in the nonrecognition of losses in accordance with the equity method of accounting and (ii) changes in the net operating losses of those Local Partnerships in which Registrant continues to have an investment balance.
The Local Partnerships' net loss of approximately $3,253,000 for the year ended December 31, 2002 includes depreciation and amortization expense of approximately $4,100,000 and interest on non-mandatory debt of approximately $361,000, and does not include required principal payments on permanent mortgages of approximately $754,000. The Local Partnerships' net loss of approximately $3,262,000 for the year ended December 31, 2001 includes depreciation and amortization expense of approximately $4,125,000 and interest on non-mandatory debt of approximately $356,000, and does not include principal payments on permanent mortgages of approximately $722,000. The Local Partnerships' net loss of approximately $3,365,000 for the year ended December 31, 2000 includes depreciation and amortization expense of approximately $4,088,000, interest on non-mandatory debt of approximately $357,000, and does not include principal payments on permanent mortgages of approximately $667,000.
Local Partnership Matters
Registrant's primary objective is to provide Low-income Tax Credits to limited partners generally over a ten year period. The relevant state tax credit agency has allocated each of Registrant's Local Partnerships an amount of Low-income Tax Credits, which are generally available for a ten year period from the year the Property is placed in service (the "Ten Year Credit Period"). The Ten Year Credit Period is expected to be fully exhausted by the Local Partnerships as of December 31, 2003. 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, 2002, none of the Local Partnerships have suffered an event of recapture of Low-income Tax Credits.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
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. Since October 1997, the United States Department of Housing and Urban Development ("HUD") has issued a series of directives related to project based Section 8 contracts that define owners' notification responsibilities, advise owners of project based Section 8 properties of what their options are regarding the renewal of Section 8 contracts, provide guidance and procedures to owners, management agents, contract administrators and HUD staff concerning renewal of Section 8 contracts, provide policies and procedures on setting renewal rents and handling renewal rent adjustments and provide the requirements and procedures for opting-out of a Section 8 project based contract. Registrant cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future net operating income before debt service and debt structure of any or all Local Partnerships currently receiving such subsidy or similar subsidies. One Local Partnership's Section 8 contracts are currently subject to renewal under applicable HUD guidelines.
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 year ended December 31, 2002, revenue from operations of the Local Partnerships have generally been sufficient to cover operating expenses and Mandatory Debt Service. Substantially all of the Local Partnerships are effectively operating at or above 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 an operating deficit 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 the Compliance Period. As of December 31, 2002, Westminster was in default under the terms of its first mortgage; payments of principal, interest and replacement reserve deposits are approximately four years in arrears, representing an arrearage of approximately $400,000. Although Westminster has been involved in negotiating a restructuring of its mortgage debt, a final resolution has not been reached and documented. There can be no assurance that the issues will be resolved and the mortgage remains in default without a formal forbearance as of June 2003. Westminster incurred an operating deficit of approximately $53,000 for the year ended December 31, 2002, which amount includes a provision for replacement reserve deposits of $1,184 per month and debt service payments of $6,245 per month. Registrant's investment balance in Westminster, after cumulative equity losses, became zero during the year ended March 30, 1999. Westminster will have generated approximately $6.3 per Unit per year to the limited partners upon the expiration of its Low-income Tax Credit allocation in 2003.
The terms of the partnership agreement of Sydney Engel Associates L.P. ("Sydney Engel") require the Local General Partners to advance funds to cover operating deficits up to $1,000,000 through April 2003 and to cause the management agent to defer property management fees in order to avoid a default under the mortgage. Sydney Engel incurred an operating deficit of approximately $118,000 for the year ended December 31, 2002, which includes property management fees of approximately $102,000. Payments on the mortgage are current and the Property does not incur real estate taxes. Sydney Engel withdrew approximately $61,000 from its operating reserve during the year ended December 31, 2002. Such reserve has a balance of approximately $122,000 as of December 31, 2002. Registrant's investment balance in Sydney Engel, after cumulative equity losses, became zero during the year ended March 30, 1997. Sydney Engel generated approximately $14.5 per Unit per year to the limited partners upon the expiration of its Low-income Tax Credit allocation in 2001.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Fulton Street Houses Limited Partnership ("Fulton Street") has an escrow of approximately $317,000 as of December 31, 2002 to cover operating deficits and there are no Mandatory Debt Service payments or real estate taxes required during the Compliance Period. Fulton Street incurred an operating deficit of approximately $45,000 for the year ended December 31, 2002. Registrant's investment balance in Fulton Street, after cumulative equity losses, became zero during the year ended March 30, 2002. Fulton Street generated approximately $11.7 per Unit per year to the limited partners upon the expiration of its Low-income Tax Credit allocation in 2001.
Inflation
Inflation is not expected to have a material adverse impact on Registrant's operations during its period of ownership of the Local Partnership Interests.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which requires Registrant to make certain estimates and assumptions. A summary of significant accounting policies is provided in Note 1 to the financial statements. The following section is a summary of certain aspects of those accounting policies that may require subjective or complex judgments and are most important to the portrayal of Registrant's financial condition and results of operations. Registrant believes that there is a low probability that the use of different estimates or assumptions in making these judgments would result in materially different amounts being reported in the financial statements.
o Registrant accounts for its investment in local partnerships in accordance with the equity method of accounting since Registrant does not control the operations of a Local Partnership.
o If the book value of Registrant's investment in a Local Partnership exceeds the estimated value derived by management, Registrant reduces its investment in any such Local Partnership and includes such reduction in equity in loss of investment in local partnerships.
Recently Issued Accounting Standards
In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a material effect on Registrant's financial position, results of operations or cash flows.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). FIN 46 addresses the consolidation by business enterprises of variable interest entities as defined. FIN 46 applies immediately to variable interests in variable interest entities created after January 31, 2003. For public enterprises with a variable interest entity created before February 1, 2003, FIN 46 applies to that enterprise no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The adoption of FIN 46 is not expected to have a material effect on Registrant's financial position, results of operations or cash flows.
Item 7a.
Item 7a. 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 and the associated bond rating. Since Registrant's investments in bonds have various maturity dates through 2008, 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 under performing 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.
AMERICAN TAX CREDIT PROPERTIES III L.P.
Item 8.
Item 8. Financial Statements and Supplementary Data
Page ----
Independent Auditors' Report..................................................15
Balance Sheets................................................................16
Statements of Operations......................................................17
Statements of Changes in Partners' Equity (Deficit)...........................18
Statements of Cash Flows......................................................19
Notes to Financial Statements.................................................21
No financial statement schedules are included because of the absence of the conditions under which they are required or because the information is included in the financial statements or the notes thereto.
Independent Auditors' Report
To the Partners American Tax Credit Properties III L.P.
We have audited the accompanying balance sheets of American Tax Credit Properties III L.P. as of March 30, 2003 and 2002, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended March 30, 2003. 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 auditing standards generally accepted in the United States of America. 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 American Tax Credit Properties III L.P. as of March 30, 2003 and 2002, and the results of its operations, changes in partners' equity (deficit) and its cash flows for each of the three years in the period ended March 30, 2003, in conformity with accounting principles generally accepted in the United States of America.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland June 17, 2003
See Notes to Financial Statements.
See Notes to Financial Statements.
AMERICAN TAX CREDIT PROPERTIES III L.P. STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT) YEARS ENDED MARCH 30, 2003, 2002 AND 2001
See Notes to Financial Statements.
- ------------------------------------------------------------------------------- See reconciliation of net loss to net cash used in operating activities on page 20.
See Notes to Financial Statements.
See Notes to Financial Statements.
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS MARCH 30, 2003, 2002 AND 2001
1. Organization, Purpose and Summary of Significant Accounting Policies
American Tax Credit Properties III L.P. (the "Partnership") was formed on September 21, 1989 and the Certificate of Limited Partnership of the Partnership was filed under the Delaware Revised Uniform Limited Partnership Act. There was no operating activity until admission of the limited partners on June 13, 1990. The Partnership was formed to invest primarily in leveraged low-income multifamily residential complexes (the "Property" or "Properties") which qualify for the low-income tax credit in accordance with Section 42 of the Internal Revenue Code (the "Low-income Tax Credit"), through the acquisition of limited partnership equity interests (the "Local Partnership Interests") in partnerships (the "Local Partnership" or "Local Partnerships") that are the owners of the Properties. Richman Tax Credit Properties III L.P. (the "General Partner") was formed on September 21, 1989 to act as the general partner of the Partnership.
Basis of Accounting and Fiscal Year
The Partnership's records are maintained on the accrual basis of accounting for both financial reporting and tax purposes. For financial reporting purposes, the Partnership's fiscal year ends March 30 and its quarterly periods end June 29, September 29 and December 30. The Local Partnerships have a calendar year for financial reporting purposes. The Partnership and the Local Partnerships each have a calendar year for income tax purposes.
Investment in Local Partnerships
The Partnership accounts for its investment in local partnerships in accordance with the equity method of accounting, under which the investment is carried at cost and is adjusted for the Partnership'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 the Partnership is recognized to the extent of the Partnership's investment balance in each Local Partnership. Equity in loss in excess of the Partnership's investment balance in a Local Partnership is allocated to other partners' capital in any such Local Partnership. Previously unrecognized equity in loss of any Local Partnership is recognized in the fiscal year in which equity in income is earned by such Local Partnership or additional investment is made by the Partnership. Distributions received subsequent to the elimination of an investment balance for any such investment in a Local Partnership are recorded as other income from local partnerships.
The Partnership regularly assesses the carrying value of its investments in local partnerships. If the carrying value of an investment in a Local Partnership exceeds the estimated value derived by management, the Partnership reduces its investment in any such Local Partnership and includes such reduction in equity in loss of investment in local partnerships.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments purchased with an original maturity of three months or less at the date of acquisition to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates market value.
Income Taxes
No provision for income taxes has been made because all income, losses and tax credits are allocated to the partners for inclusion in their respective tax returns. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," the Partnership has included in Note 7 disclosures related to differences in the book and tax bases of accounting.
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
1. Organization, Purpose and Summary of Significant Accounting Policies (continued)
Investments in Bonds
Investments in bonds are classified as available-for-sale and represent investments that the Partnership intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell an investment would be based on various factors, including significant movements in interest rates and liquidity needs. Investments in bonds are carried at estimated fair value and unrealized gains or losses are included as items of comprehensive income (loss) and are reported as a separate component of partners' equity (deficit).
Premiums and discounts on investments in bonds are amortized (accreted) using the effective yield method over the life of the investment. Amortized premiums offset interest revenue, while the accretion of discounts and zero coupon bonds are included in interest revenue. Realized gain (loss) on redemption or sale of investments in bonds are included in, or offset against, interest revenue on the basis of the adjusted cost of each specific investment redeemed or sold.
Recently Issued Accounting Standards
In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a material effect on the Partnership's financial position, results of operations or cash flows.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). FIN 46 addresses the consolidation by business enterprises of variable interest entities as defined. FIN 46 applies immediately to variable interests in variable interest entities created after January 31, 2003. For public enterprises with a variable interest entity created before February 1, 2003, FIN 46 applies to that enterprise no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The adoption of FIN 46 is not expected to have a material effect on the Partnership's financial position, results of operations or cash flows.
2. Capital Contributions
On March 12, 1990, the Partnership commenced the offering of units (the "Units") through Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Selling Agent"). On June 13, 1990, December 27, 1990, December 31, 1991 and January 23, 1992, under the terms of the Amended and Restated Agreement of Limited Partnership of the Partnership (the "Partnership Agreement"), the General Partner admitted limited partners to the Partnership in four closings. At these closings, subscriptions for a total of 35,883 Units representing $35,883,000 in limited partners' capital contributions were accepted. In connection with the offering of Units, the Partnership incurred organization and offering costs of $4,418,530, of which $75,000 was capitalized as organization costs and $4,343,530 was charged to the limited partners' equity as syndication costs. The Partnership received a capital contribution of $100 from the General Partner.
Net loss is allocated 99% to the limited partners and 1% to the General Partner in accordance with the Partnership Agreement.
3. Cash and Cash Equivalents
As of March 30, 2003, the Partnership has cash and cash equivalents of $109,550 that are deposited in interest bearing accounts with an institution that is not insured by the Federal Deposit Insurance Corporation.
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
4. Investments in Bonds
The Partnership carries its investments in bonds as available-for-sale because such investments are used to facilitate and provide flexibility for the Partnership's obligations, including the providing of operating advances resulting from circumstances that may arise in connection with the Local Partnerships. Investments in bonds are reflected in the accompanying balance sheets at estimated fair value.
As of March 30, 2003, certain information concerning investments in bonds is as follows:
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
5. Investment in Local Partnerships
As of March 30, 2003, the Partnership owns a limited partnership interest in the following Local Partnerships:
1. April Gardens Apartments II Limited Partnership; 2. Ashland Park Apartments, L.P.; 3. Auburn Family, L.P.; 4. Batesville Family, L.P.; 5. Bay Springs Elderly, L.P.; 6. Brisas del Mar Apartments Limited Partnership; 7. Bruce Housing Associates, L.P.; 8. Carrington Limited Dividend Housing Association Limited Partnership; 9. Chestnut Park Associates, L.P.*; 10. Chowan Senior Manor Associates Limited Partnership; 11. Christian Street Commons Associates; 12. Country View Apartments ("Country View"); 13. Desarrollos de Belen Limited Partnership; 14. Desarrollos de Emaus Limited Partnership; 15. Ellinwood Heights Apartments, L.P.; 16. Fulton Street Houses Limited Partnership; 17. Hayes Run Limited Partnership; 18. Howard L. Miller Sallisaw Apartments II, L.P.; 19. Hurlock Meadow Limited Partnership; 20. Ivy Family, L.P.; 21. Justin Associates ("Justin"); 22. LaBelle Commons, Ltd.; 23. Lawrence Road Properties, Ltd.; 24. Loma Del Norte Limited Partnership; 25. Long Reach Associates Limited Partnership; 26. Mirador del Toa Limited Partnership; 27. Moore Haven Commons, Ltd.; 28. NP-89 Limited Dividend Housing Association Limited Partnership; 29. Nash Hill Associates, Limited Partnership; 30. North Calhoun City, L.P. ("North Calhoun"); 31. Orange City Plaza, Limited Partnership ("Orange City"); 32. Puerta del Mar Limited Partnership; 33. Purvis Heights Properties, L.P.; 34. Queen Lane Investors; 35. Somerset Manor, Ltd.; 36. Sugar Cane Villas, Ltd.; 37. Summerfield Apartments Limited Partnership ("Summerfield"); 38. Sydney Engel Associates L.P. (formerly known as Sydney Engel Associates)*; 39. Union Valley Associates Limited Partnership; 40. Walnut Grove Family, L.P.; 41. Waynesboro Apartments Limited Partnership; 42. West Calhoun City, L.P. ("West Calhoun"); and 43. Westminster Apartments Limited Partnership ("Westminster").
*An affiliate of the General Partner is a general partner of and/or provides services to the Local Partnership.
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
5. Investment in Local Partnerships (continued)
Although the Partnership generally owns a 98.9%-99% limited partnership interest in the Local Partnerships, the Partnership and American Tax Credit Properties II L.P. ("ATCP II"), a Delaware limited partnership and an affiliate of the Partnership, together, in the aggregate, own a 99% Local Partnership Interest in the following Local Partnerships:
The Partnership ATCP II ----------- -------
Batesville Family, L.P. 61.75% 37.25% Bruce Housing Associates, L.P. 61.75 37.25 Carrington Limited Dividend Housing Association Limited Partnership 65.95 33.05 Ivy Family, L.P. 61.75 37.25 Lawrence Road Properties, Ltd. 61.75 37.25 Mirador del Toa Limited Partnership 59.06 39.94 Purvis Heights Properties, L.P. 61.75 37.25 Queen Lane Investors 48.50 50.50
The Properties are principally comprised of subsidized and leveraged low-income multifamily residential complexes located throughout the United States and Puerto Rico. 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"). The rents of the Properties are controlled by federal and state agencies pursuant to applicable laws and regulations. Under the terms of each of the Local Partnership's partnership agreements, the Partnership committed to make capital contribution payments in the aggregate amount of $29,264,476, all of which has been paid as of March 30, 2003. As of December 31, 2002, the Local Partnerships have outstanding mortgage loans payable totaling approximately $83,716,000 and accrued interest payable on such loans totaling $4,027,000, which are secured by security interests and liens common to mortgage loans on the Local Partnerships' real property and other assets.
Equity in loss of investment in local partnerships is limited to the Partnership's investment balance in each Local Partnership; any such excess is applied to other partners' capital in any such Local Partnership (see Note 1). The amount of such excess losses applied to other partners' capital was $2,586,565, $2,440,940, and $2,468,205 for the years ended December 31, 2002, 2001 and 2000, respectively, as reflected in the combined statements of operations of the Local Partnerships reflected herein Note 5.
As of December 31, 2002, Westminster was in default under the terms of its first mortgage; payments of principal, interest and replacement reserve deposits are approximately four years in arrears, representing an arrearage of approximately $400,000. Although Westminster has been involved in negotiating a restructuring of its mortgage debt, a final resolution has not been reached and documented. There can be no assurance that the issues will be resolved and the mortgage remains in default without a formal forbearance.
As a result of management's assessment of the carrying value of the investment in local partnerships under applicable accounting guidelines (see Note 1), the Partnership reduced its investment in Country View, North Calhoun and West Calhoun by $34,787, $29,765 and $38,511 respectively for the year ended March 31, 2003. The partnership reduced the investment in Justin, Orange City, and Summerfield by $234,362, $194,862, and $205,205 respectively, for the year ended March 31, 2002, and by $230,000, $155,000, and $186,000 respectively, for the year ended March 31, 2001. Such losses are included in the equity in loss of investment in local partnerships in the accompanying statements of operations of the Partnership for the years indicated.
The combined balance sheets of the Local Partnerships as of December 31, 2002 and 2001 and the combined statements of operations of the Local Partnerships for the years ended December 31, 2002, 2001 and 2000 are reflected on pages 26 and 27, respectively.
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
5. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the years ended December 31, 2002, 2001 and 2000 are as follows:
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
5. Investment in Local Partnerships (continued)
Investment activity with respect to each Local Partnership for the year ended March 30, 2003 is as follows:
(1) The Partnership's equity in loss of an investment in a Local Partnership is limited to the remaining investment balance.
(2) Additional equity in loss of investment is not allocated to the Partnership until equity in income is earned or additional investment is made by the Partnership.
(3) The Partnership has adjusted the investment's carrying value in accordance with applicable accounting guidelines.
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
5. Investment in Local Partnerships (continued)
Investment activity with respect to each Local Partnership for the year ended March 30, 2002 is as follows:
(1) The Partnership's equity in loss of an investment in a Local Partnership is limited to the remaining investment balance.
(2) Additional equity in loss of investment is not allocated to the Partnership until equity in income is earned or additional investment is made by the Partnership.
(3) The Partnership has adjusted the investment's carrying value in accordance with applicable accounting guidelines.
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
5. Investment in Local Partnerships (continued)
Property information for each Local Partnership as of December 31, 2002 is as follows:
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
5. Investment in Local Partnerships (continued)
The summary of property activity during the year ended December 31, 2002 is as follows:
6. Transactions with General Partner and Affiliates
For the years ended March 30, 2003, 2002 and 2001, the Partnership paid and/or incurred the following amounts to the General Partner and/or affiliates in connection with services provided to the Partnership:
For the years ended December 31, 2002, 2001 and 2000, the Local Partnerships paid and/or incurred the following amounts to the General Partner and/or affiliates in connection with services provided to the Local Partnerships:
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
7. Taxable Loss
A reconciliation of the financial statement net loss of the Partnership for the years ended March 30, 2003, 2002 and 2001 to the tax return net loss for the years ended December 31, 2002, 2001 and 2000 is as follows:
The differences between the investment in local partnerships for tax and financial reporting purposes as of December 31, 2002 and 2001 are as follows:
2002 2001 ----------- -----------
Investment in local partnerships - financial reporting $ 1,237,573 $ 1,788,120 Investment in local partnerships - tax (8,971,306) (5,633,301) ----------- ----------- $10,208,879 $ 7,421,421 =========== ===========
Payable to general partner and affiliate in the accompanying balance sheets represents accrued management and administrative fees not deductible for tax purposes pursuant to Internal Revenue Code Section 267.
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
8. Commitments and Contingencies
Pursuant to the Partnership Agreement, the Partnership incurs an annual management fee ("Management Fee") and an annual additional management fee ("Additional Management Fee") payable to the General Partner for its services in connection with the management of the affairs of the Partnership. The annual Management Fee is equal to .14% of all proceeds as of December 31 of any year, invested or committed for investment in Local Partnerships plus all debts of the Local Partnerships related to the Properties ("Invested Assets"). The Partnership incurred a Management Fee of $161,400 for each of the three years ended March 30, 2003. The annual Additional Management Fee is equal to .06% of Invested Assets. The Partnership incurred an Additional Management Fee of $69,171 for each of the three years ended March 30, 2003. Such amounts are aggregated and reflected under the caption management fees in the accompanying financial statements. Unpaid Management Fees and Additional Management Fees in the amount of $1,209,669 and $1,278,898 are included in payable to general partner and affiliate in the accompanying balance sheets as of March 30, 2003 and 2002, respectively.
In addition, pursuant to the Partnership Agreement, the Partnership is authorized to contract for administrative services provided to the Partnership. From the inception of the Partnership through November 23, 1999, such administrative services were provided by ML Fund Administrators Inc. ("MLFA"), an affiliate of the Selling Agent, pursuant to an Administrative Services Agreement. MLFA resigned the performance of its basic services under the Administrative Services Agreement effective November 23, 1999, with certain transitional services continued through April 30, 2000. The General Partner transitioned the administrative services to an affiliate of the General Partner without any changes to the terms of the Administrative Services Agreement. Pursuant to such agreement, the Partnership incurs an annual administration fee ("Administration Fee") and an annual additional administration fee ("Additional Administration Fee") for administrative services provided to the Partnership. The annual Administration Fee is equal to .14% of Invested Assets. The Partnership incurred an Administration Fee of $161,400 for each of the three years ended March 30, 2003. The annual Additional Administration Fee is subject to certain provisions of the Partnership Agreement and is equal to .06% of Invested Assets. The Partnership incurred an Additional Administration Fee of $69,171 for each of the three years ended March 30, 2003. Such amounts are aggregated and reflected under the caption administration fees in the accompanying financial statements. Unpaid Administration Fees and Additional Administration Fees due to MLFA in the amount of $788,673 and $904,673 are included in accounts payable and accrued expenses in the accompanying balance sheets as of March 30, 2003 and 2002, respectively. Unpaid Administration Fees and Additional Administration Fees due to an affiliate of the General Partner in the cumulative amount of $473,521 and $259,145 are included in due to general partner and affiliate in the accompanying balance sheets as of March 30, 2003 and 2002, respectively.
The rents of the Properties, many of which receive rental subsidy payments, including payments under Section 8 of Title II of the Housing and Community Development Act of 1974 ("Section 8"), are subject to specific laws, regulations and agreements with federal and state agencies. The subsidy agreements expire at various times during and after the Compliance Periods of the Local Partnerships. Since October 1997, the United States Department of Housing and Urban Development ("HUD") has issued a series of directives related to project based Section 8 contracts that define owners' notification responsibilities, advise owners of project based Section 8 properties of what their options are regarding the renewal of Section 8 contracts, provide guidance and procedures to owners, management agents, contract administrators and HUD staff concerning renewal of Section 8 contracts, provide policies and procedures on setting renewal rents and handling renewal rent adjustments and provide the requirements and procedures for opting-out of a Section 8 project based contract. The Partnership 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 before debt service and debt structure of any or all Local Partnerships currently receiving such subsidy or similar subsidies. One Local Partnership's Section 8 contracts are currently subject to renewal under applicable HUD guidelines.
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
9. Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined using available market information, assumptions, estimates and valuation methodologies.
Cash and cash equivalents
The carrying amount approximates fair value.
Investments in Bonds
Fair value is estimated based on market quotes provided by an independent service as of the balance sheet dates.
Interest receivable
The carrying amount approximates fair value due to the terms of the underlying investments.
The estimated fair value of the Partnership's financial instruments as of March 30, 2003 and 2002 are disclosed elsewhere in the financial statements.
10. Quarterly Financial Information - Unaudited
The following is a summary of results of operations for each of the four quarters for the years indicated:
AMERICAN TAX CREDIT PROPERTIES III L.P. NOTES TO FINANCIAL STATEMENTS - (Continued) MARCH 30, 2003, 2002 AND 2001
10. Quarterly Financial Information - Unaudited (continued)
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Registrant has no officers or directors. The General Partner manages Registrant's affairs and has general responsibility and authority in all matters affecting its business. The responsibilities of the General Partner are currently carried out by Richman Housing. The executive officers and directors of Richman Housing are:
Served in present Name capacity since(1) Position held - ---- ----------------- -------------
Richard Paul Richman September 21, 1989 Director David A. Salzman February 1, 2001 President Neal Ludeke September 21, 1989 Vice President and Treasurer Gina S. Dodge September 21, 1989 Secretary
- -------------------------------------------------------------------------------- (1) Director holds office until his successor is elected and qualified. All officers serve at the pleasure of the Director.
Richard Paul Richman, age 55, is the sole Director of Richman Housing. Mr. Richman is the Chairman and principal stockholder of Richman Group. Mr. Richman is involved in the syndication, development and management of residential property. Mr. Richman is also a director of Wilder Richman Resources Corp., an affiliate of Richman Housing and the general partner of Secured Income L.P., a director of Wilder Richman Historic Corporation, an affiliate of Richman Housing and the general partner of Wilder Richman Historic Properties II, L.P., a director of Richman Tax Credit Properties Inc., an affiliate of Richman Housing and the general partner of the general partner of American Tax Credit Properties L.P., a director of Richman Tax Credits Inc., an affiliate of Richman Housing and the general partner of the general partner of American Tax Credit Properties II L.P. and a director of Richman American Credit Corp., an affiliate of Richman Housing and the manager of American Tax Credit Trust, a Delaware statutory business trust.
David A. Salzman, age 42, is the President of Richman Housing and is a minority stockholder and the President of Richman Group. Mr. Salzman is responsible for the acquisition and development of residential real estate for syndication for Richman Group.
Neal Ludeke, age 45, is a Vice President and the Treasurer of Richman Housing. Mr. Ludeke, a Vice President and the Treasurer of Richman Group, is engaged primarily in the syndication, asset management and finance operations of Richman Group. In addition, Mr. Ludeke is a Vice President and the Treasurer of Richman Asset Management, Inc. ("RAM"), an affiliate of Richman Housing. Mr. Ludeke's responsibilities in connection with RAM include various partnership management functions.
Gina S. Dodge, age 47, is the Secretary of Richman Housing. Ms. Dodge is a Vice President and the Secretary of Richman Group. As the Director of Investor Services, Ms. Dodge is responsible for communications with investors.
Item 11.
Item 11. Executive Compensation
Registrant has no officers or directors. Registrant does not pay the officers or director of Richman Housing any remuneration. During the year ended March 30, 2003, Richman Housing did not pay any remuneration to any of its officers or its director.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Affiliates of Everest Properties, Inc., having the mailing address 155 N. Lake Avenue, Suite 1000, Pasadena, California 91101 are the owners of 2,125 Units, representing approximately 5.9% of all such Units. As of May 31, 2003, no person or entity, other than affiliates of Everest Properties, Inc., was known by Registrant to be the beneficial owner of more than five percent of the Units. Richman Housing is wholly owned by Richard Paul Richman.
Item 13.
Item 13. Certain Relationships and Related Transactions
The General Partner and certain of its affiliates are entitled to receive certain fees and reimbursement of expenses and have received/earned fees for services provided to Registrant as described in Notes 6 and 8 to the audited financial statements included in Item 8 - "Financial Statements and Supplementary Data" herein.
Transactions with General Partner and Affiliates
The net tax losses and Low-income Tax Credits generated by Registrant during the year ended December 31, 2002 allocated to the General Partner were $35,408 and $7,836, respectively. The net tax losses and Low-income Tax Credits generated by the General Partner during the year ended December 31, 2002 (from the allocation of Registrant discussed above) and allocated to Richman Housing were $28,620 and $6,333, respectively.
Indebtedness of Management.
No officer or director of the General Partner or any affiliate of the foregoing was indebted to Registrant at any time during the year ended March 30, 2003.
Item 14.
Item 14. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
a. Within the 90 days prior to the date of this report, Registrant's Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of Registrant's "disclosure controls and procedures" as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15(d)-14(c). Based on that evaluation, Registrant's Chief Executive Officer and Principal Financial Officer have concluded that as of the date of the evaluation, Registrant's disclosure controls and procedures were adequate and effective in timely alerting them to material information relating to Registrant required to be included in Registrant's periodic SEC filings.
Changes in Internal Controls
b. There were no significant changes in Registrant's internal controls or in other factors that could significantly affect Registrant's internal controls subsequent to the date of that evaluation.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules, and Reports on form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) Financial Statements
See Item 8 - "Financial Statements and Supplementary Data."
(2) Financial Statement Schedules
No financial statement schedules are included because of the absence of the conditions under which they are required or because the information is included in the financial statements or the notes thereto.
(3) Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Registrant during the last quarter of the period covered by this report.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
See (a)(2) above.
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.
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: June 30, 2003 /s/ David Salzman ------------- ----------------------------- by: David Salzman Chief Executive Officer
Dated: June 30, 2003 /s/ Neal Ludeke ------------- ------------------------------ by: Neal Ludeke Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ----
/s/ David Salzman Chief Executive Officer of June 30, 2003 - -------------------------- the general partner ------------- (David Salzman) of the General Partner
/s/ Neal Ludeke Chief Financial Officer of June 30, 2003 - -------------------------- the general partner ------------- (Neal Ludeke) of the General Partner
CERTIFICATIONS
I, David Salzman, certify that:
1. I have reviewed this annual report on Form 10-K of American Tax Credit Properties III L.P.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: June 30, 2003 /s/ David Salzman ------------------------------ by: David Salzman Chief Executive Officer of Richman Housing Credits Inc., general partner of Richman Tax Credit Properties III L.P., General Partner of the Registrant
I, Neal Ludeke, certify that:
1. I have reviewed this annual report on Form 10-K of American Tax Credit Properties III L.P.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: June 30, 2003 /s/ Neal Ludeke ------------------------------ by: Neal Ludeke Chief Financial Officer of Richman Housing Credits Inc., general partner of Richman Tax Credit Properties III L.P., General Partner of the Registrant