UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 
 **FORM
10-Q**
 
 (Mark
One)
 x
    QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
quarterly period ended **December
30, 2004**
 
 OR
 
 o
    TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
transition period from ____________ to ____________
 
 Commission
file number: **0-19217**
 
 
 **American
Tax Credit Properties III L.P.**
 (Exact
name of Registrant as specified in its charter)
 
 **Delaware**
    
    **13-3545006**(State
      or other jurisdiction ofincorporation
      or organization)
    
    (I.R.S.
      EmployerIdentification
      No.)**Richman
      Tax Credit Properties III L.P.**
      **599
      West Putnam Avenue, 3rd Floor**
      **Greenwich,
      Connecticut**
    
    **06830**(Address
      of principal executive offices)
    
    (Zip
      Code)
 
 Registrant’s
telephone number, including area code: **(203)
869-0900**
 
 Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days.
 
 Yes  **x**  No o
 Indicate
by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
 
 Yes o No x
 
  
 
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 
 **PART
I -** **FINANCIAL
INFORMATION**
 **Item 1. Financial
      Statements****Table of
      Contents**
    
    
    **Page**Balance Sheets
    
    
    3Statements of Operations
    
    
    4Statements of Cash Flows
    
    
    5Notes to Financial
      Statements
    7
 
 2
 
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 **BALANCE
SHEETS**
 **(UNAUDITED)**
 
 
 **Notes**
    
    
        ****December
              30,**2004**
    
    
        ****March
              30,**2004****ASSETS**Cash
      and cash equivalents
    
    
    
    
    $
    79,156
    
    $
    103,242Investments
      in bonds
    
    
    2
    
    
    2,198,649
    
    
    2,635,158Investment
      in local partnerships
    
    
    3
    
    
    759,317
    
    
    1,008,882Interest
      receivable
    
    
    
    
    
    6,564
    
    
    19,613$
    3,043,686
    
    $
    3,766,895**LIABILITIES
      AND PARTNERS’ EQUITY (DEFICIT)**LiabilitiesAccounts
      payable and accrued expenses
    
    
    
    
    $
    722,315
    
    $
    862,952Payable
      to general partner and affiliates
    
    
    
    
    
    2,001,904
    
    
    1,944,3162,724,219
    
    
    2,807,268Commitments
      and contingencies
    
    
    4Partners’
      equity (deficit)General
      partner
    
    
    
    
    
    (313,351
    )
    
    (307,932
    )Limited
      partners (35,883 units of limited partnership interest
      outstanding)
    
    
    
    
    
    507,898
    
    
    1,044,413Accumulated
      other comprehensive income, net
    
    
    2
    
    
    124,920
    
    
    223,146319,467
    
    
    959,627$
    3,043,686
    
    $
    3,766,895
 
 See Notes to Financial Statements.
 
 3
  **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 **STATEMENTS
OF OPERATIONS**
 **(UNAUDITED)**
 
 
 
 ****
    
    
    
    
    
          **Three
              Months Ended 
              December 30,**
    
    
          **Nine
              
              Months Ended 
              December 30,**
    
    
          **Three
              
              Months Ended
              December 30,**
    
    
          **Nine
              Months Ended 
              December 30,******
    
    
    **Notes**
    
    
    **2004**
    
    
    **2004**
    
    
    **2003**
    
    
    **2003****REVENUE**Interest
    
    
    
    
    $
    30,380
    
    $
    96,538
    
    $
    44,330
    
    $
    124,334Other
      income from local partnerships
    
    
    3
    
    
    6,786
    
    
    32,955
    
    
    1,785
    
    
    25,110TOTAL
      REVENUE
    
    
    
    
    
    37,166
    
    
    129,493
    
    
    46,115
    
    
    149,444**EXPENSES**Administration
      fees
    
    
    
    
    
    57,643
    
    
    172,929
    
    
    57,643
    
    
    172,929Management
      fees
    
    
    
    
    
    57,643
    
    
    172,929
    
    
    57,643
    
    
    172,929Professional
      fees
    
    
    
    
    
    15,538
    
    
    52,788
    
    
    25,748
    
    
    64,188State
      of New Jersey filing fee
    
    
    
    
    
    6,002
    
    
    18,499
    
    
    7,074
    
    
    19,192Printing,
      postage and other
    
    
    
    
    
    5,213
    
    
    14,717
    
    
    13,445
    
    
    20,740TOTAL
      EXPENSES
    
    
    
    
    
    142,039
    
    
    431,862
    
    
    161,553
    
    
    449,978Loss
      from operations
    
    
    
    
    
    (104,873
    )
    
    (302,369
    )
    
    (115,438
    )
    
    (300,534
    )Equity
      in loss of investment in local partnerships
    
    
    3
    
    
    (34,410
    )
    
    (239,565
    )
    
    (38,902
    )
    
    (126,192
    )**NET
      LOSS**
    
    
    
    
    
    (139,283
    )
    
    (541,934
    )
    
    (154,340
    )
    
    (426,726
    )Other
      comprehensive loss
    
    
    2
    
    
    (24,731
    )
    
    (98,226
    )
    
    (55,242
    )
    
    (64,585
    )**COMPREHENSIVE
      LOSS**
    
    
    
    
    $
    (164,014
    )
    $
    (640,160
    )
    $
    (209,582
    )
    $
    (491,311
    )**NET
      LOSS ATTRIBUTABLE TO**General
      partner
    
    
    
    
    $
    (1,392
    )
    $
    (5,419
    )
    $
    (1,543
    )
    $
    (4,267
    )Limited
      partners
    
    
    
    
    
    (137,891
    )
    
    (536,515
    )
    
    (152,797
    )
    
    (422,459
    )$
    (139,283
    )
    $
    (541,934
    )
    $
    (154,340
    )
    $
    (426,726
    )**NET
      LOSS**per
      unit of limited partnership interest(35,883 units of limited
      partnership interest)
    
    
    
    
    $
    (3.84
    )
    $
    (14.95
    )
    $
    (4.25
    )
    $
    (11.77
    )
 See Notes
to Financial Statements.
 
 4
  
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 **STATEMENTS
OF CASH FLOWS**
 **NINE
MONTHS ENDED DECEMBER 30, 2004 AND 2003**
 **(UNAUDITED)**
  **2004**
    
    
    **2003**Interest
      received
    
    $
    46,677
    
    $
    67,461Cash
      paid foradministration fees
    
    
    (183,489
    )
    
    (13,622
    )management fees
    
    
    (220,781
    )
    
    (158,663
    )professional fees
    
    
    (68,929
    )
    
    (65,872
    )State of New Jersey filing fee
    
    
    (24,995
    )
    
    (38,384
    )printing, postage and other expenses
    
    
    (16,717
    )
    
    (20,738
    )Net
      cash used in operating activities
    
    
    (468,234
    )
    
    (229,818
    )**CASH
      FLOWS FROM INVESTING ACTIVITIES**Maturities/redemptions
      and sales of bonds
    
    
    401,193
    
    
    204,500Cash
      distributions from local partnerships
    
    
    42,955
    
    
    36,070Net
      cash provided by investing activities
    
    
    444,148
    
    
    240,570Net
      increase (decrease) in cash and cash equivalents
    
    
    (24,086
    )
    
    10,752Cash
      and cash equivalents at beginning of period
    
    
    103,242
    
    
    109,550**CASH
      AND CASH EQUIVALENTS AT END OF PERIOD**
    
    $
    79,156
    
    $
    120,302**SIGNIFICANT
      NON-CASH INVESTING ACTIVITIES**Unrealized
      loss on investments in bonds, net
    
    $
    (98,226
    )
    $
    (64,585
    )
   See
reconciliation of net loss to net cash used in operating activities on page
6.
 
 See Notes
to Financial Statements.
 5
  **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 **STATEMENTS
OF CASH FLOWS - (Continued)**
 **NINE
MONTHS ENDED DECEMBER 30, 2004 AND 2003**
 **(UNAUDITED)**
 
 **2004**
    
    
    **2003****RECONCILIATION
      OF NET LOSS TO NET CASH USED IN OPERATING
    ACTIVITIES**Net
      loss
    
    $
    (541,934
    )
    $
    (426,726
    )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesEquity
      in loss of investment in local partnerships
    
    
    239,565
    
    
    126,192Gain
      on sale of bond
    
    
    (1,193
    )
    
    (4,792
    )Distributions
      from local partnerships classified as other income
    
    
    (32,955
    )
    
    (25,110
    )Amortization
      of net premium on investments in bonds
    
    
    3,448
    
    
    2,930Accretion
      of zero coupon bonds
    
    
    (65,165
    )
    
    (65,165
    )Decrease
      in interest receivable
    
    
    13,049
    
    
    10,154Decrease
      in accounts payable and accrued expenses
    
    
    (140,637
    )
    
    (20,874
    )Increase
      in payable to general partner and affiliates
    
    
    57,588
    
    
    173,573**NET
      CASH USED IN OPERATING ACTIVITIES**
    
    $
    (468,234
    )
    $
    (229,818
    )
 
 See Notes
to Financial Statements.
  
 6
 
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 **NOTES
TO FINANCIAL STATEMENTS**
 **DECEMBER
30, 2004**
 **(UNAUDITED)**
 
 
 **1.** **Basis
of Presentation**
 
 The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information. They do not include all information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. The results of operations
are impacted significantly by the combined results of operations of the Local
Partnerships, which are provided by the Local Partnerships on an unaudited basis
during interim periods. Accordingly, the accompanying financial statements are
dependent on such unaudited information. In the opinion of the General Partner,
the financial statements include all adjustments necessary to present fairly the
financial position as of December 30, 2004 and the results of operations and
cash flows for the interim periods presented. All adjustments are of a normal
recurring nature. The results of operations for the three and nine month periods
ended December 30, 2004 are not necessarily indicative of the results that may
be expected for the entire year.
 
 Certain
prior period Local Partnership amounts reflected in Note 3 have been
reclassified to conform to the current period presentation.
 
 
 **2.** **Investments
in Bonds**
 
 As of
December 30, 2004, certain information concerning investments in bonds is as
follows:
 
 Description
      and maturity
    
    
    Amortizedcost
    
    
    Gross
      unrealized gains
    
    
    Gross
      unrealized
      losses
    
    
    Estimated
      fair
      valueCorporate
      debt securitiesAfter
      one year through five years
    
    $
    504,923
    
    $
    46,621
    
    $
    --
    
    $
    551,544U.S.
      Treasury debt securitiesAfter
      one year through five years
    
    
    1,568,806
    
    
    78,299
    
    
    --
    
    
    1,647,105$
    2,073,729
    
    $
    124,920
    
    $
    --
    
    $
    2,198,649
 
 
 7
 ****
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 **NOTES
TO FINANCIAL STATEMENTS - (Continued)**
 **DECEMBER
30, 2004**
 **(UNAUDITED)**
 
 
 **3.** **Investment
in Local Partnerships**
 
 The
Partnership owns limited partnership interests in forty-three Local Partnerships
representing capital contributions in the aggregate amount of $29,264,476, all
of which have been paid. As of September 30, 2004, the Local Partnerships have
outstanding mortgage loans payable totaling approximately $82,295,000 and
accrued interest payable on such loans totaling approximately $4,705,000, which
are secured by security interests and liens common to mortgage loans on the
Local Partnerships’ real property and other assets.
 
 For the
nine months ended December 30, 2004, the investment in local partnerships
activity consists of the following:
 
 Investment
      in local partnerships as of March 30, 2004
    
    $
    1,008,882Equity
      in loss of investment in local partnerships
    
    
    (239,565
    )
    *Cash
      distributions received from Local Partnerships
    
    
    (42,955
    )Cash
      distributions from Local Partnerships classified as other
      income
    
    
    32,955Investment
      in local partnerships as of December 30, 2004
    
    $
    759,317
 
 
 *Equity
in loss of investment in local partnerships is limited to the Partnership's
investment balance in each Local Partnership; any excess is applied to other
partners' capital in any such Local Partnership. The amount of such excess
losses applied to other partners' capital was $1,998,244
for the nine months ended September 30, 2004 as reflected in the combined
statement of operations of the Local Partnerships reflected herein Note
3.
 
 As of
September 30, 2004, Westminster Apartments Limited Partnership (“Westminster”)
was in default under the terms of its first mortgage; payments of principal,
interest and replacement reserve deposits are over five years in arrears,
resulting in a cumulative arrearage of approximately $552,000. The lender has
indicated a willingness to restructure the debt, whereby payments will be
required only to the extent that Westminster generates available annual cash
flow; in addition, the lender would receive all residual proceeds upon the sale
of Westminster. There can be no assurance that the issues will be resolved and
the mortgage remains in default without a formal forbearance as of February 9,
2005.
 
 The
combined unaudited balance sheets of the Local Partnerships as of September 30,
2004 and December 31, 2003 and the combined unaudited statements of operations
of the Local Partnerships for the three and nine month periods ended September
30, 2004 and 2003 are reflected on pages 9 and 10, respectively.
 
 8
 
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 **NOTES
TO FINANCIAL STATEMENTS - (Continued)**
 **DECEMBER
30, 2004**
 **(UNAUDITED)**
 
 
 **3.** **Investment
in Local Partnerships (continued)**
 
 The
combined balance sheets of the Local Partnerships as of September 30, 2004 and
December 31, 2003 are as follows:
 
 ****
    
    
        **September
      30,**
    
    
        **December
      31,****2004**
    
    
    **2003****ASSETS**Cash
      and cash equivalents
    
    $
    1,180,390
    
    $
    1,204,402Rents
      receivable
    
    
    526,838
    
    
    420,753Escrow
      deposits and reserves
    
    
    5,879,686
    
    
    5,673,980Land
    
    
    3,910,215
    
    
    3,910,215Buildings
      and improvements (net of accumulated depreciation of $54,144,181 and
      $51,152,480)
    
    
    61,017,389
    
    
    63,830,791Intangible
      assets (net of accumulated amortization of $592,101 and
      $527,467)
    
    
    497,265
    
    
    525,341Other
      assets
    
    
    1,430,841
    
    
    1,236,568$
    74,442,624
    
    $
    76,802,050**LIABILITIES
      AND PARTNERS' EQUITY (DEFICIT)**LiabilitiesAccounts
      payable and accrued expenses
    
    $
    1,668,731
    
    $
    1,113,199Due
      to related parties
    
    
    5,287,393
    
    
    5,292,379Mortgage
      loans
    
    
    82,294,802
    
    
    82,968,250Accrued
      interest
    
    
    4,704,870
    
    
    4,414,472Other
      liabilities
    
    
    744,076
    
    
    696,80594,699,872
    
    
    94,485,105Partners’
      equity (deficit)American Tax Credit Properties III L.P.Capital contributions, net of distributions
    
    
    28,776,290
    
    
    28,812,656Cumulative loss
    
    
    (26,620,186
    )
    
    (26,380,621
    )2,156,104
    
    
    2,432,035General
      partners and other limited partnersCapital
      contributions, net of distributions
    
    
    (330,453
    )
    
    (310,121
    )Cumulative
      loss
    
    
    (22,082,899
    )
    
    (19,804,969
    )(22,413,352
    )
    
    (20,115,090
    )(20,257,248
    )
    
    (17,683,055
    )$
    74,442,624
    
    $
    76,802,050
 
 9
 
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 **NOTES
TO FINANCIAL STATEMENTS - (Continued)**
 **DECEMBER
30, 2004**
 **(UNAUDITED)**
 
 
 **3.** **Investment
in Local Partnerships (continued)**
 
 The
combined statements of operations of the Local Partnerships for the three and
nine month periods ended September 30, 2004 and 2003 are as follows:
 
 **Three
      Months**
      **Ended**
          **September
            30,**
    
    
        **Nine
      Months**
      **Ended**
      **September
      30,**
    
    
        **Three
      Months**
      **Ended**
      **September
      30,**
    
        **Nine
      Months**
          **Ended**
      **September
      30,****2004**
    
    
    **2004**
    
    
    **2003**
    
    **2003****REVENUE**Rental
    
    $
    2,925,633
    
    $
    8,774,705
    
    $
    2,907,335
    
    $
    8,658,207Interest
      and other
    
    
    4,529
    
    
    185,342
    
    
    68,690
    
    
    222,063TOTAL
      REVENUE
    
    
    2,930,162
    
    
    8,960,047
    
    
    2,976,025
    
    
    8,880,270**EXPENSES**Administrative
    
    
    654,346
    
    
    2,183,870
    
    
    615,837
    
    
    1,880,039Utilities
    
    
    229,514
    
    
    972,340
    
    
    239,330
    
    
    878,698Operating
      and maintenance
    
    
    706,181
    
    
    2,292,160
    
    
    710,363
    
    
    1,998,860Taxes
      and insurance
    
    
    308,772
    
    
    940,641
    
    
    275,975
    
    
    876,948Financial
    
    
    695,772
    
    
    2,070,664
    
    
    731,581
    
    
    2,203,914Depreciation
      and amortization
    
    
    998,824
    
    
    3,017,867
    
    
    1,018,758
    
    
    3,075,848TOTAL
      EXPENSES
    
    
    3,593,409
    
    
    11,477,542
    
    
    3,591,844
    
    
    10,914,307**NET
      LOSS**
    
    $
    (663,247
    )
    $
    (2,517,495
    )
    $
    (615,819
    )
    $
    (2,034,037
    )**NET
      LOSS ATTRIBUTABLE TO**American
      Tax Credit Properties III L.P.
    
    $
    (34,410
    )
    $
    (239,565
    )
    $
    (38,902
    )
    $
    (126,192
    )General
      partners and other limited partners, which includes $520,102,
      $1,998,244, $611,945 and $1,812,830 of Partnership loss in excess of
      investment
    
    
    (628,837
    )
    
    (2,277,930
    )
    
    (576,917
    )
    
    (1,907,845
    )$
    (663,247
    )
    $
    (2,517,495
    )
    $
    (615,819
    )
    $
    (2,034,037
    )
 
 The
combined results of operations of the Local Partnerships for the three and nine
month periods ended September 30, 2004 are not necessarily indicative of the
results that may be expected for an entire operating period.
 
 
 **4.** **Additional
Information** Additional
information, including the audited March 30, 2004 Financial Statements and the
Organization, Purpose and Summary of Significant Accounting Policies, is
included in the Partnership's Annual Report on Form 10-K for the fiscal year
ended March 30, 2004 on file with the Securities and Exchange Commission.
 
 ****
 10
 
 AMERICAN TAX CREDIT PROPERTIES III
L.P.
 
 **Item
2.** **Management’s
Discussion and Analysis of Financial Condition and Results of
Operations**
 
 Material
Changes in Financial Condition
 
 As of
December 30, 2004, American Tax Credit Properties III L.P. (the “Registrant”)
has not experienced a significant change in financial condition as compared to
March 30, 2004. Principal changes in assets are comprised of periodic
transactions and adjustments and equity in loss from operations of the local
partnerships (the “Local Partnerships”), which own low-income multifamily
residential complexes (the “Properties”) which qualify for the low-income tax
credit in accordance with Section 42 of the Internal Revenue Code (the
“Low-income Tax Credit”). During the nine months ended December 30, 2004,
Registrant received cash from interest revenue, maturities/redemptions and sales
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 $461,000 during the nine months
ended December 30, 2004 (which includes a net unrealized loss on investments in
bonds of approximately $98,000, accretion of zero coupon bonds of approximately
$65,000 and amortization of net premium of investments in bonds of approximately
$3,000). Notwithstanding
circumstances that may arise in connection with the Properties, Registrant does
not expect to realize significant gains or losses on its investments in bonds,
if any. During
the nine months ended December 30, 2004, the investment in local partnerships
decreased as a result of Registrant’s equity in the Local Partnerships’ net loss
for the nine months ended September 30, 2004 of $239,565 and cash
distributions re ceived
from Local Partnerships of $10,000  (exclusive
of distributions from Local Partnerships of $32,955  classified
as other income). Accounts payable and accrued expenses includes deferred
administration fees of $672,673 and payable to general partner and affiliates
represents deferred management and administration fees in the accompanying
balance sheet as of December 30, 2004.
 
 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 3 to Registrant’s financial
statements include the operating results of all Local Partnerships, irrespective
of Registrant’s investment balances.
 
 Cumulative
losses and cash distributions in excess of investment in local partnerships may
result from a variety of circumstances, including a Local Partnership's
accounting policies, subsidy structure, debt structure and operating deficits,
among other things. In addition, the book value of Registrant’s investment in
each Local Partnership (the “Local Partnership Carrying Value”) may be reduced
if 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 three months ended December 30, 2004 and 2003 resulted in net
losses of $ 139,283 and
$154,340 respectively. Other comprehensive loss for the three months ended
December 30, 2004 and 2003 resulted from a net unrealized loss on investments in
bonds of $24,733 and $55,242, respectively.
 
 The Local
Partnerships’ net loss of approximately $663,000 for the three months ended
September 30, 2004 was attributable to rental and other revenue of approximately
$2,930,000, exceeded by operating and interest expenses (including interest on
non-mandatory debt) of approximately $2,594,000 and approximately $999,000 of
depreciation and amortization expense. The Local Partnerships’ net loss of
approximately $616,000 for the three months ended September 30, 2003 was
attributable to rental and other revenue of approximately $2,976,000, exceeded
by operating and interest expenses (including interest on non-mandatory debt) of
approximately $2,573,000 and approximately $1,019,000 of depreciation and
amortization expense. The results of operations of the Local Partnerships for
the three months ended September 30, 2004 are not necessarily indicative of the
results that may be expected in future periods.
 
 11
 
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 
 **Item
2.** **Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)**
 
 Registrant’s
operations for the nine months ended December 30, 2004 and 2003 resulted in net
losses of $541,934 and $426,726, respectively. The increase in net loss is
primarily attributable to an increase in equity in loss of investment in local
partnerships of approximately $113,000, which increase is primarily attributable
to an increase in the net operating losses of certain Local Partnerships in
which Registrant continues to have an investment balance . Other
comprehensive loss for the nine months ended December 30, 2004 and 2003 resulted
from a net unrealized loss on investments in bonds of $98,228 and $64,585,
respectively.
 
 The Local
Partnerships’ net loss of approximately $2,517,000
for the nine months ended September 30, 2004 was attributable to rental and
other revenue of approximately $8,960,000, exceeded by operating and interest
expense (including interest on non-mandatory debt) of approximately $8,460,000
and approximately $3,018,000 of depreciation and amortization expense. The Local
Partnerships’ net loss of approximately $2,034,000 for the nine months ended
September 30, 2003 was attributable to rental and other revenue of approximately
$8,880,000, exceeded by operating and interest expense (including interest on
non-mandatory debt) of approximately $7,838,000 and approximately $3,076,000 of
depreciation and amortization expense. The results of operations of the Local
Partnerships for the nine months ended September 30, 2004 are not necessarily
indicative of the results that may be expected in future periods.
 
 Local
Partnership Matters
 
 Registrant's
primary objective is to provide Low-income Tax Credits to limited partners
generally over a ten year period. The relevant state tax credit
agenc ies have
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 was substantially 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. A Local Partnership 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, 2004, none of the Local
Partnerships have reported an event of recapture of Low-income Tax
Credits.
 
 The
Properties are principally comprised of subsidized and leveraged low-income
multifamily residential complexes located throughout the United States and
Puerto Rico. Many of the Local Partnerships receive rental subsidy payments,
including payments under Section 8 of Title II of the Housing and Community
Development Act of 1974 ("Section 8"). The subsidy agreements expire at various
times during and after the Compliance Periods of the Local Partnerships. 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. Two Local Partnerships’ 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 nine months ended September 30, 2004, revenue from
operations of the Local Partnerships have generally been sufficient to cover
operating expenses
and Mandatory Debt Service. Most of the Local Partnerships are effectively
operating at or above break even levels,
 
 
 12
 ****
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 
 **Item
2.**  **Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)**
 
 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 September 30, 2004,
Westminster was in default under the terms of its first mortgage; payments of
principal, interest and replacement reserve deposits are over five years in
arrears, resulting in a cumulative arrearage of approximately $552,000. The
lender has indicated a willingness to restructure the debt, whereby payments
will be required only to the extent that Westminster generates available annual
cash flow; in addition, the lender would receive all residual proceeds upon the
sale of Westminster. There can be no assurance that the issues will be resolved
and the mortgage remains in default without a formal forbearance as of February
9, 2005. Westminster reported an operating deficit of approximately $60,000 for
the nine months ended September 30, 2004, 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 generated approximately $63.2 per Unit to the limited partners upon
the expiration of its Low-income Tax Credit allocation in 2003.
 
 The terms
of the partnership agreement of Queen
Lane Investors (“Queen Lane”) require
the Local General Partner to cause the management agent to defer property
management fees in order to avoid a default under the mortgage. Queen Lane
reported an operating deficit of approximately $19,000 for the nine months ended
September 30, 2004, which includes property management fees of approximately
$11,000. Queen Lane and its lender reached an agreement whereby all principal
and interest due under the terms of the first mortgage were deferred for the
period August 1, 2003 through December 31, 2004 (resulting
in savings of approximately $31,000 for the nine months ended September 30,
2004), with
payments to commence on January 1, 2005 utilizing a new amortization schedule.
Effective February 1, 2004, Queen Lane received an increase in its housing
assistance payment contract rents, representing an annual rent increase of
approximately $81,000 through January 2006. In addition, effective May 1, 2004,
the interest rate on the first mortgage was reduced, resulting in an annual
savings of approximately $8,000. The Local General Partner represents that
payments on the real estate taxes are current. Registrant’s investment balance
in Queen Lane, after cumulative equity losses, became zero during the year ended
March 30, 2001. Queen Lane generated approximately $29.3 per Unit to the limited
partners upon the expiration of its Low-income Tax Credit allocation in
2001.
 
 The terms
of the partnership agreement of Christian Street Commons Associates (“Christian
Street”) require the Local General Partner to advance funds to cover all
operating deficits through the Compliance Period and to cause the management
agent to defer property management fees in order to avoid a default under the
mortgage. Christian Street reported an operating deficit of approximately
$10,000 for the nine months ended September 30, 2004, which includes property
management fees of approximately $4,000. As of September 30, 2004, the Local
General Partner has advanced approximately $118,000 under its Deficit Guarantee
obligation and it represents that payments on the mortgage and real estate taxes
are current. Registrant’s investment balance in Christian Street, after
cumulative equity losses, became zero during the year ended March 30, 1998.
Christian Street generated approximately $32.1 per Unit to the limited partners
upon the expiration of its Low-income Tax Credit allocation in
2002.
 
 The terms
of the partnership agreement of Sydney Engel Associates L.P. (“Sydney Engel”)
require the Local General Partners 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 $145,000 for the nine
months ended September 30, 2004, which includes property management fees of
approximately $64,000. The Local General Partners report that payments on the
mortgage are current and the Property does not incur real estate taxes.
Registrant’s investment balance in Sydney Engel, after cumulative equity losses,
became zero during the year ended March 30, 1997. Sydney Engel generated
approximately $145.0 per Unit to the limited partners upon the expiration of its
Low-income Tax Credit allocation in 2001.
 
 Fulton
Street Houses Limited Partnership (“Fulton Street”) has an escrow of
approximately $320,000 as of September 30, 2004 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 $22,000 for the nine months ended September 30, 2004. 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.
  13
 
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 
 
 **Item
2.**  **Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)**
 
 The terms
of the partnership agreement of Orange City Plaza Limited Partnership (“Orange
City”) require
the Local General Partner to advance funds to cover all operating deficits
through the Compliance Period and to cause the management agent to defer
property management fees in order to avoid a default under the
mortgage. Orange
City reported an operating deficit of approximately $9,000 for the nine months
ended September 30, 2004, which includes property management fees of
approximately $3,000. The Local General Partner represents that payments on the
mortgage and real estate taxes are current. Registrant’s
investment balance in Orange City, after cumulative equity losses, became zero
during the year ended March 30, 2002. Orange City generated approximately $24.8
per Unit to the limited partners upon the expiration of its Low-income Tax
Credit allocation in 2002.
 
 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. 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.
 
 ·
    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.
 
 ·
    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.
 
 
 **Item
3.** **Quantitative
and Qualitative Disclosure About Market Risk**
 
 Registrant
has invested a significant portion of its working capital reserves in corporate
bonds and U.S. Treasury instruments. The market value of such investments is
subject to fluctuation based upon changes in interest rates relative to each
investment’s maturity date 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 pay for its operating
expenses and/or 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.
 
 
 **Item
4.** **Controls
and Procedures**
 
 As of
December 30, 2004, under the direction of the Chief Executive Officer and Chief
Financial Officer, Registrant evaluated the effectiveness of its disclosure
controls and procedures and internal controls over financial reporting and
concluded that (i) Registrant’s disclosure controls and procedures were
effective as of December 30, 2004, and (ii) no changes occurred during the
quarter ended December 30, 2004 that materially affected, or are reasonably
likely to materially affect, such internal controls.
 
 14
 
 
 **AMERICAN
TAX CREDIT PROPERTIES III L.P.**
 
 **Part
II -** **OTHER
INFORMATION**
 
 **Item
1.** **Legal
Proceedings**
 
 Registrant
is not aware of any material legal proceedings.
 
 **Item
2.**  **Unregistered
Sales of Equity Securities and Use of Proceeds**
 
 None
 
 **Item
3.** **Defaults
Upon Senior Securities**
 
 None; see
Item 5 below regarding the mortgage default of a Local Partnership.
 
 **Item
4.** **Submission
of Matters to a Vote of Security Holders**
 
 None
 
 **Item
5.** **Other
Information**
 
 As
discussed in Part I, Item 2 - Management’s Discussion and Analysis of Financial
Condition and Results of Operations, the local general partner of Westminster
Apartments Limited Partnership (“Westminster”) reports that Westminster is over
five years in
arrears on its first mortgage obligation as of February 2005. The lender has
indicated a willingness to restructure the debt; t here can
be no assurance that the issues will be resolved and the mortgage remains in
default without a formal forbearance as of February 9, 2005.
 
 **Item
6.** **Exhibits
and Reports on Form 8-K**
 
 a.  Exhibits
 
 Exhibit
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
 Exhibit
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
 Exhibit
32.1 Section 1350 Certification of Chief Executive Officer
 Exhibit
32.2 Section 1350 Certification of Chief Financial Officer
 
 b.  Reports
on Form 8-K
 
 None
 
 15
 ****
 **SIGNATURES**
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 **AMERICAN
      TAX CREDIT PROPERTIES III L.P.**(a
      Delaware limited partnership)By:Richman
      Tax Credit Properties III L.P.,General
      Partnerby:Richman
      Housing Credits Inc.,General
      partnerDated:February
      11, 2005
    
    /s/
      David
      Salzmanby:
      David SalzmanChief
      Executive OfficerDated:February
      11, 2005
    
    /s/
      Neal
      Ludekeby:
      Neal LudekeChief
      Financial Officer
 
 16