<PAGE>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K
<TABLE>
<CAPTION>
<S>  <C>
 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2003
                                       or
 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
           For the transition period from____________ to ____________.
</TABLE>

                         Commission File Number: 0-16343

                         SHELBOURNE PROPERTIES III, INC.
             (Exact name of registrant as specified in its charter)


<TABLE>
<CAPTION>
<S>                                                                                    <C>
                       Delaware                                                        04-3502381
-------------------------------------------------------             --------------------------------------------------
           (State or other jurisdiction of                                (I.R.S. Employer Identification No.)
            incorporation or organization)

             7 Bulfinch Place - Suite 500
                      Boston, MA                                                          02114
-------------------------------------------------------             --------------------------------------------------
       (Address of principal executive offices)                                        (Zip Code)

                                                       617-570-4600
    ---------------------------------------------------------------------------------------------------------
                                   (Registrant's telephone number, including area code)


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
-----------------------------------------------------------

                    TITLE OF EACH CLASS                                NAME OF EXCHANGE ON WHICH REGISTERED
               Common Stock, $0.01 par value                                 American Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
-----------------------------------------------------------

                    TITLE OF EACH CLASS                                NAME OF EXCHANGE ON WHICH REGISTERED
                           None                                                        None
</TABLE>

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 and 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 such filing
requirements for at least the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined by Exchange Act Rule 12b-2).
Yes [ ] No [X]



<PAGE>



As of March 1, 2004, there were 788,772 common shares of beneficial interest
outstanding

At June 30, 2003, the aggregate market value of the common shares of beneficial
interest held by non-affiliates was $8,262,876.


                       DOCUMENTS INCORPORATED BY REFERENCE

None.



                                       2

<PAGE>


                         SHELBOURNE PROPERTIES III, INC.
                    CROSS REFERENCE SHEET PURSUANT TO ITEM G,
                        GENERAL INSTRUCTIONS TO FORM 10-K

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<S>                                                                                                  <C>
    ITEM OF FORM 10-K                                                                                   PAGE

                                                      PART I
    1.      Business                                                                                       5
    2.      Properties                                                                                    17
    3.      Legal Proceedings                                                                             17
    4.      Submission of Matters to a Vote of Security Holders                                           17


                                                     PART II

    5.      Market for Corporation's Common Equity and Related Stockholder Matters                        18
    6.      Selected Financial Data                                                                       20
    7.      Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                                                   22
    7A.     Quantitative and Qualitative Disclosures Regarding Market Risk                                30
    8.      Financial Statements                                                                          31
    8A.     Controls and Procedures                                                                       31
    9.      Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure                                                         31


                                                     PART III

    10.     Directors and Executive Officers of the Corporation                                          32
    11.     Executive Compensation                                                                       34
    12.     Security Ownership of Certain Beneficial Owners and Management                               35
    13.     Certain Relationships and Related Transactions                                               36
    14.     Principal Accountant Fees and Services                                                       39


                                                     PART IV

    15.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K                            40
            (a) Financial Statements and Financial Statement Schedules
            (b) Reports on Form 8-K
            (c) Exhibits

            Signatures                                                                                  42
            Exhibit Index                                                                               44
</TABLE>

                           FORWARD-LOOKING STATEMENTS

         This Form 10-K contains forward-looking statements relating to our
business and financial outlook, which are based on our current expectations,
estimates, forecasts and projections. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other comparable
terminology. These forward-looking statements are not guarantees of future
performance and involve risks, uncertainties, estimates and assumptions that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from those expressed in these forward-looking statements. You should
not place undue reliance on any of these forward-looking statements. Further,
any forward-looking statement speaks only as of the date on which it is made,
and we undertake no obligation to update any such statement to reflect new
information, the occurrence of future events or circumstances or otherwise.

                                       3

<PAGE>

         A number of important factors could cause actual results to differ
materially from those indicated by the forward-looking statements, including,
but not limited to, the risks described under "Item 1. Business - Risk Factors"
in this Form 10-K.

                                       4

<PAGE>


                                     PART I

ITEM 1.  BUSINESS

         In this Form 10-K, the terms "we," "us," "our" and "our company" refer
either to the combined operations of all of Shelbourne Properties III, Inc.,
Shelbourne Properties III GP LLC and Shelbourne Properties III L.P. or to
Shelbourne Properties III, Inc., independently, as the context requires.

                                    OVERVIEW

         Our company, Shelbourne Properties III, Inc., a Delaware corporation
(the "Corporation"), was formed on February 8, 2001 and is engaged in the
business of operating and holding for investment previously acquired
income-producing properties. As of March 24, 2004, the Corporation has sold all
of its real estate and currently only owns an interest in 20 motel properties
that are triple-net leased to an affiliate of Accor S.A. as well as a loan
receivable from Shelbourne Properties II, Inc. See "Corporate History- The
Accotel Transaction" and Related Party Loan Receivable.

         We owned our property portfolio through our directly and indirectly
wholly owned subsidiary, Shelbourne Properties III L.P. (the "Operating
Partnership"), a Delaware limited partnership. The Operating Partnership owned
our property portfolio directly or through joint ventures with affiliated
entities (Shelbourne Properties I L.P. and/or Shelbourne Properties II L.P.).
The general partner of the Operating Partnership is Shelbourne Properties III GP
Inc., a Delaware corporation that is wholly-owned by the Corporation.

         Our primary business objective is to maximize the value of our common
stock. Prior to October 29, 2002, we sought to achieve this objective by
managing our existing properties, making capital improvements to and/or selling
properties and by making additional real estate-related investments. On October
29, 2002, the stockholders of the Corporation adopted a plan of liquidation.
Accordingly, on such date the Corporation was dissolved and has been seeking to
liquidate its assets. Since October 29, 2002, the Corporation has sold all of
its properties. They were located in Livonia, Michigan; New York, New York;
Hilliard, Ohio; Melrose Park, Illinois; Indianapolis, Indiana; Grove City, Ohio;
Las Vegas, Nevada; and Orange, Ohio.

         Our Board of Directors currently consists of six directors. See
"Employees" below for information relating to the provision by affiliates of
property management services, asset management services, investor relation
services and accounting services to us.

         The Corporation has operated with the intention of qualifying as a real
estate investment trust for U.S. Federal Income Tax purposes ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986 as amended. Under those
sections, a REIT which pays at least 90% of its ordinary taxable income as a
dividend to its stockholders each year and which meets certain other conditions
will not be taxed on that portion of its taxable income which is distributed to
its stockholders.

         We have adopted a plan of liquidation that requires us to liquidate all
of our assets and liabilities by October 29, 2004. Dividends paid during our
liquidation generally will not be taxable to the stockholder until the dividends
paid exceed the adjusted tax basis in the stockholder's shares, and then will be
taxable as long-term capital gain assuming the shares as capital assets have
been held for more than 12 months when the stockholder receives the dividend as
a result of the adoption of the plan of liquidation. As a result of the sale of
substantially all of our assets and in light of the costs associated with
maintaining a public company, it is expected that our remaining assets will be
transferred to a liquidating trust as early as April 2004 and in lieu of owning
shares, each stockholder will own a beneficial interest of an equivalent
percentage in the liquidating trust. In this regard, on March 17, 2004, the
holder of the Class A Units agreed to retain its beneficial ownership of the
motel properties and relinquish its right to require the acquisition of other
properties, thereby enabling the Corporation to set up liquidating trusts to
complete its liquidation as early as April 16, 2004. See, "Property
Sales/Acquistions-The Accotel Transaction" below. Accordingly, at such time as
the assets of the Corporation are distributed to a liquidating trust, which is
presently expected to be April 16, 2004, the transferability of interests in the
trust will be significantly restricted as compared to the shares in the
Corporation, and the stockholders, as holders of beneficial interests, will be
required to include in their own income their pro rata share of the trust's
taxable income whether or not that amount is actually distributed

                                       5
<PAGE>


by the trust in that year. Further, for federal income tax purposes, on April
16, 2004, each stockholder of the Corporation on the Record Date will be deemed
to have received a pro rata share of the assets of the Corporation to be
transferred to the Liquidating Trust, reduced by such stockholder's pro rata
share of the liabilities of the Corporation assumed by the Liquidating Trust.
Based on the estimates used by management to determine net realizable value of
the Corporation's assets at December 31, 2003, the estimated net realizable
value of the Corporation is approximately $5.4 million or $5.80 per common
share. The foregoing estimate is based on the carrying values of the current
assets of the Corporation as well as the current account payables of the
Corporation and estimates as to future costs associated with transferring the
assets to the Liquidating Trust, maintaining the Liquidating Trust and insurance
coverage. Accordingly, the ultimate value realized may be significantly less or
more than the estimated amount.

CORPORATE HISTORY

         Predecessor Partnership. Prior to the merger described below, the owner
of the Corporation's properties was High Equity Partners L.P. - Series 88, a
Delaware limited partnership (the "Predecessor Partnership"). The Predecessor
Partnership was formed as of February 24, 1987. Prior to November 3, 1994 the
Predecessor Partnership's General Partners ("Predecessor General Partners") were
owned and controlled by Integrated Resources, Inc. On November 3, 1994, Presidio
Capital Corporation ("Presidio") acquired the Predecessor General Partners.
Effective July 31, 1998, NorthStar Capital Investment Corp., a Maryland
corporation, acquired control of Presidio.

         In 1989, the Predecessor Partnership made a public offering of 400,000
units of limited partnership interests (the "Units"). Upon final admission of
limited partners, the Predecessor Partnership had accepted subscriptions for
371,766 units for an aggregate of $92,941,500 in gross proceeds, resulting in
net proceeds from the offering of $90,153,255 (gross proceeds of $92,941,500
less organization and offering costs of $2,788,245). Subsequent to the
conversion discussed below, the Units were converted into shares of the
Corporation on a three for one basis. Throughout the rest of this document,
rather than referring to Units, we will refer to shares on an as converted
basis. In August of 1990, $6,305,151.36 in uninvested gross proceeds was
returned to the limited partners as a special distribution of $5.65 per Unit,
resulting in net proceeds from the offering of $83,848,104 (gross proceeds of
$86,636,349 less organization and offering costs of $2,788,245). The Predecessor
Partnership invested substantially all of its total adjusted net proceeds, after
establishing a working capital reserve, in real estate.

         In April 1999, the California Superior Court approved the terms of the
settlement of a class action and derivative litigation involving the Predecessor
Partnership. Under the terms of the settlement, the Predecessor General Partners
agreed to take the actions described below subject to first obtaining the
consent of limited partners to amendments to the Agreement of Limited
Partnership of the Predecessor Partnership (the "Predecessor Partnership
Agreement") summarized below. The settlement became effective in August 1999
following approval of the amendments.

         As amended, the Predecessor Partnership Agreement (a) provided for a
Partnership Asset Management Fee payable to the Predecessor General Partners or
their affiliates commencing with the year ended December 31, 2000 equal to 1.25%
of the Gross Asset Value of the Predecessor Partnership (as defined in that
agreement) and a fixed 1999 Partnership Asset Management Fee of $719,411
($160,993 less than the amount that would have been paid under the pre-amendment
formula) and (b) fixed the amount that the Predecessor General Partners would be
liable to pay to limited partners upon liquidation of the Predecessor
Partnership as repayment of fees previously received (the "Fee Give-Back
Amount"). As amended, the Predecessor Partnership Agreement provided that, upon
a reorganization of the Predecessor Partnership into a REIT or other public
entity, the Predecessor General Partners would have no further liability to pay
the Fee Give-Back Amount. As a result of the conversion of the Predecessor
Partnership into a REIT on April 17, 2001, as described below, the Predecessor
General Partners' liability to pay the Fee Give-Back Amount was extinguished.

         As required by the settlement, an affiliate of the Predecessor General
Partners, Millennium Funding IV, LLC, made a tender offer to limited partners to
acquire up to 25,034 Units (representing approximately 6.7% of the outstanding
Units) at a price of $113.15 per Unit. The offer closed in January 2000 and all
25,034 Units were



                                       6
<PAGE>


acquired in the offer. On a post conversion basis, the tender offer was for the
equivalent of 75,012 shares at a price of $37.71 per share.

         The final requirement of the settlement obligated the Predecessor
General Partners to use their best efforts to reorganize the Predecessor
Partnership into a REIT or other entity whose shares were listed on a national
securities exchange or on the NASDAQ National Market System. A Registration
Statement was filed with the Securities and Exchange Commission on February 11,
2000 with respect to the restructuring of the Predecessor Partnership into a
publicly traded REIT. On or about February 15, 2001 a prospectus/consent
solicitation statement was mailed to the limited partners of the Predecessor
Partnership seeking consent to the reorganization of the Predecessor Partnership
into a REIT.

         The consent of limited partners was sought to approve the conversion of
the Predecessor Partnership into the Operating Partnership. The consent
solicitation expired April 16, 2001, and holders of a majority of the Units
approved the conversion.

         On April 17, 2001, the conversion was accomplished by merging the
Predecessor Partnership into the Operating Partnership. Pursuant to the merger,
each limited partner of the Predecessor Partnership received three shares of
stock of the Corporation for each Unit they owned and the Predecessor General
Partners received an aggregate of 58,701 shares of stock in the Corporation in
exchange for their general partner interests in the Predecessor Partnership. In
connection with the merger, the Company entered into an advisory agreement (the
"Advisory Agreement") with Shelbourne Management, LLC ("Shelbourne Management")
to provide accounting, asset management, treasury, cash management and investor
related services management to the Company. Shelbourne Management is a
wholly-owned subsidiary of Presidio Capital Investment Company, LLC ("PCIC"),
which was also the sole stockholder of Presidio. The Advisory Agreement had a
term of 10 years and provides for fees payable to Shelbourne Management of (1)
the Asset Management Fee previously payable to the Predecessor General Partners
or their affiliates, (2) $200,000 for non-accountable expenses and (3)
reimbursement of expenses incurred in connection with performance of its
services. In addition, Shelbourne Management was entitled to receive a property
management fee equal to up to 6% of property revenues.

         The Presidio Transaction. On February 14, 2002, the Corporation,
Shelbourne Properties I, Inc. and Shelbourne Properties II, Inc. (together the
"Companies") announced the consummation of a transaction (the "Transaction")
whereby the Companies (i) purchased their respective Advisory Agreements and
(ii) repurchased all of the shares of capital stock in the Companies held by
subsidiaries of PCIC (the "PCIC Shares").

         Pursuant to the Transaction, for the Advisory Agreements and the PCIC
Shares, the Companies paid PCIC an aggregate of $44,000,000 in cash, issued
preferred partnership interests in their respective operating partnerships with
a liquidation preference of $2,500,000, and issued notes with a stated amount
between approximately $54,300,000 and $58,300,000, depending upon the timing of
the repayment of the notes. These notes were subsequently satisfied for
$54,300,000 from the proceeds of the Hypo Loan described below.

         Pursuant to the Transaction, the Corporation paid PCIC approximately
$11,800,000 in cash and the Operating Partnership issued preferred partnership
interests (the "Class A Units") with an aggregate liquidation preference of
$672,178 and a note with an aggregate stated amount between approximately
$14,600,000 and $15,700,000, depending upon the timing of the repayment of the
note. This note was subsequently satisfied for approximately $14,600,000 from
the proceeds of the Hypo Loan described below.

         The Transaction was unanimously approved by the Boards of Directors of
each of the Companies at such time after recommendation by their respective
Special Committees comprised of the Companies' three independent directors.

         Houlihan Lokey Howard & Zukin Capital served as financial advisor to
the Special Committees of the Companies and rendered a fairness opinion to the
Special Committees with respect to the Transaction.

         The foregoing description of the Transaction does not purport to be
complete, and it is qualified in its entirety by reference to the Purchase and
Contribution Agreement, dated as of February 14, 2002, the Secured Promissory
Note, dated February 14, 2002 and the Partnership Unit Designations of Class A
Preferred Partnership



                                       7
<PAGE>


Units of Shelbourne Properties III L.P., copies of which are attached as
exhibits to our current report on form 8-K filed on February 14, 2002, and are
incorporated by reference herein.

         The HX Transaction; The Plan of Liquidation. On July 1, 2002, the
Corporation entered into a settlement agreement with respect to certain
outstanding litigation brought by HX Investors, L.P. ("HX Investors") in the
Chancery Court of Delaware against the Companies. At the same time, the
Companies entered into a letter agreement settling other outstanding litigation
brought by stockholders against the Companies, subject to approval by the court
of a stipulation of settlement. In connection with the settlements, the
Corporation entered into a stock purchase agreement (the "Stock Purchase
Agreement") with HX Investors and Exeter Capital Corporation ("Exeter"), the
general partner of HX Investors, pursuant to which HX Investors, the then owner
of approximately 12% of the outstanding common stock of the Corporation, was
granted a waiver by the Corporation from the stock ownership limitation (8% of
the outstanding shares) set forth in the Corporation's Certificate of
Incorporation to permit HX Investors to acquire up to 42% of the outstanding
shares of the Corporation's common stock and HX Investors agreed to conduct a
tender offer for up to an additional 30% of the Corporation's outstanding stock
at a price per share of $49.00 (the "HX Investors Offer"). The tender offer
commenced on July 5, 2002 following the filing of the required tender offer
documents with the Securities and Exchange Commission by HX Investors. In
addition, pursuant to the terms of the settlement, Shelbourne Management agreed
to pay to HX Investors 42% of the amounts paid to Shelbourne Management with
respect to the Class A Units.

         Pursuant to the Stock Purchase Agreement, the board of directors of the
Corporation approved a plan of liquidation for the Corporation (the "Plan of
Liquidation") and agreed to submit the Plan of Liquidation to its stockholders
for approval. HX Investors agreed to vote all of its shares in favor of the Plan
of Liquidation. Under the Plan of Liquidation, HX Investors was to receive an
incentive payment (the "Incentive Fee") of 25% of gross proceeds after the
payment of a priority return of approximately $52.25 per share was made to the
stockholders of the Corporation.

         Subsequently, on July 29, 2002, Longacre Corp. ("Longacre"), commenced
a lawsuit individually and derivatively against the Companies, their boards, HX
Investors, and Exeter seeking preliminary and permanent injunctive relief and
monetary damages based on purported violations of the securities laws and
mismanagement related to the tender offer by HX Investors, the Stock Purchase
Agreement, and the Plan of Liquidation. The suit was filed in federal district
court in New York, New York. On August 1, 2002, the court denied Longacre's
motion for a preliminary injunction, and the court dismissed the lawsuit on
September 30, 2002, at the request of Longacre.

         Contemporaneous with filing its July 29, 2002 lawsuit, Longacre
publicly announced that its related companies, together with outside investors,
were prepared to initiate a competing tender offer for the same number of shares
of common stock of the Corporation as were tendered for under the HX Investors
Offer, at a price per share of $53.90. Over the course of the next several days,
Longacre and HX Investors submitted competing proposals to the board of
directors of the Corporation and made those proposals public. On August 4, 2002,
Longacre notified the Corporation that it was no longer interested in proceeding
with its proposed offer.

         On August 5, 2002, the Corporation entered into an amendment to the
Stock Purchase Agreement. Pursuant to the terms of the amendment, the purchase
price per share offered under the HX Investors Offer was increased from $49.00
to $58.30. The amendment also reduced the Incentive Fee payable to HX Investors
under the Plan of Liquidation from 25% to 15% of gross proceeds after payment of
the approximately $52.25 per share priority return to stockholders of the
Corporation plus interest thereon compounded quarterly at 6% per annum, and
included certain corporate governance provisions. The Priority Return to
stockholders, as of January 8, 2004, was $5.51 per share and was satisfied on
that date.

         On August 16, 2002, the HX Investors Offer expired and HX Investors
acquired 236,631 shares representing 30% of the outstanding shares.

         On August 19, 2002, as contemplated by the Stock Purchase Agreement,
the existing Board of Directors and executive officer of the Corporation
resigned, and the Board was reconstituted to consist of six members, four of
whom are independent directors. In addition, new executive officers were
appointed.



                                       8
<PAGE>

         Also on August 19, 2002, the Board of Directors of the Corporation
authorized the issuance by the Operating Partnership of Class B Units to HX
Investors which Class B Units were to be issued in full satisfaction of the
Incentive Fee. The Class B Units provide distribution rights to HX Investors
consistent with the intent and financial terms of the incentive payment provided
for in Stock Purchase Agreement described above. On August 19, 2002, the
Operating Partnership issued the Class B Units to HX Investors in full
satisfaction of the Incentive Fee otherwise required under the Plan of
Liquidation.

         On October 29, 2002, the stockholders of the Corporation approved the
Plan of Liquidation. As a result, the Operating Partnership has sold all of its
properties. Since the adoption of the plan of liquidation, the Corporation has
paid or accrued dividends totaling $61.86 as follows: $8.25 per share on
November 21, 2002, $2.50 per share on January 31, 2003, $36.00 per share on
March 18, 2003, $1.90 per share on July 9, 2003 and declared a dividend on
December 16, 2003 of $13.21 per share. The dividend was paid on January 8, 2004
to stockholders of record at the close of business December 26, 2003. Pursuant
to the Plan of Liquidation, if all of the assets of the Corporation are not
disposed of prior to October 29, 2004, the remaining assets will be placed in a
liquidating trust and the stockholders of the Corporation will receive a
beneficial interest in such trust in total redemption of their shares in the
Corporation.

         The foregoing description of Stock Purchase Agreement is qualified in
its entirety by reference to such agreement, a copy of which is attached as an
exhibit to the Corporation's Current Reports on Form 8-K filed on July 2, 2002
and August 5, 2002, which is incorporated herein by reference. The foregoing
description of Plan of Liquidation is qualified in its entirety by reference to
the Plan of Liquidation, a copy of which is attached as an exhibit to the
Corporation's Definitive Proxy Statement filed on September 29, 2002, which is
incorporated herein by reference.

FINANCINGS

         The Hypo Loan. On May 1, 2002, the operating partnerships of the
Companies and certain of the operating partnerships' subsidiaries entered into a
$75,000,000 revolving credit facility with Bayerische Hypo-Und Vereinsbank AG,
New York Branch, as agent for itself and other lenders (the "Credit Facility" or
"Hypo Loan"). The Credit Facility was subsequently satisfied on February 20,
2003 from proceeds of the Fleet Loan. See "Fleet Loan" below.

         The Fleet Loan. Under the terms of the Credit Facility, upon the sale
of the New York, New York property which was sold on February 28, 2003, the
proceeds from such sale would first have been required to satisfy the Credit
Facility. As a result, upon the sale of the New York property, the Corporation
risked not being able to satisfy the requirements to maintain its REIT status as
it was likely that dividends in 2003, absent unforeseeable occurrences, would
not have been equal to at least 90% of the Corporation's ordinary taxable
income. Accordingly, on February 20, 2003, in a transaction designed to
alleviate this problem as well as provide flexibility to the Companies in
implementing their respective plans of liquidation, direct and indirect
subsidiaries (the "Borrowers") of each of the Companies entered into a Loan
Agreement with Fleet National Bank, as agent for itself and other lenders
("Fleet") pursuant to which the Borrowers obtained a $55,000,000 Fleet Loan (the
"Fleet Loan"). The entering into of this Loan transaction enabled 100% of the
net proceeds from the sale of its 568 Broadway Joint Venture (the New York
property) to be paid as a dividend by the Corporation as the New York property
was not security for the Fleet Loan.



                                       9
<PAGE>

         The Borrowers were jointly and severally liable for the repayment of
the amounts due under the Fleet Loan and the Operating Partnership and the
Corporation (as well as the other operating partnerships and Companies) have
guaranteed the repayment of the Fleet Loan. The proceeds of the Fleet Loan were
used to satisfy the Credit Facility that had a balance due of $37,417,249. The
Credit Facility was satisfied by delivery of $27,417,249 in cash and a
$10,000,000 note from 568 Broadway Joint Venture (the "568 Note"), which note
was then acquired by Manufacturers Traders and Trust Company. In connection with
the assignment of the 568 Note, the purchase agreement with respect to the
property held by 568 Joint Venture was amended to provide that the buyer would
acquire the property subject to the 568 Note and would receive a credit of
$10,000,000 at closing. After satisfying the Credit Facility, establishing a
capital improvements reserve of $5,000,000 in the aggregate ($1,000,000 of which
is allocable to the Corporation), a $10,000,000 reserve ($2,215,000 of which is
allocable to the Corporation) to be released upon the earlier of the sale of the
568 Property or the satisfaction of the 568 Note and costs associated with
consummating the Fleet Loan, the net proceeds received by the Companies was
approximately $11,000,000 in the aggregate, which proceeds, together with the
$10,000,000 reserve that was released from escrow on March 3, 2003, were paid to
stockholders as part of the March 2003 dividend.

         The Fleet Loan was subsequently satisfied on December 11, 2003 from the
proceeds of the sales of properties owned by the Corporation, Shelbourne
Properties I, Inc., and Shelbourne Properties II, Inc., as mandated by the plan
of liquidation. In addition, the remaining balance in the capital improvements
reserve of $4,260,819 was also released at that date of which $1,002,397 was
allocable to the Corporation.

RELATED PARTY LOAN RECEIVABLE

       In connection with the Fleet Loan financing, the Corporation, Shelbourne
Properties I, Inc. and Shelbourne Properties II, Inc. entered into Indemnity,
Contribution and Subrogation Agreements, the purpose and intent of which was to
place operating partnerships in the same position (as among each other) as each
would have been had the lender made three separate loans. Under the terms of the
Fleet Loan, the Corporation was required to utilize a portion of its proceeds
generated by property sales to make principal payments on the Fleet Loan on
behalf of Shelbourne Properties II, Inc. and Shelbourne Properties I, Inc. In
accordance with the terms of the Indemnity, Contribution and Subrogation
Agreements, the portion of the principal payments made by the Corporation that
were allocable to Shelbourne Properties II, Inc. were recorded as a loan
receivable. The loan due from Shelbourne Properties II, Inc. is secured by
Shelbourne Properties II, Inc.'s interests in the entities that own its
properties and requires payments of interest under the same terms as the Fleet
Loan, which is LIBOR plus 2.75% (3.875% at December 31, 2003). The principal and
accrued interest due to the Corporation at December 31, 2003 from Shelbourne
Properties II, Inc. is $5,383,586. On December 11, 2003 the loan due from
Shelbourne Properties I, Inc. was repaid in full to the Corporation.

PROPERTY SALES/ACQUISITIONS

         The Accotel Transaction. As discussed above, in connection with the
Transaction, the Operating Partnership issued the Class A Units to Shelbourne
Management. Pursuant to the terms of the Purchase and Contribution Agreement
pursuant to which the Class A Units were issued, the holder of the Class A Units
had the right to cause the Operating Partnership to purchase the Class A Units
at a substantial premium to their liquidation value ($4,374,000 at the January
15, 2003) unless the Operating Partnership, together with the operating
partnerships of Shelbourne Properties I, Inc. and Shelbourne Properties II, Inc.
(together with the Operating Partnership, the "Shelbourne OPs") maintained at
least approximately $54,200,000 of aggregate indebtedness ($14,574,000 in the
case of the Operating Partnership) guaranteed by the holder of the Class A Units
and secured by assets having an aggregate market value of at least approximately
$74,800,000 ($20,100,000 in the case of the Operating Partnership) (the "Debt
and Asset Covenant"). These requirements significantly impaired the ability of
the Corporation to sell its properties and pay dividends in accordance with the
Plan of Liquidation.

         Accordingly, in a transaction (the "Accotel Transaction") designed to
facilitate the liquidation of the Corporation and provide dividends to
stockholders, on January 15, 2003, a joint venture owned by the Shelbourne OPs
acquired from Realty Holdings of America, LLC, an unaffiliated third party, a
100% interest in an entity that owns 20 motel properties triple net leased to an
affiliate of Accor S.A. The cash purchase price, which was provided from working
capital, was $2,668,272, of which $867,806, $1,079,675 and $720,791 was paid by
Shelbourne



                                       10
<PAGE>


Properties I L.P., Shelbourne Properties II L.P. and the Operating Partnership,
respectively. The properties were also subject to existing mortgage indebtedness
in the principal amount of approximately $74,220,000.

         The Accor S.A. Properties were acquired for the benefit of the holder
of the Class A Units as they provide sufficient debt to be guaranteed by the
holder of the Class A Units. Except as indicated below, the Class A Unitholder
will ultimately be the sole owner of the joint venture. In connection with the
Accotel Transaction, the terms of the Class A Units were amended to (i)
eliminate the liquidation preferences (as the cost of the interest in the Accor
S.A. Properties which was borne by the Shelbourne OPs satisfied the liquidation
preference) and (ii) eliminate the Debt and Asset Covenant. The holder of the
Class A Units does, however, continue to have the right, under certain limited
circumstances which the Companies do not anticipate will occur, to cause the
Shelbourne OPs to purchase their respective Class A Units at the premium
described above. These circumstances include the occurrence of the following
while any of the Class A Units are outstanding; (i) the filing of bankruptcy by
a Shelbourne OP; (ii) the failure of a Shelbourne OP to be taxed as a
partnership; (iii) the termination of the Advisory Agreement; (iv) the issuing
of a guaranty by any of the Companies on the debt securing the Accor S.A.
properties; or (v) the taking of any action with respect to the Accor S.A.
properties without the consent of the Class A Unitholder.

         The holder of the Class A Units had the right, which right was to be
exercised by no later than July 28, 2004, to require that the Shelbourne OPs
acquire other properties for the Class A Unitholder's benefit at an aggregate
cash cost to the Shelbourne OPs of not more than $2,500,000 (approximately
$672,000 of which would be paid by the Operating Partnership). In that event,
the Accor S.A. properties would not be held for the benefit of the holder of the
Class A Units and the Companies would seek to dispose of these properties as
part of the liquidation of the Companies. Accordingly, if the Class A Unitholder
were to exercise this option, there is a risk that the Companies interest in the
Accor S.A. properties could not be sold for their original purchase price. On
March 18, 2004, an agreement was entered into with the holder of the Class A
Units pursuant to which the holder of the Class A Units elected to retain title
to the Accor S.A. Properties. Accordingly, it is presently expected that on
April 16, 2004, all assets of the Operating Partnership, other than its interest
in the entity that indirectly holds title to the Accor S.A. Properties, will be
distributed to the Corporation in full redemption of the Corporation's interest
in the Operating Partnership and the Corporation will transfer such assets to a
liquidating trust. In consideration of the Class A Unitholder electing to take
title to the Accor S.A. Properties earlier than required, the Corporation waived
its right to require the Class A Unitholder to reimburse it for up to $75,000 of
costs associated with the acquisition of the Accor S.A. Properties and agreed to
make a payment to the Class A Unitholder of approximately $41,667.

         The Liquidating Trust will also assume the Corporation's then remaining
liabilities. It is presently contemplated that April 15, 2004 (the "Record
Date") will be the last day of trading of the Corporation's common stock on the
American Stock Exchange, and the Corporation's stock transfer books will be
closed as of the close of business on such date.

         Under the terms of the proposed Trust Agreement, on April 16 , 2004,
each stockholder of the Corporation on the Record Date (each, a "beneficiary")
automatically will become the holder of one unit of beneficial interest ("Unit")
in the Liquidating Trust for each share of the Corporation's common stock then
held of record by such stockholder. In addition, the holder of Class B Units in
the Operating Partnership will receive 15% of the aggregate Units in the
Liquidating Trust in lieu of such holder's current entitlement, pursuant to the
Corporation's Plan of Liquidation, to 15% of all distributions made by the
Corporation.

         After April 16, 2004, all outstanding shares of the Corporation's
common stock will be deemed cancelled, and the rights of beneficiaries in their
Units will not be represented by any form of certificate or other instrument.
Stockholders of the Corporation on the Record Date will not be required to take
any action to receive their Units. The Trustee will maintain a record of the
name and address of each beneficiary and such beneficiary's aggregate Units in
the Liquidating Trust. Subject to certain exceptions related to transfer by
will, intestate succession or operation of law, the Units will not be
transferable, nor will a beneficiary have authority or power to sell or in any
other manner dispose of any Units.

         It is currently contemplated that the initial trustee (the "Trustee")
of the Liquidating Trust will be Arthur N. Queler, who will receive a fee of
$2,000 per month from the Liquidating Trust with a minimum aggregate fee during
the existence of the Liquidating Trust of $40,000. Further, pursuant to the
terms of the proposed Trust Agreement,



                                       11
<PAGE>


the Trustee will have the exclusive right to cause the Liquidating Trust to take
such other action as he deems advisable in connection with the liquidation of
the remaining assets including, without limitation, incur indebtedness on behalf
of the Liquidating Trust, sell its remaining assets, pay any and all expenses of
the Liquidating Trust and appoint such agents and delegates such powers as he
deems advisable. Kestrel Management, L.P. ("Kestrel"), the current asset and
property manager for the Corporation will continue to provide asset and property
management services to Liquidating Trust on the same terms as currently provided
to the Corporation. Successor trustees may be appointed to administer the
Liquidating Trust in accordance with the terms of the Liquidating Trust
Agreement. It is expected that from time to time the Liquidating Trust will make
distributions of its assets to beneficiaries, but only to the extent that such
assets will not be needed to provide for the liabilities (including contingent
liabilities) assumed by the Liquidating Trust. No assurances can be given as to
the amount or timing of any distributions by the Liquidating Trust.

         For federal income tax purposes, on April 16, 2004, each stockholder of
the Corporation on the Record Date will be deemed to have received a pro rata
share of the assets of the Corporation to be transferred to the Liquidating
Trust, subject to such stockholder's pro rata share of the liabilities of the
Corporation assumed by the Liquidating Trust. Accordingly, on April 16, 2004
each stockholder will recognize gain or loss in an amount equal to the
difference between (x) the fair market value of such stockholder's pro rata
share of the assets of the Corporation that are transferred to the Liquidating
Trust, reduced by such stockholder's pro rata share of the liabilities of the
Corporation that are assumed by the Liquidating Trust, and (y) such
stockholder's adjusted tax basis in the shares of the Corporation's common stock
held by such stockholder on the Record Date. Based on the estimates used by
management to determine net realizable value of the Corporation's assets at
December 31, 2003, the estimated net realizable value of the Corporation is
approximately $5.4 million or $5.80 per common share. The foregoing estimate is
based on the carrying values of the current assets of the Corporation as well as
the current account payables of the Corporation and estimates as to future costs
associated with transferring the assets to the Liquidating Trust, maintaining
the Liquidating Trust and insurance coverage. Accordingly, the ultimate value
realized may be significantly less or more than the estimated amount.

         The Liquidating Trust is intended to qualify as a "liquidating trust"
for federal income tax purposes. As such, the Liquidating Trust will be a
complete pass-through entity for federal income tax purposes and, accordingly,
will not itself be subject to federal income tax. Instead, each beneficiary will
take into account in computing its taxable income, its pro rata share of each
item of income, gain, loss and deduction of the Liquidating Trust, regardless of
the amount or timing of distributions made by the Liquidating Trust to
beneficiaries. Distributions, if any, by the Liquidating Trust to beneficiaries
generally will not be taxable to such beneficiaries. The Trustee will furnish to
beneficiaries of the Liquidating Trust a statement of their pro rata share of
the assets transferred by the Corporation to the Liquidating Trust, less their
pro rata share of the Corporation's liabilities assumed by the Liquidating
Trust. On a yearly basis, the Trustee also will furnish to beneficiaries a
statement of their pro rata share of the items of income, gain, loss, deduction
and credit (if any) of the Liquidating Trust to be included on their tax
returns.

         Property Sales. On October 29, 2002, the Corporation's stockholders
approved the Plan of Liquidation. Accordingly the Corporation began selling its
properties. Since the adoption of the Plan of Liquidation, the Company has sold
the following properties.

         Livonia Shopping Plaza. On January 29, 2003 Livonia Shopping Plaza,
located in Livonia, Michigan, was sold for $12,969,000. The Corporation received
proceeds of $7,865,003 after making the required payment under the Credit
Facility ($4,700,000), closing adjustments and closing costs.

          568 Broadway. On February 28, 2003, 568 Broadway Joint Venture, a
joint venture in which the Corporation indirectly held a 22.15% interest, sold
its property located at 568 Broadway, New York, New York for a gross sales price
of $87,500,000. After assumption of the debt encumbering the property, closing
adjustments and other closing costs, net proceeds were approximately
$73,000,000, of which approximately $16,169,500 was allocated to the Operating
Partnership.

           Melrose Park. Also on February 28, 2003, the Corporation sold its
property located in Melrose Park, Illinois for a gross purchase price of
$2,164,800. The Corporation received proceeds of $1,970,000 after closing costs
and adjustments.


                                       12
<PAGE>


           Indiana Market Ltd. On May 8, 2003, Indiana Market Ltd., a joint
venture in which the Corporation holds a 50% interest, consummated the sale of
its shopping center property located in Indianapolis, Indiana commonly referred
to as Indiana Market Place for a purchase price of $700,000. After closing costs
and adjustments, net proceeds were $600,210 of which $300,105 is allocable to
the Corporation.

         Sunrise Marketplace. On November 5, 2003, the Corporation sold its
property located in Las Vegas, Nevada for a gross sales price of $17,500,000.
After closing adjustments and costs, net proceeds were $17,026,657. In
compliance with the Fleet Loan, the required principal paydown was $15,250,000,
of which the Corporation was responsible for $12,611,202. Pursuant to the
Indemnity, Contribution and Subrogation Agreements, the Corporation paid the
remaining principal payment due in the amount of $2,638,798 on behalf of
Shelbourne Properties I, Inc. After the total principal payment, the remaining
proceeds from the sale amounted to $1,776,657.

         On December 11, 2003, Shelbourne Properties I, Inc. repaid the
principal amount of $2,638,798 plus interest in the amount $18,816 to the
Corporation.

         Tri-Columbus Associates. During 2003, a joint venture in which the
Corporation held a 79.34% interest, sold all of its properties as described
below.

         On January 31, 2003, the Hilliard, Ohio, property was sold for a gross
sales price of $4,600,000. After making the required payment under the Credit
Facility of $2,300,000 (of which the Corporation was responsible for
$1,824,820), closing adjustments and other closing costs, net proceeds were
approximately $2,063,000, $1,637,784 of which is attributable to the
Corporation's interest.

         On June 18, 2003, the Grove City, Ohio property was sold for a gross
sales price of $4,090,000. The Fleet Loan required a principal payment equal to
the greater of $3,300,000 or 90% of the net proceeds. After closing adjustments
and costs, net proceeds were $3,938,286. As a result, the required principal
payment was $3,544,457 of which the Corporation was allocated $2,812,172. The
remaining proceeds after the principal payment were $393,829 of which the
Corporation was allocated $312,464.

         On December 11, 2003, the Orange, Ohio property was sold for a gross
sales price of $13,900,000. After the required principal paydown of $9,200,000
on the Fleet Loan of which the Corporation was allocated $7,299,280, closing
costs and adjustments, the net proceeds amounted to $4,419,613. The Corporation
was allocated $3,506,52.

EMPLOYEES

         Since the Corporation's inception, property management services, asset
management services, investor relation services and accounting services have
been provided to us by affiliates. See "Item 8. Financial Statements and
Supplementary Data - Note 3" for additional information.

         Asset Management Services. For the period January 1, 2001 through April
16, 2001, an affiliate of the Predecessor General Partners, Resources
Supervisory, provided Asset Management Services for an annual fee equal to 1.25%
of the Predecessor Partnership's gross asset value. In addition, the Predecessor
Partnership was obligated to (i) pay $200,000 for non-accountable expenses and
(ii) reimburse Resources Supervisory for expenses incurred in connection with
the performance of its services.

         Effective April 17, 2001 through February 14, 2002, all asset
management services, investor relation services and accounting services (the
"Asset Management Services") were provided by Shelbourne Management pursuant to
the terms of the Advisory Agreement. Under the terms of the Advisory Agreement,
which agreement was approved by the stockholders of the Corporation in
connection with the merger of the Predecessor Partnership with and into the
Operating Partnership, Shelbourne Management received (1) an annual asset
management fee, payable quarterly, equal to 1.25% of the gross asset value of
the Corporation as of the last day of each year, (2) $200,000 for
non-accountable expenses and (3) reimbursement of expenses incurred in
connection with performance of its services. See "The Predecessor Partnership"
above.



                                       13
<PAGE>

         Effective February 14, 2002, the Advisory Agreement was contributed by
Shelbourne Management to the Operating Partnership (see "The Presidio
Transaction" above), Shelbourne Management ceased providing the Asset Management
Services, and the Corporation retained PCIC to provide the Asset Management
Services to the Corporation on a transitional basis at a reduced cost of
$333,333 per annum.

         Effective October 1, 2002, as contemplated by the Plan of Liquidation,
the agreement with PCIC was terminated and Kestrel began providing the Asset
Management Services for an annual cost of $200,000. Kestrel is an affiliate of
our current Chief Executive Officer.

         Property Management Services. During the years ended December 31, 2001,
2002 and 2003, property management services have been provided by Kestrel. For
providing property management services, as approved by the stockholders of the
Corporation in connection with the merger of the Predecessor Partnership with
and into the Operating Partnership, Kestrel is entitled to receive a fee of up
to 3% of the applicable property's revenues. Personnel at the properties perform
services for the Corporation at the properties. Salaries for such on-site
personnel are reimbursed by the Corporation.



                                       14
<PAGE>



                                  RISK FACTORS

         You should carefully consider the risks described below. These risks
are not the only ones that our company may face. Additional risks not presently
known to us or that we currently consider immaterial may also impair our
business operations and hinder our ability to make expected distributions to our
stockholders.

         This Form 10-K also contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below or elsewhere in this Form 10-K.

         ENVIRONMENTAL PROBLEMS AT OUR PROPERTIES ARE POSSIBLE, THEY MAY BE
COSTLY AND THEY MAY ADVERSELY AFFECT OUR OPERATING RESULTS, FINANCIAL CONDITION
AND SALE PRICES.

         We are subject to various federal, state and local laws and regulations
relating to environmental matters. Under these laws, we are exposed to liability
primarily as an owner or operator of real property and, as such, we may be
responsible for the cleanup or other remediation of contaminated property.
Contamination for which we may be liable could include historic contamination,
spills of hazardous materials in the course of our tenants' regular business
operations and spills or releases of hydraulic or other toxic oils. An owner or
operator can be liable for contamination or hazardous or toxic substances in
some circumstances whether or not the owner or operator knew of, or was
responsible for, the presence of such contamination or hazardous or toxic
substances. In addition, the presence of contamination or hazardous or toxic
substances on property, or the failure to properly clean up or remediate such
contamination or hazardous or toxic substances when present, may materially and
adversely affect our ability to sell or rent such contaminated property or to
borrow using such property as collateral.

         Environmental laws and regulations can change rapidly, and we may
become subject to more stringent environmental laws and regulations in the
future. Compliance with more stringent environmental laws and regulations could
have a material adverse affect on our operating results or financial condition.
We believe that our exposure to environmental liabilities under currently
applicable laws is not material. We cannot assure you, however, that we
currently know of all circumstances that may give rise to such exposure.

         THE TRANSFER OF OUR REMAINING ASSETS TO A LIQUIDATING TRUST WILL AFFECT
THE LIQUIDITY OF YOUR OWNERSHIP INTERESTS, AND THE ANTICIPATION OF THAT TRANSFER
MAY REDUCE THE PRICE OF OUR COMMON STOCK.

         The Corporation currently expects that not later than October 29, 2004
the Corporation will transfer and assign to a liquidating trust as designated by
the Board of Directors all of its then remaining assets (which may include
direct or indirect interests in real property) and liabilities, although there
can be no assurance in this regard. After such a transfer to a liquidating
trust, which could be as soon as April 1, 2004, all stock certificates that
represent outstanding shares of our common stock will be automatically deemed to
evidence ownership of beneficial interests in the liquidating trust. Beneficial
interests in the liquidating trust will be non-certificated and
non-transferable, except by will, intestate succession or operation of law. As a
result, the beneficial interests in the liquidating trust will not be listed on
any securities exchange or quoted on any automated quotation system of a
registered securities association. In anticipation of such a transfer and the
resulting illiquidity of the beneficial interests, some of our stockholders may
desire to sell their shares of common stock. In such case, if the number of
shares of our common stock for which sell orders are placed is high relative to
the demand for such shares, there could be a material adverse affect on the
price of the Corporation's common stock.




                                       15
<PAGE>




                  WHERE CAN YOU FIND MORE INFORMATION ABOUT US?

The Corporation is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which means that the
Corporation files periodic reports, including reports on Forms 10-K and 10-Q,
and other information with the Securities and Exchange Commission ("SEC"). As
well, the Corporation distributes proxy statements annually and files those
reports with the SEC. You can read and copy these reports, statements and other
information at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, NW, Washington, D.C. 20549, as well as the regional
offices at the Woolworth Building, 233 Broadway Ave., New York, New York 10279
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. You may obtain copies of this material for a fee by writing to the
SEC's Public Reference Section of the SEC at 450 Fifth Street, NW, Washington,
D.C. 20549. You may obtain information about the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. You can also access some of
this information electronically by means of the SEC's website on the Internet at
http://www.sec.gov, which contains reports, proxy and information statements and
other information that the Corporation has filed electronically with the SEC.




                                       16
<PAGE>


ITEM 2.  PROPERTIES

         PROPERTY PORTFOLIO - As of December 11, 2003, the Corporation has sold
all of its properties except for its interest in the Accor S.A. Properties as
described in Item 1. Business - Property Sales/Acquistions - the Accotel
Transaction.


ITEM 3. LEGAL PROCEEDINGS

         Delaware Plaintiffs Litigation, Court of Chancery of the State of
Delaware (C.A. No. 19442- NC, and C.A. No. 19611).

         On February 26 and March 6, 2002, respectively, plaintiffs Thomas
Hudson and Ruth Grening filed individual and derivative action lawsuits, which
were subsequently consolidated, on behalf of the Companies against NorthStar
Capital Investment Corp. ("NorthStar"), several of its affiliates, and the
members of the boards of directors of the Companies as of February 13, 2002 in
the Court of Chancery of the State of Delaware. The two actions challenged the
propriety of transactions consummated on February 14, 2002, by which the
Companies and their respective operating partnerships agreed to purchase from
NorthStar approximately 30% of the then outstanding shares of each of the
Companies as well as the right to terminate certain management services
agreements.

         On May 7, 2002, plaintiffs Grening and Hudson jointly filed a separate
individual and class action in Delaware Chancery Court alleging that the
Companies and the members of the Boards at that time had violated 8 Del. C. ss.
211 by failing to call and hold annual meetings of the stockholders within 13
months of the incorporation of the Companies, and had breached their fiduciary
duties and the provisions of the Companies' Amended and Restated Certificates of
Incorporation, by, inter alia, reducing and reorganizing the Companies' boards
and issuing allegedly false and/or misleading statements and omissions of
material facts in press releases and the 2001 Annual Reports filed with the
Securities and Exchange Commission by each of the Companies. On May 29, 2002,
the Court consolidated the claims pursuant to 8 Del. C. ss. 211 for purposes of
discovery and trial with similar claims in a lawsuit brought in the same forum
by HX Investors, L.P. ("HX Investors") and other stockholders against the
Companies.

         The Companies vigorously defended all of the litigation, and, on July
1, 2002, HX Investors, the additional stockholders, the Companies, the
additional defendants, and Ms. Grening entered into several related agreements
pursuant to which the aforementioned actions by plaintiffs Grening, Hudson, and
HX Investors were settled, subject, with respect to the class and derivative
actions, to the approval of the Court. In connection with the settlement, among
other things, NorthStar agreed to contribute up to $1 million for the payment of
the class and derivative plaintiffs' attorneys' fees, expenses, and incentive
fees as approved by the Court.

         The settlement with Ms. Grening was memorialized by letter agreement
dated July 1, 2002, setting forth the agreement in principle. By letter
agreement dated October 28, 2002, Plaintiff Thomas Hudson joined in the
agreement in principle. On August 28, 2003, the settlement was approved by the
Court and the case was dismissed.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.




                                       17
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         MARKET FOR OUR COMMON STOCK

         In May 2001, our Common Stock began trading on the American Stock
Exchange under the symbol "HXF". Prior to that date, there was no established
trading market for interests in the Predecessor Partnership.

         The high and low sales prices per share of Common Stock are set forth
below for the periods indicated.

     QUARTER ENDED                     HIGH                  LOW
----------------------------    ------------------    ------------------
     March 31, 2002          |    $40.30                   $25.12
                             |
     June 30, 2002           |    $42.00                   $37.20
                             |
     September 30, 2002      |    $56.15                   $41.50
                             |
     December 31, 2002       |    $58.00                   $40.75
                             |
     March 31, 2003          |    $62.95                   $26.15
                             |
     June 30, 2003           |    $44.50                   $16.00
                             |
     September 30, 2003      |    $18.50                   $13.01
                             |
     December 31, 2003       |    $35.00                   $14.83
                             |

         On March 24, 2004, the closing sale price of the Common Stock as
reported by the American Stock Exchange was $9.00. The Corporation had
approximately 1,263 stockholders of record of Common Stock as of March 24, 2004.

         The Corporation has authorized 2,500,000 shares of Common Stock, issued
1,173,998 shares, with 788,772 shares outstanding at March 24, 2004.

DIVIDENDS

         Holders of Common Stock will be entitled to receive dividends if, as
and when the Board of Directors authorizes and declares dividends. In connection
with the settlement of the lawsuit brought by HX Investors L.P., the Operating
Partnership issued to HX Investors Class B units which entitle HX Investors to
receive 15% of all gross proceeds after payment of the approximately $52.25 per
share plus interest compounded quarterly at 6% per annum from August 19, 2002
("Priority Return"). The Priority Return as of January 8, 2004 was $5.51 per
share and was satisfied on that date. In addition, the Class B Unitholder, HX
Investors, was paid a distribution in the amount of $1,071,941 on January 8,
2004.


                                       18
<PAGE>


         The following table sets forth the dividends paid or declared by the
Corporation on its Common Stock for the previous two years:

     PERIOD ENDED             STOCKHOLDER RECORD DATE    DIVIDEND/SHARE
--------------------------- -------------------------- ----------------
     March 31, 2002                      -                     $  -
     June 30, 2002                       -                     $  -
     September 30, 2002                  -                     $  -
     December 31, 2002           November 15, 2002             $8.25
     March 31, 2003               January 23, 2003             $2.50
     March 31 2003                 March 10, 2003              $36.00
     June 30, 2003                 June 30, 2003               $1.90
     December 31, 2003 (1)       December 26, 2003             $13.21


         Explanatory Note:

(1)   On December 16, 2003, the Board of Directors declared a dividend of $13.21
      per share. The dividend was paid on January 8, 2004 for the stockholders
      of record as of the close of business December 26, 2003.

RECENT SALES OF UNREGISTERED SECURITIES

         There were no securities sold by us in 2003 that were not registered
under the Securities Act.



                                       19
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

         The following financial data are derived from our audited consolidated
financial statements. The financial data set forth below should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8. Financial Statements and
Supplementary Data" and the notes thereto appearing elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                  Period 10/30/02     Period 1/1/02 to               Year Ended December 31,
                                                    to 12/31/02           10/29/02                          Going Concern
                                     2003        Liquidation Basis      Going Concern          2001            2000       1999
----------------------------- ----------------- -------------------- -------------------- ------------- ------------- ------------
<S>                              <C>                <C>               <C>                   <C>           <C>           <C>
       Total Revenue             $2,444,949(4)      $750,192(4)       $3,029,476(4) (6)     $8,530,531    $8,110,124    $7,989,276

Net Income (Loss) Available
  for Common Stockholders         30,839,455          498,810           (16,021,301)        2,526,685     2,537,241     1,895,156

   Net Income (Loss) per
        Common Share                 39.10            .64 (8)            (18.94) (7)           2.15          2.16          1.61

 Dividends per Common Share
         (1)(2)(3)                   53.61             8.25                   -                1.87           -            1.70

        Total Assets            $19,168,637(5)    $69,006,373(5)         $48,646,112       $56,541,462   $56,549,762   $54,187,702
</TABLE>

(1)   All distributions are in excess of accumulated undistributed net income
      and therefore represent a return of capital to investors on a generally
      accepted accounting principles basis.

(2)   Dividends made from and after December 21, 2001 are based on the total
      shares issued and outstanding.

(3)   2003 Dividend per Common Share includes a $13.21 declared dividend that
      was paid on January 8, 2004.

(4)   Reflects the January 1, 2002 conversion to the equity method of
      accounting, as required under generally acceptable accounting principles
      due to the incurrence of debt. Prior to the conversion, the Corporation
      reported its investments in joint ventures using the pro rata
      consolidation method of accounting, under which revenues and expenses
      attributable to the joint ventures are presented on a pro rata basis in
      accordance with the Corporation's percentage of ownership together with
      the revenues and expenses of the Corporation's wholly-owned properties.
      Under the equity method of accounting, the net income attributable to the
      Corporation's investment in the joint ventures is presented as a single
      item on the statement of operations. If the change to the equity method of
      accounting had been made on January 1, 2001, revenues reported for 2001
      have been reduced by $4,611,219. Total net income remains unchanged.

(5)   Reflects the conversion to the liquidation basis of accounting under which
      real estate is reported to its estimated net realizable value. Prior to
      the conversion to the liquidation basis of accounting, real estate was
      reported at its historical cost, less accumulated depreciation and
      adjustments for impairment.

(6)   Total revenue for 2002 includes revenue from discontinued operations.

(7)   Net Income (Loss) per Common Share was calculated using a weighted average
      shares outstanding of 841,750.


                                       20
<PAGE>


(8)   Net Income (Loss) per Common Share was calculated using a weighted average
      shares outstanding of 788,772.



                                       21
<PAGE>




ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The following should be read in conjunction with "Forward-Looking
Statements" and our combined consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-K

                                    OVERVIEW

         Shelbourne Properties III, Inc. was formerly a Delaware limited
partnership, High Equity Partners L.P. - Series 88 ("HEP-88"), which was merged
on April 17, 2001 with and into Shelbourne Properties III L.P., a Delaware
limited partnership, (the "Operating Partnership"). At December 31, 2003, the
Corporation held a 99% direct interest and a 1% indirect interest in the
Operating Partnership. The 1% is held indirectly through the general partner of
the Operating Partnership, Shelbourne Properties III GP LLC (the "General
Partner"), of which the Corporation is the sole member.

         On February 14, 2002, the Corporation repurchased the shares of a major
stockholder, Presidio Capital Investment Company LLC ("PCIC"), (the
"Transaction"). As part of that repurchase, Shelbourne Management LLC, a
wholly-owned subsidiary of PCIC, contributed to the Operating Partnership, the
advisory agreement between the Corporation, the Operating Partnership and
Shelbourne Management LLC, dated as of April 17, 2001 (the "Advisory
Agreement"), pursuant to which Shelbourne Management LLC had provided financial
and investment advisory services to the Corporation, and the Operating
Partnership. As consideration for the purchase of the shares and the
contribution of the Advisory Agreement, the Corporation paid $11,830,333 in cash
and the Operating Partnership issued a note of the amount of $14,589,936 and
issued 672.178 5% Class A Preferred Partnership Units (with a liquidation
preference of $1,000 per unit) to Shelbourne Management LLC. As a result, until
those preferred units are redeemed, Shelbourne Management LLC is entitled to
receive quarterly distributions from the Operating Partnership at a rate of 5%
per annum of the aggregate liquidation preference of its preferred units. The
agreement governing the repurchase also provided for pre-payment penalties in
the event that the Operating Partnership redeems these preferred units prior to
February 14, 2007. As a result of a transaction that was consummated in January
2003, the 5% Class A Preferred Partnership Units were reclassified as Class A
Partnership Units and modified to eliminate the liquidation preference and to
significantly limit the events that could create a pre-payment penalty. The
Class A Partnership Units are still entitled to receive quarterly distributions
at a rate of 5% per annum.

         During July and August 2002, the Corporation entered into a settlement
agreement with HX Investors L.P. ("HX Investors"), a stockholder in the
Corporation, with respect to a lawsuit brought by HX Investors and others
against the Companies. In connection with this settlement:

         o    HX Investors made a tender offer for up to 30% of the outstanding
              shares of Common Stock. Upon consummation of the offer, HX
              Investors acquired 236,631 Common Shares. As a result of the
              tender offer and subsequent market acquisitions, HX Investors
              holds 41.64% of the outstanding Common Stock.

         o    On August 19, 2002, the existing Board of Directors and executive
              officer of the Corporation resigned, and the Board was
              reconstituted to consist of six members, four of whom are
              independent directors. In addition, new executive officers were
              appointed.

         o    HX Investors was issued by the Operating Partnership Class B Units
              that entitle the holder thereof to receive 15% of the Operating
              Partnership's gross proceeds after the payment of a priority
              return of approximately $52.25 (plus interest at 6% per annum,
              subject to certain increases) per share to the stockholders of the
              Corporation. The Priority Return was satisfied on January 8, 2004.

         o    A Plan of Liquidation of the Corporation was adopted by the prior
              Board of Directors.

         On October 29, 2002, the stockholders of the Corporation approved the
Plan of Liquidation. As a result, the Corporation adopted liquidation accounting
and the Operating Partnership began marketing its properties for sale. The
Corporation has sold all of its properties by December 31, 2003, other than its
interest in the Accor S.A. Properties. The sold properties were located in
Livonia, Michigan; New York, New York; Hilliard, Ohio; Melrose



                                       22
<PAGE>


Park, Illinois; Indianapolis, Indiana; Grove City, Ohio; Las Vegas, Nevada; and
Orange, Ohio. We have paid dividends through December 31, 2003 of $48.65 per
share and declared a dividend that was paid on January 8, 2004 of $13.21 per
share.

         The Corporation has operated with the intention of qualifying as a real
estate investment trust for U.S. Federal Income Tax purposes ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986 as amended. Under those
sections, a REIT which pays at least 90% of its ordinary taxable income as a
dividend to its stockholders each year and which meets certain other conditions
will not be taxed on that portion of its taxable income which is distributed to
its stockholders.

         We have adopted a plan of liquidation that requires us to liquidate all
of our assets and liabilities by October 29, 2004. Dividends paid during our
liquidation generally will not be taxable to the stockholder until the dividends
paid exceed the adjusted tax basis in the stockholder's shares, and then will be
taxable as long-term capital gain assuming the shares as capital assets have
been held for more than 12 months when the stockholder receives the dividend as
a result of the adoption of the plan of liquidation. As a result of the sale of
substantially all of our assets and in light of the costs associated with
maintaining a public company, it is expected that our remaining assets will be
transferred to a liquidating trust as early as April 2004 and in lieu of owning
shares, each stockholder will own a beneficial interest in the liquidating trust
of an equivalent percentage. In this regard, on March 17, 2004, the holder of
the Class A Units agreed to retain its beneficial ownership of the Accor S.A.
Properties and relinquish its right to require the acquisition of other
properties, thereby enabling the Corporation to set up liquidating trusts to
complete its liquidation as early as April 16, 2004. In consideration of the
Class A Unitholder electing to take title to the Accor S.A. Properties earlier
than required, the Corporation waived its right to require the Class A
Unitholder to reimburse it for up to $75,000 of costs associated with the
acquisition of the Accor S.A. Properties and made a payment to the Class A
Unitholder of approximately $41,667. Accordingly, at such time as the assets of
the Corporation are distributed to a liquidating trust, which is presently
expected to be April 16, 2004, the transferability of interests in the trust
will be significantly restricted as compared to the shares in the Corporation,
and the stockholders, as holders of beneficial interests, will be required to
include in their own income their pro rata share of the trust's taxable income
whether or not that amount is actually distributed by the trust in that year.
Further, for federal income tax purposes, on April 16, 2004, each stockholder of
the Corporation on the Record Date will be deemed to have received a pro rata
share of the assets of the Corporation to be transferred to the Liquidating
Trust, reduced by such stockholder's pro rata share of the liabilities of the
Corporation assumed by the Liquidating Trust. Based on the estimates used by
management to determine net realizable value of the Corporation's assets at
December 31, 2003, the estimated net realizable value of the Corporation is
approximately $5.4 million or $5.80 per common share. The foregoing estimate is
based on the carrying values of the current assets of the Corporation as well as
the current account payables of the Corporation and estimates as to future costs
associated with transferring the assets to the Liquidating Trust, maintaining
the Liquidating Trust and insurance coverage. Accordingly, the ultimate value
realized may be significantly less or more than the estimated amount.

CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying financial statements and related footnotes. In preparing
these financial statements, management has made its best estimates and judgments
of certain amounts included in the financial statements, giving due
consideration to materiality. However, application of these accounting policies
involves the exercise of judgment and use of assumptions as to future
uncertainties, and as a result, actual results could differ from these
estimates.

ADJUSTMENTS TO LIQUIDATION BASIS OF ACCOUNTING

         On October 30, 2002, in accordance with the liquidation basis of
accounting, assets were adjusted to estimated net realizable value and
liabilities were adjusted to estimated settlement amounts, including estimated
costs associated with carrying out the liquidation. The entire portfolio
consisting of properties located in Livonia, Michigan; Melrose Park, Illinois;
Hilliard, Ohio; New York, New York; Indianapolis, Indiana; Grove City, Ohio; Las
Vegas, Nevada; and Orange, Ohio have been sold.



                                       23
<PAGE>


         The anticipated gains, which include any distributions payable to the
Class B Unitholder associated with the adjustment in value of these real estate
properties, have been deferred until such time as a sale occurs. Due to the sale
of the entire portfolio, during the year ended December 31, 2003, the
Corporation recognized actual gains of $14,081,822 on the sale of real estate
and $15,494,565 included in equity income from joint ventures attributable to
real estate sales. As a result of these sales, the Corporation's deferred gain
at December 31, 2002 was reduced by $28,173,687 to zero.

RESERVE FOR ESTIMATED COSTS DURING THE PERIOD OF LIQUIDATION

       Under liquidation accounting, the Corporation is required to estimate and
accrue the costs associated with executing the Plan of Liquidation. These
amounts can vary significantly due to, among other things, the timing and
realized proceeds from property sales, the costs of retaining agents and
trustees to oversee the liquidation, the costs of insurance, the timing and
amounts associated with discharging known and contingent liabilities and the
costs associated with cessation of the Company's operations. These costs are
estimates and are expected to be paid out over the liquidation period. Such
costs do not include costs incurred in connection with ordinary operations.

         The reserve for additional costs associated with liquidation was
$1,500,000 at December 31, 2002 and at December 31, 2003. A decrease in the
reserve resulting from (a) professional costs associated with obtaining the
Fleet Loan of $379,965, (b) $2,067 incurred in connection with the payoff of the
Fleet Loan, and (c) tax planning costs of $16,666 paid to an affiliate of
Presidio Capital Investment Company, LLC in connection with the Accotel
transaction was offset by an increase in management's estimate of costs
associated with the execution of the Plan of Liquidation of $398,698.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections," which updates, clarifies and simplifies existing accounting
pronouncements, which will be effective for fiscal years beginning after May 15,
2002. This statement had no effect on the Corporation's financial statements.

         In November 2002, the FASB issued Interpretation No. 45, Guarantors'
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The Interpretation elaborates on the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. This Interpretation does not prescribe a specific approach for
subsequently measuring the guarantor's recognized liability over the term of the
related guarantee. The disclosure provisions of this Interpretation are
effective for the Corporation's December 31, 2002 financial statements. The
initial recognition and initial measurement provisions of this Interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. This Interpretation had no material effect on the
Corporation's financial statements.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement had no material effect on the Corporation's financial statements.

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
statement improves the accounting for certain financial instruments that under
previous guidance, issuers could account for as equity. The new statement
requires that those instruments be classified as liabilities in statements of
financial position. SFAS No. 150 affects the issuer's accounting for three types
of freestanding financial instruments. One type is mandatorily redeemable
shares, which the issuing company is obligated to buy back in exchange for cash
and other assets. A second type, which includes put options and forward purchase
contracts, involves instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets. The third type of
instruments that are liabilities under this statement is obligations that can be
settled with shares, the monetary value of which is fixed, tied solely or


                                       24
<PAGE>


predominately to a variable such as a market index, or varies inversely with the
value of the issuer's shares. SFAS No. 150 does not apply to features embedded
in a financial instrument that is not a derivative in its entirety. In addition
to its requirements for the classification and measurement of financial
instruments in its scope, SFAS No. 150 also requires disclosures about
alternative ways of settling the instruments and the capital structure of
entities, all of whose shares are mandatorily redeemable. Most of the guidance
in SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. This statement had no
material effect on the Corporation's financial statements.

         In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003). Consolidation of Variable Interest Entities ("VIEs"), which
addresses how a business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation
No. 46, Consolidation of Variable Interest Entities, which was issued in January
2003. The Corporation will be required to adopt FIN 46R in the first fiscal
period ending after March 15, 2004. Upon adoption of FIN 46R, the assets,
liabilities and noncontrolling interest of the VIE initially would be measured
at their carrying amounts with any difference between the net amount added to
the balance sheet and any previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may be used to
measure the assets, liabilities and noncontrolling interest of the VIE. The
Corporation does not expect that this will have a material impact on the
Corporation's consolidated financial statements.

 LIQUIDITY AND CAPITAL RESOURCES

         The Corporation uses its working capital reserves and any cash from
operations as its primary source of liquidity. On October 29, 2002, the
Corporation's stockholders approved the Plan of Liquidation. Accordingly, the
Corporation began to sell its properties and as of December 11, 2003 has sold
all of its properties.

         The Company had $12,868,201 in cash and cash equivalents at December
31, 2003. Cash and cash equivalents are temporarily invested in short-term
instruments. The Company's level of liquidity based upon cash and cash
equivalents increased by $12,607,831 during the year ended December 31, 2003. As
discussed further below, the increase resulted from $38,533,836 of net cash
provided by operating activities and $31,064,361 of net cash provided by
investing activities which were largely offset by $56,990,366 of net cash used
in financing activities.

         During 2003, the Corporation's primary sources of funds were rents
collected from tenants, distributions from its joint venture investments and
proceeds from property sales. As a result of the sale of Sunrise Marketplace in
Las Vegas, Nevada in November 2003, the Company will not receive any additional
rental revenue as Sunrise Marketplace was the last wholly-owned property of the
Company. Rents collected from tenants for the year ended December 31, 2003
amounted to $2,165,382 as compared to $3,737,841 for the year ended December 31,
2002. The decrease is due to the sale of Livonia Shopping Plaza on January 29,
2003 and a decrease in collections at Sunrise Marketplace of $281,310 due to the
sale of the property on November 5, 2003.

         Subsequent to December 11, 2003, the Corporation's primary source of
funds will be the payments received on the loan receivable from Shelbourne
Properties II, Inc. Under the terms of the Fleet Loan, the Corporation was
required to utilize a portion of its proceeds generated by property sales to
make principal payments on the Fleet Loan. In accordance with the terms of the
Indemnity, Contribution and Subrogation Agreements, the portion of the principal
payments made by the Corporation that were allocable to Shelbourne Properties
II, Inc. have been recorded as a loan receivable due from Shelbourne Properties
II, Inc. that is secured by Shelbourne Properties II, Inc.'s interests in the
entities that own its properties. The principal and accrued interest due to the
Corporation from Shelbourne Properties II, Inc. is $5,383,586, requires payments
of interest under the same terms as the Fleet Loan, which is LIBOR plus 2.75%
(3.875% at December 31, 2003).

         Distributions in excess of earnings from joint ventures increased by
$10,997,597 to $22,472,031 for the year ended December 31 2003 from $11,474,434
for the year ended December 31, 2002. The increase is due to the net cash
received from the 2003 sales of properties owned by 568 Broadway Joint Venture,
Tri-Columbus Associates, and Indiana Market, Ltd.


                                       25
<PAGE>


         Cash provided by investing activities resulted from the sales of
Livonia Shopping Plaza, Melrose Crossing II and Sunrise Marketplace, which
generated proceeds of $31,938,728, which were partially offset by the investment
in the Accotel Transaction of $720,791 and improvements to real estate of
$153,576 at Sunrise Marketplace.

         Cash used in financing activities consisted of the dividends paid to
stockholders ($31,866,389), distributions made to Class A Unitholder ($34,076),
the satisfaction of the Credit Facility ($19,718,457), principal payment on the
Fleet Loan ($15,423,374), and a related party loan receivable ($5,371,444).
These expenditures were partially offset by the Fleet Loan proceeds in the
amount of $15,423,374.


RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2003 TO THE YEAR ENDED
DECEMBER 31, 2002

Net Income

         The Corporation's net income available for common stockholders
increased by $46,361,946 to $30,839,455 for the year ended December 31, 2003
from a net loss of $15,522,491 for the year ended December 31, 2002. The
increase in net income was primarily due to increased equity income from joint
ventures, an increase in gains on sale of real estate and a decrease in costs
and expenses. These items were partially offset by a decrease in rental revenue.
The Corporation's income before equity income from joint ventures, gain on sale
of real estate, and interest was $70,415 for the year ended December 31, 2003,
as compared to a loss of $17,596,637 for the year ended December 31, 2002, which
was primarily attributable to significant costs incurred during 2002 in
connection with the Transaction, including the purchase of the Advisory
Agreement.

         The net operating loss attributable to Melrose Crossing II, the
Corporation's property located in Melrose Park, Illinois, for the period ended
October 29, 2002 is classified as discontinued operations due to the property
being under contract for sale prior to the adoption of the Plan of Liquidation.
Loss from discontinued operations ceased on October 29, 2002 due to the
stockholders vote to liquidate the portfolio. Under liquidation accounting, all
property is considered real estate held for sale and discontinued operations are
no longer applicable.

Rental Revenue

         Rental revenues decreased $1,501,057 or approximately 41% to $2,176,380
for the year ended December 31, 2003 from $3,677,437 for the year ended December
31, 2002 due to the sale of the Corporation's wholly-owned properties.

Costs and Expenses

         Costs and expenses for the year ended December 31, 2003 were
$2,105,965, representing a decrease of $19,168,109 from the same period in 2002.
The decrease is due principally to expenses incurred in 2002 of $15,262,114
associated with the purchase of the Advisory Agreement that was consummated on
February 14, 2002 as well as a reduction in all other costs.

         Operating expenses decreased by $186,722 for the year ended December
31, 2003 as compared to the year ended December 31, 2002. The decrease was due
to the reduction in operating costs due to the sale of Livonia Shopping Plaza on
January 29, 2003.

         Pursuant to the Plan of Liquidation which was adopted October 29, 2002,
depreciation and amortization expenses ceased to be recognized as of that date.
Therefore the Corporation incurred no depreciation and amortization for the year
ended December 31, 2003 as compared to $721,499 for the period ended October 29,
2002.

         Partnership asset management fees and transition management fees
decreased to $200,000 for the year ended December 31, 2003 from $364,113 for the
same period in 2002. This decrease was due to the reduction of the fee in
connection with the Transaction from a fee based on 1.25% of gross asset value
of the Corporation to a set fee



                                       26
<PAGE>


of $27,778 per month through September 2002, which was further reduced to
$16,667 per month for the balance of 2002. Shelbourne Management was paid
$105,863 in partnership asset management fees for the period January 1, 2002
through February 14, 2002; $208,250 was paid to PCIC for transition fees from
February 15, 2002 through September 30, 2002, and Kestrel Management was paid
$50,000 for its services from October 1, 2002 through December 31, 2002.

         Administrative costs decreased to $1,056,847 for the year ended
December 31, 2003 from $3,837,826 for the same period in 2002. This reduction is
due to certain costs incurred in 2002 in connection with the Transaction and
legal, professional and consulting fees incurred in 2002. Property management
fees decreased to $59,957 from $112,639 for the periods ending December 31, 2003
and 2002, respectively. The decrease is due to the sale of Livonia Shopping
Plaza in January 2003.

Gain on Sale of Real Estate

         The gain on sale of $14,081,822 for the year ended December 31, 2003
was due to the sale of Livonia Shopping Plaza, Melrose Crossing II and Sunrise
Marketplace on January 29, 2003, February 28, 2003 and November 5, 2003,
respectively.

Non-Operating Income and Expenses

         Equity income from investments in joint ventures increased by
$13,963,685 to $16,940,732 for the year ended December 31, 2003 as compared to
$2,977,047 for the year ended December 31, 2002. This is primarily due to 568
Broadway Joint Venture, in which the Corporation indirectly held a 22.15%
interest, selling its property located in New York, New York on February 28,
2003. The joint venture recognized a gain on sale for financial reporting
purposes of $67,746,480 of which $14,565,894 was allocated to the Corporation.
In addition, Tri-Columbus Associates sold all three of its properties during
2003 and recognized a gain on the sales for financial reporting purposes of
$902,060.

         Excluding the gain on sale, the Corporation experienced a decrease in
equity income from 568 Broadway Joint Venture for the year ended December 31,
2003 as compared to the year ended December 31, 2002 of $1,308,420 due to the
recognition of only two months of revenue and expenses in 2003 resulting from
the sale of the property on February 28, 2003.

         Excluding the gain on sale, the Corporation's joint venture investment
in Tri-Columbus Associates experienced a decrease in equity income of $71,726
for the year ended December 31, 2003 as compared to the same period in 2002. The
decrease is a result of a decrease in rental revenue due to the sale of all
three properties in 2003. This is partially offset by the cessation of
depreciation and amortization expenses in accordance with liquidation
accounting.

         The Corporation's joint venture investment, SuperValu, in which the
Corporation held a 50% indirect interest, sold its property located in
Indianapolis, Indiana on May 8, 2003. The property had been written down to its
anticipated net realizable value at October 29, 2002 and recognized a loss in
2002 of $1,448,544. The expenses associated with the sale were less than
estimated in 2002, accordingly, the joint venture recognized a gain for
financial reporting purposes in 2003 of $26,610. Excluding the gain on sale, the
joint venture experienced a decrease in equity income for the year ended
December 31, 2003 of $136,407 as compared to the same period in 2002. The
decrease is primarily due to the recognition of only 4 months and 8 days worth
of income due to the sale.

         During 2003, interest expense was $488,007 as compared to $697,363 for
2002. During 2003, interest expense consisted of $87,701 paid in connection with
the Credit Facility and $400,306 incurred in connection with the Fleet Loan.
During 2002, interest expense consisted of $142,871 related to the notes issued
to Shelbourne Management in connection with the purchase of the Advisory
Agreement and interest of $554,492 in connection with the Credit Facility.

         Other income increased for the year ended December 31, 2003, as
compared to the year ended December 31, 2002 by $154,090 to $199,382 from
$45,292. This is attributable to insurance proceeds received during 2003



                                       27
<PAGE>


under the Director's and Officers insurance policy settlement related to
lawsuits from 2002, prior to the adoption of the Plan of Liquidation.

         Interest income increased to $69,187 during the year ended December 31,
2003 from $56,939 during the year ended December 31, 2002. The Corporation
recognized interest income on its loans receivable from Shelbourne Properties I,
Inc. and Shelbourne Properties II, Inc. These loans receivable are the result of
payments made by the Corporation pursuant to the terms of the Fleet Loan on
behalf of Shelbourne Properties I, Inc. and Shelbourne Properties II, Inc. which
were subject to the terms of the Indemnity, Contribution and Subrogation
Agreements. As a result, the Corporation earned interest based on the terms of
the Fleet Loan from the related parties in the amount of $30,956. The amount due
from Shelbourne Properties I, Inc. was $18,815 and was paid off on December 11,
2003. The interest due from Shelbourne Properties II, Inc. was accrued at
December 31, 2003 in the amount of $12,141. This accrued interest was
subsequently received in January 2004. The interest earned on the loans
receivable was offset by a decrease in interest income from cash and cash
equivalents of $11,183 due to lower cash balances being invested and lower
yields.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 TO THE YEAR ENDED DECEMBER 31,
2001(ON A PRO FORMA-BASIS)

         After April 30, 2002, as a result of the Operating Partnership's
incurring debt in connection with entering into the Credit Facility, the
Corporation is no longer allowed to account for its investments in joint
ventures on a pro-rata consolidation basis in accordance with its percentage of
ownership but must instead utilize the equity method of accounting. Further, as
a result of the adoption of the Plan of Liquidation, the Corporation adopted
liquidation accounting effective October 30, 2002. In order to provide a more
meaningful comparison of the results of operations for the years ended December
31, 2002 and 2001, the following comparison compares the results of operations
for such periods assuming that the Corporation used the equity method of
accounting for the entirety of both periods.

PRO-FORMA INFORMATION

         The pro-forma information is provided for the purpose of facilitating
the comparison of the 2002 and 2001 results of operations in the review of
management's discussion and analysis. Investments in joint ventures were
reported in 2001 under the pro-rata consolidated method of accounting, which
presented the assets and liabilities and revenues and expenses of the joint
ventures on a pro-rata basis in accordance with the Corporation's percentage of
ownership together with the assets and liabilities and revenues and expenses of
the Corporation's wholly-owned properties. In 2002, under the equity method of
accounting, the Corporation's share of assets and liabilities and revenues and
expenses in joint ventures is presented as a single item on the balance sheet
and statement of operations. The Corporation's total equity and net income did
not change as a result of the conversion. The following table shows the
pro-forma condensed consolidated statement of operations for the year ended
December 31, 2001 both reflecting the pro-forma impact had the change to equity
accounting for the investments in joint ventures occurred in 2001.


                                       28
<PAGE>



            CONDENSED CONSOLIDATED PRO-FORMA STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001
                                                     AS REPORTED         DISCONTINUED            PRO-FORMA            EQUITY METHOD
                                                         2001             OPERATIONS            ADJUSTMENTS               2001
                                                   -----------------    ----------------    -------------------     ----------------
<S>                                                    <C>                    <C>               <C>                    <C>
Rental revenue                                         $  8,065,011           $    (11)         $  (4,611,219)         $  3,453,781
                                                   -----------------    ----------------    -------------------     ----------------

Costs and expenses                                        6,003,846           (256,850)            (2,038,564)            3,708,432
                                                   -----------------    ----------------    -------------------     ----------------

Income (loss) before equity income from joint
        ventures, interest, other income,
        and discontinued operations                       2,061,165             256,839            (2,572,655)            (254,651)

        Equity income from joint ventures                         -                   -              2,933,198            2,933,198
        Interest income                                     417,638                   -              (327,561)               90,077
        Other income                                         47,882                   -               (32,982)               14,900
        Discontinued operations                                   -           (256,839)                      -            (256,839)
                                                   -----------------    ----------------    -------------------     ----------------
Net income                                             $  2,526,685             $     -              $       -         $  2,526,685
                                                   =================    ================    ===================     ================
</TABLE>

Net Income

         The Corporation's net income decreased by $18,049,176 to a net loss of
$15,522,491 for the year ended December 31, 2002 from net income of $2,526,685
for the year ended December 31, 2001. This decrease is primarily attributable to
expenses incurred in connection with the Transaction, including the purchase of
the Advisory Agreement, legal fees and consulting fees to Lazard Freres & Co.
LLC for its advisory and valuation services for the Corporation. In addition,
further contributing to this decrease were the legal fees associated with
defending lawsuits brought in connection with the Transaction. Partially
offsetting the increase in costs and expenses was an increase in rental revenue
of $223,656 and an increase in equity income from the investment in joint
ventures of $43,849.

Rental Revenues

         Rental revenues increased $223,656, or approximately 6%, to $3,677,437
for the year ended December 31, 2002 from $3,453,781 for the year ended December
31, 2001. The increase was due to an increase in base rent of $140,693 as well
as additional rent collected for tenant's pro-rata share of operating expense of
$107,247. These increases were partially offset by a decrease in all other
income categories of $24,284.

Costs and Expenses

         Costs and expenses for the year ended December 31, 2002 amounted to
$21,274,074 representing an increase of $17,576,840 over the year ended December
31, 2001. This increase consists of a one-time expense of $15,262,114 for the
purchase of the Advisory Agreements. The remaining costs and expenses amounted
to $6,011,960 representing an increase of $2,303,528 over $3,708,432 incurred
during the year ended December 31, 2001. The increase is primarily due to an
increase in administrative expenses incurred in connection with the Transaction,
legal, professional and consulting fees.



                                       29
<PAGE>

         Operating expenses decreased slightly despite increased insurance
costs. The Corporation experienced an increase in depreciation and amortization
expense due to real estate improvements and tenant procurement costs of $96,571.
As a result of the vote of the stockholders to liquidate the portfolio and the
resultant conversion to liquidation accounting on October 29, 2002 the
Corporation will not incur any further depreciation and amortization costs.
Property management fees increased $9,536 due to increased rental collections.

         Partnership asset management fee decreased by $507,750 for the year
ended December 31, 2002 from $871,863 for the year ended December 31, 2001. This
decrease was due to the reduction of the fee in connection with the Transaction
from a fee based on 1.25% of gross asset value of the Corporation to a set fee
of $27,778 per month through September 2002, which was further reduced to
$16,667 per month for the balance of 2002. Shelbourne Management was paid
$105,863 in partnership asset management fees for the period January 1, 2002
through February 14, 2002; $208,250 was paid to PCIC for transition fees from
February 15, 2002 through September 30, 2002, and Kestrel was paid $50,000 for
its services from October 1, 2002 through December 31, 2002.

Non-Operating Income and Expenses

         Income from the investment in joint ventures increased by $43,849, or
approximately 1% to $2,977,047 for the year ended December 31, 2002 from
$2,933,198 for the same time period in 2001. The increase is due to the
increased equity income from 568 Broadway of $194,998 and $28,359 from the Super
Valu properties. The increase was offset by a decrease of equity income from
Tri-Columbus Associates of $179,508.

         Interest expense of $142,871 was paid on the note issued to Shelbourne
Management in the Transaction. An additional interest expense of $554,492 was
incurred on the Credit Facility. No interest expense was incurred during 2001.

         Interest income decreased by $33,138, or 37% to $56,939 for the year
ended December 31, 2002 as compared to $90,077 for the year ended December 31,
2001 due to significantly lower cash balances due to the Transaction and other
fees paid.

         Other income increased for the year ended December 31, 2002 as compared
to the year ended December 31, 2001 by $30,392 or 204% to $45,292 from $14,900.
This is attributable to a real estate tax abatement received in the month of
November for Melrose Crossing II. This increase was offset due to the absence,
as a result of the conversion of the Predecessor Partnership into a REIT, of
transfer fees that were previously generated by the transfer of partnership
interests.

         Loss from discontinued operations (Melrose Crossing II) ceased on
October 29, 2002 due to the stockholders vote to liquidate the portfolio. Under
liquidation accounting, all property is considered real estate held for sale and
discontinued operations are no longer applicable.

INFLATION

         Inflation is not expected to have a material impact on the operations
of financial position of the Corporation.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The primary market risk the Corporation faces is interest rate
sensitivity. The Corporation's related party loan receivable bears interest at a
floating rate and therefore is exposed to the risk of interest rate changes. At
March 24, 2004, the loan receivable totaled $5,371,444 at an interest rate of
LIBOR plus 2.75%. Based on the balance outstanding on the Loan at March 24, 2004
and the interest rate at that date, a 1% increase in LIBOR would increase the
interest income in 2004 by approximately $604. Conversely, a 1% decrease in
LIBOR would decrease interest income in 2004 by the same amount. The gain or
loss the Corporation ultimately realizes with respect to interest rate
fluctuations will depend on the actual interest rates during that period. The
Corporation does not believe that it has any risk related to derivative
financial instruments.



                                       30
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Our consolidated balance sheets as of December 31, 2003 and 2002, and
the related consolidated statements of operations, equity and cash flows for the
years ended December 31, 2003, 2002 and 2001, and the notes thereto, and the
independent auditors' report thereon are set forth on page 48 through 70.

ITEM 8A. CONTROLS AND PROCEDURES

         As of the end of the period covered by this annual report on Form 10-K,
an evaluation was carried out under the supervision and with the participation
of the Corporation's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Corporation's disclosure controls
and procedures (as such term is defined in Rule 13a-15 (e) under the Securities
Exchange Act of 1934). Based on that evaluation, the Corporation Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of such
period, the Corporation's disclosure controls and procedures were effective as
of the end of the period covered by this report. In addition, no change in our
internal control over financial reporting (as defined in Rule 13a- 15 (f) under
the Securities Exchange Act of 1934) occurred during the fourth quarter of our
fiscal year ended December 31, 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.



                                       31
<PAGE>




                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

(a)      Directors

         The members of the Board at March 1, 2004, and the committees of the
Board on which they serve, are identified below.

<TABLE>
<CAPTION>
                                                                             Nominating and Corporate
Name                       Audit Committee       Compensation Committee       Governance Committee
----                       ---------------       ----------------------      ------------------------
<S>                        <C>                   <C>                        <C>
Michael L. Ashner
Arthur Blasberg, Jr.*               X                                                       X
Peter Braverman
John Ferrari*                                                X
Howard Goldberg*                    X                                                       X
Steven Zalkind*                     X                        X
</TABLE>

*      Independent Trustees as determined by the Nominating and Corporate
       Governance Committee in accordance with Sections 121A of the listing
       standards of the American Stock Exchange.

Set forth below is the business experience of, and certain other information
       regarding, the two director nominees and the Company's Directors.

<TABLE>
<CAPTION>
Name  and  year  first  became  a
Director of the Company              Age      Principal Occupation during the past Five Years
-----------------------              ---      -----------------------------------------------
<S>                                  <C>      <C>
CLASS III-TERM EXPIRING AT THE 2004 ANNUAL MEETING OF STOCKHOLDERS

John Ferrari                         50       Mr. Ferrari has been a Managing Director of Manhattan East Suite
  2002                                        Hotels, a New York based hotel management company that operates ten
                                              hotels (2,100 rooms) in New York City, since 1996. Mr. Ferrari is
                                              responsible for the day-to-day operations of the company and for all
                                              acquisitions and development of new ventures.


Howard Goldberg                      58       Mr. Goldberg has been a private investor and has provided consulting
                                              services to start-up companies since 1999. Mr. Goldberg presently
                                              serves as a part-time consultant to Laser Lock Technologies, Inc., a
                                              company in the security and advertising business, performing duties
                                              consistent with that of a chief operating officer. From 1994 through
                                              1998, Mr. Goldberg served as President and Chief Executive Officer of
                                              Player's International, a public company in the gaming business,
                                              prior to its being sold to Harrah's Entertainment Inc. In addition,
                                              from 1995 to 2000, Mr. Goldberg served on the board of directors of
                                              Imall Inc., a public company that provided on-line shopping and which
                                              was ultimately sold to Excite-at-Home. Mr. Goldberg has a law degree
                                              from New York University and was previously the managing partner of a
                                              large New Jersey law firm. Mr. Goldberg is a director and serves on
                                              the audit committee of First Union Real Estate Equity and Mortgage
                                              Investments ("First Union"), a real estate investment trust. Mr.
                                              Goldberg also sits on the Advisory Board of WinWin, a company
                                              specializing in foreign charitable lotteries.


                                                        32
<PAGE>


CLASS I-TERM EXPIRING AT THE 2005 ANNUAL MEETING OF STOCKHOLDERS

Michael L. Ashner                    51      Mr. Ashner has been a director, President, Chairman and Chief
    2001*                                    Executive Officer of the Company since August 19, 2002. Mr. Ashner
                                             also served as a director, President, Chairman and Chief Executive
                                             Officer of the Company from February 8, 2001 until August 15, 2002.
                                             Mr. Ashner is and has been the Chief Executive Officer of Winthrop
                                             Financial Associates, A Limited Partnership, since 1996, and the
                                             Chief Executive Officer of The Newkirk Group, since 1997, two real
                                             estate investment and management companies controlling approximately
                                             $3.5 billion of commercial real estate throughout the United States.
                                             Effective December 31, 2003, Mr. Ashner was appointed as the Chief
                                             Executive Officer and President of First Union. Mr. Ashner currently
                                             serves as a director of Greate Bay Hotel and Casino Inc., and NBTY,
                                             Inc.


Peter Braverman                      52       Mr. Braverman has been a director and Vice President of the Company
                                              since August 19, 2002. Mr. Braverman also served as a Vice President
                                              of the Company from February 8, 2001 until August 15, 2001. Mr.
                                              Braverman is and has been the Executive Vice President of Winthrop
                                              Financial Associates, A Limited Partnership, since 1996, and the
                                              Executive Vice President of The Newkirk Group, since 1997, two real
                                              estate investment and management companies controlling approximately
                                              $3.5 billion of commercial real estate throughout the United States.
                                              Effective January 8, 2004, Mr. Braverman was appointed as the
                                              Executive Vice President First Union.


CLASS II-TERM EXPIRING AT THE 2006 ANNUAL MEETING OF STOCKHOLDERS

Arthur Blasberg, Jr.                 76       Mr. Blasberg's activities for the past five years include appointment
                                              by the Superior Court in Massachusetts to serve as a receiver of
                                              various businesses (including real estate investment companies), as a
                                              special master and as the trustee of a trust holding undeveloped land
                                              and a trust whose main asset was a limited partnership interest in a
                                              cogeneration plant. Mr. Blasberg serves as a director of several
                                              private companies and previously served as the receiver and
                                              liquidating trustee of The March Company, Inc., a real estate
                                              investment firm which acted as the general partner and/or limited
                                              partner in over 250 limited partnerships. Mr. Blasberg is an attorney
                                              admitted to practice in the Commonwealth of Massachusetts and
                                              previously served for five years in the general counsel's office of
                                              the Securities and Exchange Commission. Mr. Blasberg is a director
                                              and serves on the audit committee of First Union.


Steven Zalkind                       62       Mr. Zalkind has been a principal with Resource Investments Limited,
                                              L.L.C., a real estate management and investment company that owns,
                                              operates and manages over 6,000 apartment units and 500,000 square
                                              feet of retail shopping centers, for the past five years. Mr. Zalkind
                                              has extensive experience in the operation, management and financing
                                              of real estate projects including apartment buildings, shopping
                                              centers and office buildings and has been involved in real estate
                                              acquisitions and resales totaling in excess of $1.5 billion.
</TABLE>


*     Mr. Ashner was a director from April 18, 2001 to August 15, 2001 at which
      time he resigned. He became a director again on August 19, 2002 and has
      held that position since such date.


                                       33
<PAGE>


         Each of the foregoing directors also serves as directors of Shelbourne
Properties II, Inc. and Shelbourne Properties III, Inc.

         The Board has determined that Mr. Blasberg is an "audit committee
financial expert" as defined in Item 401(h)(2) of Regulation S-K. Although
Messrs. Blasberg and Goldberg serve as members of the Audit Committee for each
of First Union Real Estate Equity and Mortgage Investments, Shelbourne
Properties II, Inc. and Shelbourne Properties III, Inc., the Board has
determined that their serving on such committees will not have a negative impact
on their ability to serve on the Board's Audit Committee.


(b)      Executive Officers

         Set forth below is certain information regarding the executive officers
and certain other officers of the Company:

    Name                 Age    Current Position
    ------------------   ---    ----------------------------------------------
    Michael L. Ashner    51     President, Chairman and Chief Executive Officer
    Peter Braverman      52     Executive Vice President
    Carolyn Tiffany      37     Chief Financial Officer, Secretary and Treasurer


         Officers serve at the discretion of the Board.

         Information regarding Messrs. Ashner and Braverman is included in Item
10(a) above.

         Ms. Tiffany has been the Chief Financial Officer and Treasurer of the
Company since August 19, 2002. Ms. Tiffany has been with Winthrop Financial
Associates since January 1993. Ms. Tiffany was a Vice President in the asset
management and investor relations departments of Winthrop Financial Associates
from October 1995 to December 1997, at which time she became the Chief Operating
Officer of Winthrop Financial Associates. In addition, Ms. Tiffany is the Chief
Operating Officer of The Newkirk Group and, since January 8, 2004, the Chief
Operating Officer of First Union.

ITEM 11. EXECUTIVE COMPENSATION

         For the period from January 1, 2002 to August 19, 2002, the executive
officers of the Company during such period were employed by Shelbourne
Management LLC. For the period from August 19, 2002 through the end of 2002, the
executive officers of the Company were employed by First Winthrop Corporation.
The executive officers received no remuneration from the Company but were
compensated by Shelbourne Management LLC or First Winthrop Corporation, as the
case may be, in their capacities as officers and employees of that company, as
shown in the table under "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

COMPENSATION OF DIRECTORS

         The Company's prior non-employee directors, Messrs. Bebon, Coons and
Martin in 2001 and until August 19, 2002 received $6,667 annually for their
services as directors. The Company's current non-employee directors, Messrs.
Blasberg, Ferrari, Goldberg and Zalkind will receive $10,000 annually for their
services as directors and $500 for each applicable committee meeting they
attend. Directors of the Company who are also officers of the Company receive no
additional compensation for serving on the Board. However, all directors are
reimbursed for travel expenses and other out-of-pocket expenses incurred in
connection with their service on the Board.



                                       34
<PAGE>

         In addition, solely for their services as members of the Special
Committee, which was organized to review and evaluate the fairness of the
February 2002 repurchase by the Company of the shares held by PCIC, former
directors Michael Bebon, Donald W. Coons and Robert Martin received a one-time
payment of $20,000.

         In consideration of the significant time and efforts that each of the
former directors made as a member of the Board prior to August 19, 2002, at
which time the Board was reconstituted as described above, including, among
other things, evaluating strategic alternatives to enhance stockholder value,
arranging for financing and otherwise managing the business of the Company, the
prior Board authorized a one-time payment of $75,000 to each of Robert Martin,
W. Edward Scheetz and Donald W. Coons.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Michael L. Ashner, a director and the Chief Executive Officer of the
Company, also serves as the Chief Executive Officer and director of Kestrel
Management Corp., the general partner of Kestrel Management, L.P. ("Kestrel"),
the entity that provides asset and property management services to the Company.
Similarly, Peter Braverman, a director and Vice President of the Company, also
serves as a Vice President of Kestrel Management Corp.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information as of March 1, 2004
(except as otherwise indicated) regarding the ownership of Common Stock by (i)
each person who is known to the Company to be the beneficial owner of more than
5% of the outstanding shares of Common Stock, (ii) each director and nominee for
director, (iii) each executive officer named in the Summary Compensation Table
contained herein, and (iv) all current executive officers and directors of the
Company as a group. Except as otherwise indicated, each such stockholder has
sole voting and investment power with respect to the shares beneficially owned
by such stockholder.


<TABLE>
<CAPTION>
                                                                          AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER    POSITION WITH THE COMPANY         BENEFICIAL OWNERSHIP        PERCENT OF CLASS
------------------------------------    -------------------------        ---------------------        ----------------
<S>                                     <C>                                     <C>                         <C>
HX Investors, L.P.                       Stockholder                            328,484(1)                  41.64%
100 Jericho Quadrangle
Suite 214
Jericho, NY 11753

Michael L. Ashner                        Director, President                    328,484(2)                  41.64%
100 Jericho Quadrangle                    and Chief Executive
Suite 214                                 Officer
Jericho, NY 11753

Arthur Blasberg, Jr.                     Director                                     0                      0

Peter Braverman                          Director and Executive                       0                      0
                                          Vice President

John Ferrari                             Director                                     0                      0
</TABLE>



                                       35
<PAGE>



<TABLE>
<CAPTION>
                                                                          AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER    POSITION WITH THE COMPANY         BENEFICIAL OWNERSHIP        PERCENT OF CLASS
------------------------------------    -------------------------        ---------------------        ----------------
<S>                                     <C>                                     <C>                         <C>
Howard Goldberg                          Director                                     0                      0

Carolyn Tiffany                          Chief Financial Officer                      0                      0
                                          and Treasurer

Steven Zalkind                           Director                                    10                      *

All directors and executive                                                     328,494                     41.64%
officers as a group
</TABLE>

------------------------

*Less than 1%

(1)   Based upon information contained in a Form 4 filed by HX Investors, L.P.
      ("HX") with the Securities and Exchange Commission.

(2)   Comprised of shares owned by HX. As the sole stockholder of Exeter Capital
      Corporation, the sole general partner of HX, Mr. Ashner may be deemed to
      beneficially own all shares owned by HX.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's executive officers, directors and persons
who beneficially own greater than 10% of a registered class of the Company's
equity securities to file certain reports ("Section 16 Reports") with the
Securities and Exchange Commission with respect to ownership and changes in
ownership of the Common Stock and other equity securities of the Company. Based
solely on the Company's review of the Section 16 Reports furnished to the
Company and written representations from certain reporting persons, all Section
16(a) requirements applicable to its officers, directors and greater than 10%
beneficial owners have been complied with.

         Peter Braverman owns a 10% limited partner interest in HX. Accordingly,
Mr. Braverman owns an indirect pecuniary interest in approximately 35,286 of the
shares of Common Stock owned by HX. However, as a limited partner in HX, Mr.
Braverman does not exercise investment control over the HX shares. Accordingly,
Mr. Braverman is not deemed to beneficially own any of such shares under Section
13 or Section 16 of the Exchange Act.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         During the years ended December 31, 2001, 2002 and 2003, property
management services (the "Property Management Services") and asset management
services, investor relation services and accounting services (the "Asset
Management Services") have been provided to (i) the Predecessor Partnership by
affiliates of the general partners of the Predecessor Partnership's (the
"Predecessor General Partners") and (ii) the Company by affiliates of the
Company.

ASSET MANAGEMENT SERVICES

         For the period January 1, 2001 through April 16, 2001, an affiliate of
the Predecessor General Partners, Resources Supervisory, provided Asset
Management Services for an annual fee equal to 1.25% of the Predecessor
Partnership's gross asset value. In addition, the Predecessor Partnership was
obligated to (i) pay $200,000 for non-accountable expenses and (ii) reimburse
Resources Supervisory for expenses incurred in connection with the performance
of its services.


                                       36
<PAGE>

         Effective April 17, 2001 through February 14, 2002, Shelbourne
Management LLC ("Shelbourne Management"), a wholly-owned subsidiary of Presidio
Capital Investment Company, LLC ("PCIC"), provided asset management services to
the Company pursuant to the terms of an Advisory Agreement (the "Advisory
Agreement") between the Corporation, the Operating Partnership and Shelbourne
Management. Pursuant to the terms of the Advisory Agreement, the Corporation was
obligated to pay for asset management services, an annual asset management fee,
payable quarterly, equal to 1.25% of the Corporation's gross asset value as of
the last day of each year. In addition, the Corporation was obligated to (i) pay
$200,000 for non-accountable expenses and (ii) reimburse Shelbourne Management
for expenses incurred in connection with the performance of its services.

                  Effective February 14, 2002, in connection with the
Transaction (as described below), PCIC began providing such services for a
reduced fee of $333,333 per annum (the "Transaction Management Fee"). Both
Shelbourne Management and PCIC were affiliates of the then management of the
Corporation.

                  Effective October 1, 2002, as contemplated by the Plan of
Liquidation, the agreement with PCIC was terminated and Kestrel Management, L.P.
("Kestrel") began providing the Asset Management Services for a fee of $200,000
per annum. Kestrel is an affiliate of the Corporation's current Chief Executive
Officer.

PROPERTY MANAGEMENT SERVICES

         During the years ended December 31, 2001, 2002 and 2003, property
management services were provided by Kestrel pursuant to agreements that provide
for a fee of up to 3% of property revenue.

         The following table summarizes the amounts paid to affiliates for
Expense Reimbursements, Asset Management Fees, Transition Management Fee and
Property Management Fees and for the twelve-month periods ended December 31,
2003, 2002 and 2001. All numbers in the tables below include the Corporation's
share of fees paid to Kestrel by properties owned by joint ventures in which the
Corporation currently has or previously had an interest.

YEAR ENDED DECEMBER 31, 2003

<TABLE>
<CAPTION>
                                             Resources       Shelbourne
                                            Supervisory      Management       Kestrel
                                            -----------      ----------       -------
<S>                                        <C>              <C>             <C>
         Expense Reimbursement             $      -         $      -        $      -
         Asset Management Fee
         Property Management Fees                 -                -         124,796
</TABLE>


YEAR ENDED DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                             Resources       Shelbourne
                                            Supervisory      Management       Kestrel
                                            -----------      ----------       -------
<S>                                        <C>              <C>             <C>
         Expense Reimbursement             $      -        $  25,000        $      -
         Asset Management Fee                     -          105,863          50,000
         Transition Management Fee                -          208,250               -
         Property Management Fees                 -                -         246,833
</TABLE>


YEAR ENDED DECEMBER 31, 2001


<TABLE>
<CAPTION>
                                             Resources       Shelbourne
                                            Supervisory      Management       Kestrel
                                            -----------      ----------       -------
<S>                                        <C>              <C>             <C>
         Expense Reimbursement             $   59,444       $  140,556        $      -
         Asset Management Fee                 394,808          477,055               -
         Property Management Fees                   -                -         235,036
</TABLE>


                                       37
<PAGE>

ALLOCATIONS OF DIVIDENDS BY THE CORPORATION

         Dividends payable to affiliates for the years ended December 31, 2003,
2002 and 2001 on account of shares of common stock owned are as follows:

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                            2003           2002            2001
                                                            ----           ----            ----
<S>                                                    <C>             <C>                <C>
        Presidio Capital Investment Company LLC        $        -      $        -         $  720,373
        HX Investors, L.P.                              13,270,754      2,709,993             60,027
</TABLE>


         In addition, effective August 19, 2002, in connection with the
settlement of the lawsuit brought by HX Investors L.P. ("HX Investors"),
Shelbourne Management agreed to pay to HX Investors approximately 42% of the
amounts paid to Shelbourne Management with respect to the Class A units.
Distributions paid to Shelbourne Management on account of its Class A units for
the years ended December 31, 2003 and 2002 were $36,076 and $42,584,
respectively, of which $14,312 and $7,720, respectively, were paid by Shelbourne
Management to HX Investors pursuant to their agreement.

THE TRANSACTION

         On February 14, 2002, the Corporation, Shelbourne Properties I, Inc.
and Shelbourne Properties II, Inc. (the "Companies") consummated a transaction
(the "Transaction") whereby the Corporation purchased the 385,226 shares of the
Corporation's common stock held by subsidiaries of PCIC and the Advisory
Agreement was contributed to the Operating Partnership. Pursuant to the
Transaction, the Corporation paid PCIC $11,830,337 in cash and the Operating
Partnership issued preferred partnership interests with an aggregate liquidation
preference of $672,178 and a note in the amount of $14,589,936. This note was
satisfied in April 2002 from the proceeds of the Credit Facility. The
liquidation preference was eliminated on January 15, 2003 in connection with the
Accotel transaction.

RELATED PARTY LOAN RECEIVABLE

         In connection with the Fleet Loan financing, the Corporation,
Shelbourne Properties I, Inc. and Shelbourne Properties II, Inc. entered into
Indemnity, Contribution and Subrogation Agreements, the purpose and intent of
which was to place operating partnerships in the same position (as among each
other) as each would have been had the lender made three separate loans. Under
the terms of the Fleet Loan, the Corporation was required to utilize a portion
of its proceeds generated by property sales to make principal payments on the
Fleet Loan on behalf of Shelbourne Properties II, Inc. and Shelbourne Properties
I, Inc. In accordance with the terms of the Indemnity, Contribution and
Subrogation Agreements, the portion of the principal payments made by the
Corporation that were allocable to Shelbourne Properties II, Inc. were recorded
as a loan receivable. The loan due from Shelbourne Properties II, Inc. is
secured by Shelbourne Properties II, Inc.'s interests in the entities that own
its properties and requires payments of interest under the same terms as the
Fleet Loan, which is LIBOR plus 2.75% (3.875% at December 31, 2003). The
principal and accrued interest due to the Corporation at December 31, 2003 from
Shelbourne Properties II, Inc. is $5,383,586. On December 11, 2003 the loan due
from Shelbourne Properties I, Inc. was repaid in full to the Corporation. During
2003, the Corporation earned interest income of $30,956 related to the loans
receivable.


                                       38
<PAGE>




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The following table summarizes the aggregate fees billed to Shelbourne
III by the independent auditor:


($ in '000s)                              2003                 2002
                                     ---------------      ---------------
Audit Fees (a)                             40                   67

Audit-Related Fees (b)                     --                   17

Tax Fees (c)                               26                   29

All Other Fees                             --                   --

                                     ---------------      ---------------
Total                                      66                  113

(a)  Fees for audit services billed or expected to be billed relating to fiscal
     2003 and 2002 consisted of:

     o    Audit of the Company's annual financial statements

     o    Reviews of the Company's quarterly financial statements

(b)  Fees for audit-related services provided during fiscal 2002 consisted of
     financial accounting and reporting consultations


(c)  Fees for tax services provided during fiscal 2003 and 2002 consisted of
     fees for tax compliance services. Tax compliance services are services
     rendered based upon facts already in existence or transactions that have
     already occurred to document, compute, and obtain government approval for
     amounts to be included in tax filings and consisted of:

          i.   Federal, state and local income tax return assistance

          ii.  REIT compliance

          iii. Assistance with tax audits and appeals

Memo:  Ratio of Tax Planning and Advice Fees and All Other      0:1        0:1
           Fees to Audit Fees, Audit-Related Fees and Tax
           Compliance Fees


In considering the nature of the services provided by the independent auditor,
the Audit Committee determined that such services are compatible with the
provision of independent audit services. The Audit Committee discussed these
services with the independent auditor and Company management to determine that
they are permitted under the rules and regulations concerning auditor
independence promulgated by the U.S. Securities and Exchange Commission (the
"SEC") to implement the Sarbanes-Oxley Act of 2002, as well as the American
Institute of Certified Public Accountants.

         The Corporation has a policy of requiring that the Audit Committee
pre-approve all audit and non-audit services provided to the Corporation by the
auditor of its financial statements. During 2003, the Audit Committee approved
all of the fees paid to Deloitte & Touche LLP by the Corporation.



                                       39
<PAGE>



                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (A)      FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

         (1)      Financial Statements

                  Independent Auditors' Report

                  Consolidated Statements of Net Assets of December 31, 2003 and
                  December 31, 2002 (Liquidation Basis)

                  Consolidated Statements of Operations and Changes in Net
                  Assets for the Year Ended December 31, 2003, the Period
                  October 30, 2002 to December 31, 2002 (Liquidation Basis), and
                  Consolidated Statements of Operations for the Period January
                  1, 2002 to October 29, 2002 and for the Year Ended December
                  31, 2001 (Going Concern Basis)

                  Consolidated Statements of Equity for the Period January 1,
                  2002 to October 29, 2002 and the Year Ended December 31, 2001
                  (Going Concern Basis)

                  Consolidated Statements of Cash Flows for the Year Ended
                  December 31, 2003, the Period October 30, 2002 to December 31,
                  2002 (Liquidation Basis) and January 1, 2002 to October 29,
                  2002 and for the Year Ended December 31, 2001 (Going Concern
                  Basis)

         (2)      Notes to Consolidated Financial Statements

                  All schedules are omitted because they are not applicable or
                  not required.

         (B)      REPORTS ON FORM 8-K

                  None

         (C)      EXHIBITS

         EXHIBIT
         NUMBER            DESCRIPTION

         2.1      Stock Purchase Agreement among HX Investors, Exeter Capital
                  Corporation and the Company (4)
         2.2      Amendment No. 1 to Stock Purchase Agreement (6)
         2.3      Plan of Liquidation (6)
         3.1      Amended and Restated Certificate of Incorporation of the
                  Company (1)
         3.2      Amended and Restated Bylaws of the Company(1)
         4.1      Limited Partnership of the operating partnership (1)
         4.2      Stockholder Rights Agreement (1)
         4.3      Amendment to Stockholder Rights Agreement (2)
         4.4      Restated  Partnership  Unit  Designation for 5% Class A
                  Preferred  Partnership  Units  (incorporated  by reference to
                  Exhibit E-1 of Exhibit 10.4) (9)
         4.5      Stockholder  Agreement,  among the Companies and HX Investors,
                  LP and Exeter Capital Corporation,  dated as of
                  April 30, 2002 (3)
         4.6      Amendment No. 2 to Stockholder Rights Agreement (5)
         4.7      Partnership Unit Designation of the Class B Partnership Units
                  of the Operating Partnership(8)
         10.1     Settlement Agreement and Mutual Release between HX Investors,
                  the Companies and Shelbourne Management (4)
         10.2     Amendment No. 1 to Settlement Agreement     (6)
         10.3     Purchase Agreement, dated as of January 15, 2003, between the
                  Shelbourne JV LLC and Realty Holdings of America,  LLC (9)


                                       40
<PAGE>

         10.4     Agreement, dated as of January 15, 2003, among Presidio
                  Capital Investment Company, LLC (and certain of its
                  subsidiaries), Shelbourne Management, NorthStar Capital
                  Investment Corp., each of the Shelbourne REITs and its
                  operating partnership and HX Investors, L.P. (9)
         10.5     Loan Agreement, dated as of February 19, 2003, among
                  Shelbourne Properties I L.P., Shelbourne Properties II L.P.,
                  Shelbourne Properties III L.P., Shelbourne Richmond Company
                  LLC, Shelbourne Matthews Company LLC, Shelbourne Las Vegas
                  Company LLC, Century Park I Joint Venture, Seattle Landmark
                  Joint Venture, Tri-Columbus Associates and Fleet National Bank
                  and the other lending institutions which may become party
                  thereto and Fleet National Bank, as agent (10)
         10.6     Form of Guaranty, dated as of February 19, 2003, from
                  Shelbourne Properties III, Inc. and Shelbourne Properties III
                  L.P. (10)
         10.7     Form of Indemnity,  Contribution and Subrogation Agreement,
                  dated as of February 19, 2003, among the REITs and the
                  operating partnerships (10)
         10.8     Form of Deed of Trust, Assignment of Leases and Rents,
                  Security Agreement and Fixture Filing with respect to the
                  Collateral Properties dated as of February 19, 2003 in favor
                  of Fleet National Bank (10)
         10.9     Cash Management Agreement, dated February 19, 2003, among
                  Shelbourne Properties I L.P., Shelbourne Properties II L.P.,
                  Shelbourne Properties III L.P., Fleet National Bank, as agent
                  for itself and the Lenders, and various subsidiaries of the
                  Shelbourne OP's listed on Exhibit A thereto (10)
         31       Certification Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.
         32       Certification Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002.

------------------

(1)   incorporated by reference to the Registration Statement of the Company on
      Form S-4 filed on February 11, 2000, as amended
(2)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on February 14, 2002
(3)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on May 14, 2002.
(4)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on July 2, 2002.
(5)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on July 8, 2002
(6)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on August 5, 2002
(7)   incorporated by reference to Appendix A to the Company's Definitive Proxy
      Statement on Schedule 14A filed on September 27, 2002
(8)   incorporated by reference to the Quarterly Report on Form 10-Q of the
      Company filed on November 14, 2002.
(9)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on January 15, 2003.
(10)  incorporated by reference to the Current Report of the Company on Form 8-K
      filed on February 24, 2003.



                                       41
<PAGE>


                                   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.

Dated:  March 25, 2004                  By:   /s/ Michael L. Ashner
                                           ------------------------
                                                 Michael L. Ashner
                                                 Chief Executive Officer


Dated:  March 25, 2004                  By:   /s/ Carolyn B. Tiffany
                                           -------------------------
                                                 Carolyn B. Tiffany
                                                 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 and in the capacities and on the dates indicated.



<TABLE>
<CAPTION>
                    NAME                                            TITLE                               DATE
                    ----                                            -----                               ----
<S>                                              <C>                                              <C>
        /s/    Michael L. Ashner                 Chief Executive Officer and Director              March 25, 2004
       -------------------------
              MICHAEL L. ASHNER

      /s/    Arthur Blasberg, Jr.                Director                                          March 25, 2004
       -------------------------
            ARTHUR BLASBERG, JR.

       /s/    Howard Goldberg                    Director                                          March 25, 2004
       -------------------------
               HOWARD GOLDBERG

           /s/    Steven Zalkind                 Director                                          March 25, 2004
       -------------------------
               STEVEN ZALKIND
</TABLE>


                                       42
<PAGE>




                         SHELBOURNE PROPERTIES III, INC.
                 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003


EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit
Number                                               Description                                          Page
------                                               -----------                                          ----
<S>       <C>                                                                                             <C>
2.1      Stock Purchase Agreement among HX Investors, Exeter Capital Corporation
         and the Company                                                                                  (4)
2.2      Amendment No. 1 to Stock Purchase Agreement                                                      (6)
2.3      Plan of Liquidation                                                                              (6)
3.1      Amended and Restated Certificate of Incorporation of the Company                                 (1)
3.2      Amended and Restated Bylaws of the Corporation                                                   (1)
4.1      Limited Partnership of the operating partnership                                                 (1)
4.2      Stockholder Rights Agreement                                                                     (1)
4.3      Amendment to Stockholder Rights Agreement                                                        (2)
4.4      Restated Partnership Unit Designation for 5% Class A Preferred Partnership Units
         (incorporated by reference to Exhibit E-1 of Exhibit 10.4)                                       (9)
4.5      Stockholder Agreement, among the Companies and HX Investors, LP and
         Exeter Capital Corporation, dated as of April 30, 2002                                           (3)
4.6      Amendment No. 2 to Stockholder Rights Agreement                                                  (5)
4.7      Partnership Unit Designation of the Class B Partnership Units of the Operating Partnership       (8)

10.1     Settlement Agreement and Mutual Release between HX Investors,
         the Companies and Shelbourne Management                                                          (4)
10.2     Amendment No. 1 to Settlement Agreement                                                          (6)
10.3     Purchase Agreement, dated as of January 15, 2003, between the Shelbourne
         JV LLC and Realty Holdings of America, LLC                                                       (9)
10.4     Agreement, dated as of January 15, 2003, among Presidio Capital Investment
         Company, LLC (and certain of its subsidiaries), Shelbourne Management,
         NorthStar Capital Investment Corp., each of the Shelbourne REITs and its
         operating partnership and HX Investors, L.P.                                                     (9)
10.5     Loan Agreement, dated as of February 19, 2003, among Shelbourne Properties I L.P.,               (10)
         Shelbourne Properties II L.P., Shelbourne Properties III L.P.,
         Shelbourne Richmond Company LLC, Shelbourne Matthews Company LLC,
         Shelbourne Las Vegas Company LLC, Century Park I Joint Venture, Seattle
         Landmark Joint Venture, Tri-Columbus Associates and Fleet National Bank
         and the other lending institutions which may become party thereto and
         Fleet National Bank, as agent
10.6     Form of Guaranty, dated as of February 19, 2003, from Shelbourne Properties III, Inc. and        (10)
         Shelbourne Properties III L.P.
10.7     Form of Indemnity, Contribution and Subrogation Agreement, dated as of February                  (10)
         19, 2003, among the REITs and the operating partnerships
10.8     Form of Deed of Trust, Assignment of Leases and Rents, Security Agreement                        (10)
         and Fixture Filing with respect to the Collateral Properties dated as of February 19, 2003
         in favor of Fleet National Bank
10.9     Cash Management Agreement, dated February 19, 2003, among Shelbourne Properties                  (10)
         I L.P., Shelbourne Properties II L.P., Shelbourne Properties III L.P., Fleet National Bank,
         as agent for itself and the Lenders, and various subsidiaries of the Shelbourne OP's listed
         on Exhibit A thereto
31       Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                          45
32       Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                          47
</TABLE>


                                       43
<PAGE>


------------------

(1)   incorporated by reference to the Registration Statement of the Company on
      Form S-4 filed on February 11, 2000, as amended

(2)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on February 14, 2002

(3)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on May 14, 2002.

(4)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on July 2, 2002.

(5)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on July 8, 2002

(6)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on August 5, 2002

(7)   incorporated by reference to Appendix A to the Company's Definitive Proxy
      Statement on Schedule 14A filed on September 27, 2002

(8)   incorporated by reference to the Quarterly Report on Form 10-Q of the
      Company filed on November 14, 2002.

(9)   incorporated by reference to the Current Report of the Company on Form 8-K
      filed on January 15, 2003.

(10)  incorporated by reference to the Current Report of the Company on Form 8-K
      filed on February 24, 2003.



                                       44
<PAGE>


                                   EXHIBIT 31

                         SHELBOURNE PROPERTIES III, INC.
                 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

                                 CERTIFICATIONS

I, Michael L. Ashner, in the capacities indicated below, certify that:

1.    I have reviewed this annual report on Form 10-K of Shelbourne Properties
      III, Inc.;

2.    Based on my knowledge, this 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
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this 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 report;

4.    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

      a)   Designed such disclosure controls and procedures, or caused such
           disclosure controls and procedures to be designed under our
           supervision, 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 report is being prepared;

      b)   Evaluated the effectiveness of the registrant's disclosure controls
           and procedures and presented in this report our conclusions about the
           effectiveness of the disclosure controls and procedures, as of the
           end of the period covered by this report based on such evaluation;
           and

      c)   Disclosed in this report any change in the registrant's internal
           control over financial reporting that occurred during the
           registrant's most recent fiscal quarter (the registrant's fourth
           fiscal quarter in the case of an annual report) that has materially
           affected, or is reasonably likely to materially affect, the
           registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of the
      registrant's board of directors (or persons performing the equivalent
      function):

      a)   All significant deficiencies and material weaknesses in the design or
           operation of internal control over financial reporting which are
           reasonably likely to adversely affect the registrant's ability to
           record, process, summarize and report financial information; and

      b)   Any fraud, whether or not material, that involves management or other
           employees who have a significant role in the registrant's internal
           control over financial reporting.


      Date:  March 25, 2004          /s/ Michael L. Ashner
                                       ----------------------
                                         Michael L. Ashner
                                         Chief Executive Officer and President


                                       45
<PAGE>




                         SHELBOURNE PROPERTIES III, INC.
                 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

                                 CERTIFICATIONS

I, Carolyn Tiffany, in the capacity indicated below, certify that:

1.    I have reviewed this annual report on Form 10-K of Shelbourne Properties
      III, Inc;

2.    Based on my knowledge, this 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
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this 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 report;

4.    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
      and have:

      a)   Designed such disclosure controls and procedures, or caused such
           disclosure controls and procedures to be designed under our
           supervision, 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 report is being prepared;

      b)   Evaluated the effectiveness of the registrant's disclosure controls
           and procedures and presented in this report our conclusions about the
           effectiveness of the disclosure controls and procedures, as of the
           end of the period covered by this report based on such evaluation;
           and

      c)   Disclosed in this report any change in the registrant's internal
           control over financial reporting that occurred during the
           registrant's most recent fiscal quarter (the registrant's fourth
           fiscal quarter in the case of an annual report) that has materially
           affected, or is reasonably likely to materially affect, the
           registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of the
      registrant's board of directors (or persons performing the equivalent
      function):

      a)   All significant deficiencies and material weaknesses in the design or
           operation of internal control over financial reporting which are
           reasonably likely to adversely affect the registrant's ability to
           record, process, summarize and report financial information; and

      b)   Any fraud, whether or not material, that involves management or other
           employees who have a significant role in the registrant's internal
           control over financial reporting.


      Date:  March 25, 2004                  /s/ Carolyn Tiffany
                                               --------------------
                                                 Carolyn Tiffany
                                                 Chief Financial Officer




                                       46
<PAGE>


                                   Exhibit 32


                         SHELBOURNE PROPERTIES III, INC.
                 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003


                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

                  In connection with the Annual Report of Shelbourne Properties
III, Inc., (the "Company"), on Form 10-K for the year ended December 31, 2003,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), the undersigned, in the capacities and on the date indicated below,
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities and
Exchange Act of 1934; and (2) the information contained in the Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.

         Date:  March 25, 2004                /s/ Michael L. Ashner
                                                  ---------------------
                                                  Michael L. Ashner
                                                  Chief Executive Officer


         Date:  March 25, 2004                /s/ Carolyn B. Tiffany
                                                  ----------------------
                                                  Carolyn B. Tiffany
                                                  Chief Financial Officer




                                       47
<PAGE>


                              ANNUAL REPORT ON 10-K
                               ITEM 8 AND 15(A)(2)




                         SHELBOURNE PROPERTIES III, INC.

                             A DELAWARE CORPORATION

                        CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

                                    I N D E X

<TABLE>
<CAPTION>
<S>                                                                                                             <C>
                                                                                                                Page
  Number

Independent Auditors' Report......................................................................................49

Consolidated Financial Statements, years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Net Assets (Liquidation Basis) as of December 31, 2003 and 2002........................50

Consolidated Statements of Operations and Changes in Net Assets for the Year
Ended December 31, 2003 (Liquidation Basis), the Period October 30, 2002 to
December 31, 2002 (Liquidation Basis) and Consolidated Statements of Operations
for the Period January 1, 2002 to October 29, 2002 and for the Year Ended
December 31, 2001 (Going Concern Basis)...........................................................................51

Consolidated Statements of Equity (Going Concern Basis) for the Period January
1, 2002 to October 29, 2002 and the Year Ended December 31, 2001 .................................................53

Consolidated Statements of Cash Flows for the Year Ended December 31, 2003
(Liquidation Basis), the Period October 30, 2002 to December 31, 2002
(Liquidation Basis) and January 1, 2002 to October 29, 2002 and for the Year
Ended December 31, 200 (Going Concern Basis)......................................................................54

Notes to Consolidated Financial Statements........................................................................56
</TABLE>




                                       48
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of Shelbourne Properties III, Inc.

We have audited the accompanying consolidated statements of net assets
(liquidation basis) of Shelbourne Properties III, Inc. (the "Corporation") as of
December 31, 2003 and 2002, and the related consolidated statements of
operations and changes in net assets (liquidation basis) and cash flows
(liquidation basis) for the year ended December 31, 2003 and for the period
October 30, 2002 to December 31, 2002. In addition, we have audited the
accompanying consolidated statements of operations, equity and cash flows for
the year ended December 31, 2001 and for the period January 1, 2002 to October
29, 2002. These financial statements are the responsibility of the Corporation'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.

As discussed in Note 1 to the financial statements, the stockholders of the
Corporation approved a plan of liquidation on October 29, 2002. As a result the
Corporation has changed its basis of accounting from the going concern basis to
the liquidation basis effective October 30, 2002.

In our opinion, such consolidated financial statements present fairly, in all
material respects (1) the net assets (liquidation basis) of the Corporation and
its subsidiaries as of December 31, 2003 and 2002, (2) the changes in their net
assets (liquidation basis) and their cash flows (liquidation basis) for the year
ended December 31, 2003 and for the period October 30, 2002 to December 31, 2002
and (3) the results of their operations (going concern basis) and their cash
flows (going concern basis) for the year ended December 31, 2001 and for the
period January 1, 2002 to October 29, 2002, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidation financial statements, because of the
inherent uncertainty of valuation when a company is in liquidation, the amounts
realizable from the disposition of the remaining assets and the amounts
creditors agree to accept in settlement of the obligations due them may differ
materially from the amount shown in the accompanying consolidated statements of
net assets as of December 31, 2003 and 2002.


DELOITTE & TOUCHE LLP

Boston, Massachusetts
March  25, 2004



                                       49
<PAGE>


            CONSOLIDATED STATEMENTS OF NET ASSETS (LIQUIDATION BASIS)
                  AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                                                                   2003                           2002
                                                                        --------------------                  ------------
  ASSETS
<S>                                                                            <C>                             <C>
  Real estate held for sale                                                    $           -                   $31,146,000
  Investment in joint ventures                                                       720,791                    37,202,673
  Cash and cash equivalents                                                       12,868,201                       260,370
  Other assets                                                                       196,059                       273,333
  Loan and accrued interest from related party                                     5,383,586                             -
  Receivables, net                                                                         -                       123,997
                                                                        --------------------                  ------------

          Total Assets                                                            19,168,637                    69,006,373
                                                                        --------------------                  ------------

  LIABILITIES

  Accounts payable and accrued expenses                                              792,630                       640,412
  Credit Facility                                                                          -                    19,718,457
  Common share dividend payable                                                   10,419,678                             -
  Class B Unitholder distribution payable                                          1,071,941                             -
  Reserve for estimated costs during the period of liquidation                     1,500,000                     1,500,000
  Deferrals of gains on real estate assets and joint ventures                              -                    28,173,687

  COMMITMENTS AND CONTINGENCIES (Note 8, 9)

  Class B Partnership Interests (Note 8)                                                   -                             -

  Class A Partnership Units, at liquidation value (Note 9)                                 -                       672,178
                                                                        --------------------                  ------------

         Total Liabilities                                                        13,784,249                    50,704,734
                                                                        --------------------                  ------------

  NET ASSETS IN LIQUIDATION                                                      $ 5,384,388                   $18,301,639
                                                                        ====================                  ============
</TABLE>



                 See notes to consolidated financial statements.




                                       50
<PAGE>


  CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR
   ENDED DECEMBER 31, 2003, THE PERIOD OCTOBER 30, 2002 TO DECEMBER 31, 2002
  (LIQUIDATION BASIS) AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD
  JANUARY 1, 2002 TO OCTOBER 29, 2002 AND FOR THE YEAR ENDED DECEMBER 31, 2001
                             (GOING CONCERN BASIS)


<TABLE>
<CAPTION>
                                                                          PERIOD
                                                                         10/30/02      PERIOD 1/1/02
                                                           2003         TO 12/31/02     TO 10/29/02                        2001
                                                       (LIQUIDATION    (LIQUIDATION   (GOING CONCERN       2002       (GOING CONCERN
                                                          BASIS)          BASIS)          BASIS)       (AGGREGATED)        BASIS)
                                                       ------------    ------------    ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>             <C>             <C>
Rental revenue                                         $  2,176,380    $    700,425    $  2,977,012    $  3,677,437    $  8,065,000
                                                       ------------    ------------    ------------    ------------    ------------

Costs and expenses:
    Operating expenses                                      789,161         221,241         754,642         975,883       1,857,916
    Depreciation and amortization                                 -               -         721,499         721,499       1,608,001
    Asset management fee                                    200,000          33,333         122,530         155,863         871,863
    Transition management fee                                     -               -         208,250         208,250               -
    Purchase of advisory agreements                               -               -      15,262,114      15,262,114               -
    Administrative expenses                               1,056,847         329,886       3,507,940       3,837,826       1,174,180
    Property management fee                                  59,957          22,968          89,671         112,639         235,036
                                                       ------------    ------------    ------------    ------------    ------------
                                                          2,105,965         607,428      20,666,646      21,274,074       5,746,996
                                                       ------------    ------------    ------------    ------------    ------------

Income (loss) before equity income from joint
ventures, interest and other income                          70,415          92,997     (17,689,634)    (17,596,637)      2,318,004

    Equity income from joint ventures                    16,940,732         510,929       2,466,118       2,977,047               -
    Gain on sale of real estate held for sale            14,081,822               -               -               -               -
    Interest expense                                       (488,007)       (133,585)       (563,778)       (697,363)              -
    Interest income                                          69,187           4,475          52,464          56,939         417,638
    Other income                                            199,382          45,292               -          45,292          47,882
                                                       ------------    ------------    ------------    ------------    ------------

Net income (loss) from continuing operations             30,873,531         520,108     (15,734,830)    (15,214,722)      2,783,524
Net loss from discontinued operations                             -               -        (265,185)       (265,185)       (256,839)
                                                       ------------    ------------    ------------    ------------    ------------

Net income (loss)                                        30,873,531         520,108     (16,000,015)    (15,479,907)      2,526,685
Preferred dividends                                         (34,076)        (21,298)        (21,286)        (42,584)              -
                                                       ------------    ------------    ------------    ------------    ------------

Net income (loss) available for common
    stockholders                                         30,839,455         498,810    $(16,021,301)   $(15,522,491)   $  2,526,685
                                                                                       ============    ============    ============

Net assets at October 29, 2002                                    -      27,872,920
Net assets in liquidation at January 1, 2003             18,301,639               -

Adjustments to liquidation basis of accounting                    -      (3,562,722)
Increase in reserve for estimated liquidation
    costs                                                  (398,698)              -

Class B Unitholder distribution                          (1,071,941)              -
Liquidating dividends- common shares                    (42,286,067)     (6,507,369)
                                                       ------------    ------------

Net assets in liquidation at end of period             $  5,384,388    $ 18,301,639
                                                       ============    ============
</TABLE>


                                                                     (CONTINUED)



                                       51
<PAGE>




  CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR
   ENDED DECEMBER 31, 2003, THE PERIOD OCTOBER 30, 2002 TO DECEMBER 31, 2002
  (LIQUIDATION BASIS) AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD
  JANUARY 1, 2002 TO OCTOBER 29, 2002 AND FOR THE YEAR ENDED DECEMBER 31, 2001
                       (GOING CONCERN BASIS) (CONTINUED)




<TABLE>
<CAPTION>
                                                               PERIOD
                                                              10/30/02      PERIOD 1/1/02
                                                2003         TO 12/31/02     TO 10/29/02                                2001
                                            (LIQUIDATION    (LIQUIDATION   (GOING CONCERN            2002          (GOING CONCERN
                                               BASIS)          BASIS)          BASIS)            (AGGREGATED)           BASIS)
                                            ------------    ------------    ------------         ------------       ------------
<S>                                         <C>             <C>             <C>                  <C>                <C>
Earnings (loss) per share - Basic and Diluted

Net income (loss) from continuing                                                             $       (18.24)       $      2.37
operations                                 $      39.10
Net loss from discontinued operations                 -                                       $       (0.32)        $     (0.22)
                                          --------------                                    ---------------------  -----------------
Income (loss) per common share             $      39.10                                       $       (18.56)       $      2.15
                                          ==============                                    =====================  =================
Weighted average common shares                  788,772                                              836,266          1,173,998
                                          ==============                                    =====================  =================
</TABLE>



                                                                    (CONCLUDED)


                 See notes to consolidated financial statements.


                                       52
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

             CONSOLIDATED STATEMENTS OF EQUITY (GOING CONCERN BASIS)
               FOR THE PERIOD JANUARY 1, 2002 TO OCTOBER 29, 2002
                      AND THE YEAR ENDED DECEMBER 31, 2001


<TABLE>
<CAPTION>
                                         PARTNERS' EQUITY                               STOCKHOLDERS' EQUITY
                                    --------------------------   ------------------------------------------------------------------
                                     GENERAL        LIMITED       COMMON   ADDITIONAL     TREASURY        RETAINED
                                     PARTNERS       PARTNERS      STOCK      CAPITAL        STOCK         EARNINGS         TOTAL
                                    -----------   ------------   -------   -----------   ------------   ------------   ------------
<S>                                 <C>           <C>            <C>       <C>           <C>            <C>            <C>
Balance, January 1, 2001            $ 2,769,681   $ 52,623,568   $     -   $         -   $          -   $          -   $ 55,393,249

Net income through April 17, 2001        35,103        666,956         -             -              -              -        702,059

Conversion of Partnership to REIT    (2,804,784)   (53,290,524)   11,739    56,083,569              -              -              -

Net income after conversion                   -              -         -             -              -      1,824,626      1,824,626

Distributions ($1.87 per share)               -              -         -             -              -     (2,195,376)    (2,195,376)
                                    -----------   ------------   -------   -----------   ------------   ------------   ------------

Balance, December 31, 2001                    -              -    11,739    56,083,569              -       (370,750)    55,724,558
                                    -----------   ------------   -------   -----------   ------------   ------------   ------------

Net loss                                      -              -         -             -              -    (16,000,015)   (16,000,015)

Purchase of Treasury Stock                    -              -         -             -    (11,830,337)             -    (11,830,337)

Dividends paid-Preferred                      -              -         -             -              -        (21,286)       (21,286)
                                    -----------   ------------   -------   -----------   ------------   ------------   ------------

Balance, October 29, 2002           $         -   $          -   $11,739   $56,083,569   ($11,830,337)  ($16,392,051)  $ 27,872,920
                                    ===========   ============   =======   ===========   ============   ============   ============
</TABLE>


                 See notes to consolidated financial statements.



                                       53
<PAGE>


   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2003
      (LIQUDATION BASIS), THE PERIOD OCTOBER 30, 2002 TO DECEMBER 31, 2002
   (LIQUIDATION BASIS) AND JANUARY 1, 2002 TO OCTOBER 29, 2002 (GOING CONCERN
             BASIS) AND FOR THE YEAR ENDED DECEMBER 31, 2001 (GOING
                                 CONCERN BASIS)


<TABLE>
<CAPTION>
                                                                              PERIOD
                                                                            10/30/02 TO   PERIOD 1/1/02                    2001
                                                                  2003       12/31/2002    TO 10/29/02                    (GOING
                                                             (LIQUIDATION  (LIQUIDATION  (GOING CONCERN      2002         CONCERN
                                                                 BASIS)        BASIS)        BASIS)      (AGGREGATED)      BASIS)
                                                              ------------  -----------   -------------  ------------   -----------
<S>                                                          <C>             <C>             <C>            <C>            <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)                                             $ 30,873,531  $   520,108   $(16,000,015)  $(15,479,907)  $ 2,526,685
Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
     Depreciation and amortization                                       -            -        721,499        721,499     1,608,001
     Straight line adjustment for stepped lease rentals                  -            -         34,949         34,949       (77,601)
     Change in bad debt reserve                                       (187)     (38,150)        28,576         (9,574)            -
     Purchase of advisory agreement                                      -            -     15,262,114     15,262,114             -
     Distributions in excess of earnings from joint ventures    22,472,031      285,806     11,188,628     11,474,434             -
     Loss from discontinued operations                                   -            -        265,185        265,185       256,839
     Gain on sales of real estate held for sale                (14,081,822)           -              -              -             -
Changes in operating assets and liabilities:
     Due from related parties and receivables                      111,668      (76,274)       (13,623)       (89,897)       40,487
     Other assets                                                   77,274       20,130       (927,305)      (907,175)     (435,646)
     Accounts payable and accrued expenses                        (519,961)     279,141        (94,583)       184,558          (390)
     Liquidating expenses paid                                    (398,698)           -              -              -             -
     Due to affiliates                                                   -            -              -              -      (335,041)
                                                              ------------  -----------   ------------   ------------   -----------
Net cash provided by operating activities                       38,533,836      990,761     10,465,425     11,456,186     3,583,334
                                                              ------------  -----------   ------------   ------------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Discontinued operations                                                  -            -       (245,534)  $   (245,534)  $  (205,952)
Improvements to real estate held for sale                         (153,576)           -       (538,002)  $   (538,002)  $  (281,944)
Investment in Accotel                                             (720,791)           -              -              -             -
Proceeds from sales of real estate held for sale                31,938,728            -              -              -             -
                                                              ------------  -----------   ------------   ------------   -----------

Net cash provided by (used in) investing activities             31,064,361            -       (783,536)  $   (783,536)  $  (487,896)
                                                              ------------  -----------   ------------   ------------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock                                               -            -    (11,830,337)   (11,830,337)            -
Proceeds from Fleet Loan                                        15,423,374            -              -              -             -
Paydown of Fleet Loan                                          (15,423,374)           -              -              -             -
Related party loan receivable                                   (5,371,444)           -              -              -             -
Proceeds from Credit Facility                                            -            -     19,718,457     19,718,457             -
Paydown of Credit Facility due to sales                         (6,524,820)           -              -              -             -
Payoff of Credit Facility                                      (13,193,637)           -              -              -             -
Payoff of note payable                                                   -            -    (14,589,936)   (14,589,936)            -
Dividends - Common                                             (31,866,389)  (6,507,369)             -     (6,507,369)  $(2,195,376)
Distributions paid-Class A Unitholder                              (34,076)     (42,584)             -        (42,584)            -
                                                              ------------  -----------   ------------   ------------   -----------
Net cash used in financing activities                          (56,990,366)  (6,549,953)    (6,701,816)   (13,251,769)  $(2,195,376)
                                                              ------------  -----------   ------------   ------------   -----------
</TABLE>


                                                                     (CONTINUED)


                                       54
<PAGE>



 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2003, AND
      THE PERIOD OCTOBER 30, 2002 TO DECEMBER 31, 2002 (LIQUIDATION BASIS) AND
      JANUARY 1, 2002 TO OCTOBER 29, 2002 AND FOR THE YEARS ENDED DECEMBER 31,
      2002 AND 2001 (GOING CONCERN BASIS) (CONTINUED)


<TABLE>
<CAPTION>
                                                                PERIOD
                                                              10/30/02 TO      PERIOD 1/1/02
                                                              12/31/2002        TO 10/29/02
                                                             (LIQUIDATION     (GOING CONCERN        2002
                                               2003             BASIS)            BASIS)         (AGGREGATED)            2001
                                           --------------  ----------------  ----------------  -------------------  ----------------
<S>                                           <C>              <C>                <C>               <C>                   <C>
Increase (decrease) in cash and cash
equivalents                                   12,607,831       (5,559,192)        2,980,073         (2,579,119)           900,062
                                           --------------  ----------------  ---------------  ------------------  ----------------

Cash and cash cquivalents, beginning of
period                                                 -         5,819,562       11,122,456          11,122,456        10,222,394
Cash and cash equivalents related to
investments in joint ventures                          -                 -      (8,282,967)         (8,282,967)                 -
                                           --------------  ----------------  ---------------  ------------------  ----------------
Adjusted cash and cash equivalents,
beginning of period                              260,370         5,819,562        2,839,489           2,839,489                 -
                                           --------------  ----------------  ---------------  ------------------  ----------------
Cash and cash equivalents, end of period    $ 12,868,201       $   260,370     $  5,819,562        $    260,370      $ 11,122,456
                                           ==============  ================  ===============  ==================  ================

Supplemental Disclosure of Cash Flow
Information
Cash paid for interest                        $  488,007       $   133,585     $    563,778        $    697,363      $          -
                                           ==============  ================  ===============  ==================  ================

Common share dividend payable               $ 10,419,678       $               $       -           $          -      $          -
                                           ==============  ================  ===============  ==================  ================
Class B Unitholder distribution payable     $  1,017,491       $         -     $       -           $          -      $          -
                                           ==============  ================  ===============  ==================  ================
</TABLE>


                                                                   (CONCLUDED)



                 See notes to consolidated financial statements.



                                       55
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     ORGANIZATION

       Shelbourne Properties III, Inc., a Delaware corporation (the
       "Corporation"), was formed on April 17, 2001. The Corporation's
       wholly-owned operating partnership, Shelbourne Properties III L.P., a
       Delaware limited partnership (the "Operating Partnership," and together
       with the Corporation, the "Company"), holds directly and indirectly all
       of the Company's assets. Pursuant to a merger that was consummated on
       April 17, 2001, the Operating Partnership became the successor by merger
       to High Equity Partners L.P., Series 88 (the "Predecessor Partnership").

       In August 2002, the Board of Directors adopted a Plan of Liquidation (the
       "Plan of Liquidation") and directed that the Plan of Liquidation be
       submitted to the Corporation's stockholders for approval. The
       stockholders of the Corporation approved the Plan of Liquidation at a
       Special Meeting of Stockholders held on October 29, 2002. The Plan of
       Liquidation contemplates the orderly sale of all of the Corporation's
       assets for cash or such other form of consideration as may be
       conveniently distributed to the Corporation's stockholders and the
       payment of (or provision for) the Corporation's liabilities and expenses,
       as well as to the extent deemed advisable, the establishment of a reserve
       to fund the Corporation's contingent liabilities. The Plan of Liquidation
       gives the Corporation's Board of Directors the power to sell any and all
       of the assets of the Corporation without further approval by the
       stockholders.

       The Corporation presently expects that on April 16, 2004 any then
       remaining assets and liabilities will be transferred to a liquidating
       trust. With the transfer to a liquidating trust, the liquidation will be
       completed for federal and state income tax purposes, although one or more
       distributions of the remaining cash and net proceeds from future asset
       sales may occur subsequent to the establishment of a liquidating trust.

       At such time as the assets of the Company are distributed to a
       liquidating trust, the interests in such trust will be non-transferable.
       Accordingly, investors will not be able to sell their interests in the
       liquidating trust but will receive distributions from the liquidating
       trust as the remaining assets are liquidated.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       BASIS OF PRESENTATION

       As a result of the adoption of the Plan of Liquidation and its approval
       by the Corporation's stockholders, the Corporation adopted the
       liquidation basis of accounting for the period subsequent to October 29,
       2002. Under the liquidation basis of accounting, assets are stated at
       their estimated net realizable value. Liabilities including the reserves
       for estimated costs during the period of liquidation are stated at their
       anticipated settlement amounts. The valuation of investments in joint
       ventures and real estate held for sale is based upon current contracts,
       estimates as determined by independent appraisals or other indications of
       sales values. The valuations for other assets and liabilities under the
       liquidation basis of accounting are based on management's estimates as of
       December 31, 2003 and 2002. The actual values realized for assets and
       settlement of liabilities may differ materially from the amounts
       estimated.

       The accompanying consolidated financial statements include the accounts
       of the Corporation and its wholly owned subsidiaries, the Operating
       Partnership and Shelbourne Properties III GP LLC, the general partner of
       the Operating Partnership and a wholly-owned subsidiary of the
       Corporation. Intercompany accounts and transactions have been eliminated
       in consolidation.

       As a result of the Operating Partnership incurring debt, the Corporation
       is no longer allowed to account for its investments in joint ventures on
       a pro-rata consolidation basis. The Corporation must instead utilize the
       equity method of accounting. As required, the Corporation's consolidated
       statements of operations reflect the equity method of accounting
       subsequent to January 1, 2002, and pro-rata consolidation prior to that
       date (see Investments in Joint Ventures below).



                                       56
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       ADJUSTMENTS TO LIQUIDATION BASIS OF ACCOUNTING

       On October 30, 2002, in accordance with the liquidation basis of
       accounting, assets were adjusted to estimated net realizable value and
       liabilities were adjusted to estimated settlement amounts, including
       estimated costs associated with carrying out the liquidation. The entire
       portfolio consisting of properties located in Livonia, Michigan; Melrose
       Park, Illinois; Hilliard, Ohio; New York, New York; Indianapolis,
       Indiana; Grove City, Ohio; Las Vegas, Nevada; and Orange, Ohio have been
       sold.

       The anticipated gains, which include any distributions payable to the
       Class B Unitholder associated with the adjustment in value of these real
       estate properties, have been deferred until such time as a sale occurs.
       Due to the sale of the entire portfolio, during the year ended December
       31, 2003, the Corporation recognized actual gains of $14,081,822 on the
       sale of real estate and $15,494,565 included in equity income from joint
       ventures attributable to real estate sales. As a result of these sales,
       the Corporation's deferred gain at December 31, 2002 was reduced by
       $28,173,687 to zero.

       RESERVE FOR ESTIMATED COSTS DURING THE PERIOD OF LIQUIDATION

       Under liquidation accounting, the Corporation is required to estimate and
       accrue the costs associated with executing the Plan of Liquidation. These
       amounts can vary significantly due to, among other things, the timing and
       realized proceeds from property sales, the costs of retaining agents and
       trustees to oversee the liquidation, the costs of insurance, the timing
       and amounts associated with discharging known and contingent liabilities
       and the costs associated with cessation of the Company's operations.
       These costs are estimates and are expected to be paid out over the
       liquidation period. Such costs do not include costs incurred in
       connection with ordinary operations.

       The reserve for additional costs associated with liquidation was
       $1,500,000 at December 31, 2002 and at December 31, 2003. A decrease in
       the reserve resulting from (a) professional costs associated with
       obtaining the Fleet Loan of $379,965, (b) $2,067 incurred in connection
       with the payoff of the Fleet Loan, and (c) tax planning costs of $16,666
       paid to an affiliate of Presidio Capital Investment Company, LLC in
       connection with the Accotel transaction (see note 10) was offset by an
       increase in management's estimate of costs associated with the execution
       of the Plan of Liquidation of $398,698.

       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 at the date of the financial statements and the reported
       amounts of revenues and expenses during the reporting period. Actual
       results could differ from those estimates.

       CASH EQUIVALENTS

       The Corporation considers all short-term investments that have original
       maturities of three months or less from the date of acquisition to be
       cash equivalents.



                                       57
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       RECEIVABLES

       Receivables are stated net of an allowance of doubtful accounts of
       $18,983 and $19,170 as of December 31, 2003 and 2002, respectively.

       REVENUE RECOGNITION

       Prior to the adoption of the liquidation basis of accounting, base rents
       were recognized on a straight-line basis over the terms of the related
       leases. Subsequent to the adoption of the liquidation basis of
       accounting, the amount of the previously deferred straight-line rent was
       grouped with real estate for purposes of comparing such balances to their
       net realizable value and, if such amounts when aggregated with real
       estate exceeded the net realizable value, the amount of the excess was
       included in the write-off of other assets as part of the adjustment to
       the liquidation basis of accounting. At October 29, 2002 approximately
       $356,513 of deferred straight-line rent, that was included in other
       assets, was subsequently grouped with real estate with no write-off
       required.

       Percentage rents charged to retail tenants based on sales volume are
       recognized when earned. Pursuant to Staff Accounting Bulletin No 101,
       "Revenue Recognition in Financial Statements," and the Emerging Issues
       Task Force's consensus on Issue 98-9, "Accounting for Contingent Rent in
       Interim Financial Periods," the Corporation defers recognition of
       contingent rental income (i.e., percentage/excess rent) in interim
       periods until the specified target (i.e., breakpoint) that triggers the
       contingent rental income is achieved. Recoveries from tenants for taxes,
       insurance and other operating expenses are recognized as revenue in the
       period the applicable costs are incurred.

       INVESTMENTS IN JOINT VENTURES

       Certain properties are owned in joint ventures with Shelbourne Properties
       I L.P. and/or Shelbourne Properties II L.P. Prior to April 30, 2002, the
       Corporation owned an undivided interest in the assets owned by these
       joint ventures and was severally liable for indebtedness it incurred in
       connection with its ownership interest in those properties. Therefore,
       for periods prior to January 1, 2002, the Corporation's condensed
       consolidated financial statements had presented the assets, liabilities,
       revenues and expenses of the joint ventures on a pro- rata basis in
       accordance with the Corporation's percentage of ownership.

       After April 30, 2002, as a result of the Operating Partnership's
       incurring debt in connection with entering into the Credit Facility
       discussed in Note 6, the Corporation was no longer allowed to account for
       its investments in joint ventures on a pro-rata consolidation basis in
       accordance with its percentage of ownership but must instead utilize the
       equity method of accounting. Accordingly, the Corporation's consolidated
       balance sheet at December 31, 2003 and 2002 and the Corporation's
       consolidated statements of operations commencing January 1, 2002 reflect
       the equity method of accounting.

       REAL ESTATE HELD FOR SALE

       Subsequent to the adoption of the liquidation basis of accounting, real
       estate assets were adjusted to their net realizable value and classified
       as real estate held for sale. Additionally, the Corporation suspended
       recording any further depreciation expense.

       Repairs and maintenance are charged to expense as incurred. Replacements
       and betterments are capitalized.

       DEPRECIATION AND AMORTIZATION

       Upon the adoption of the liquidation basis of accounting, deferred loan
       fees costs of $614,178 were written off to reflect the balances at their
       net realizable value. Direct lease costs associated with the real estate
       were



                                       58
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       DEPRECIATION AND AMORTIZATION (CONTINUED)

       grouped with real estate for purposes of comparing carrying amounts to
       their net realizable value, and if such amounts when aggregated with real
       estate exceeded the net realizable value, these costs were written off.

       Prior to the Corporation adopting the liquidation basis of accounting,
       depreciation was computed using the straight-line method over the useful
       life of the property, which was estimated to be 40 years. The cost of
       properties represented the initial cost of the properties to the Company
       plus acquisition and closing costs less impairment adjustments. Tenant
       improvements, leasing costs and deferred loan fees were amortized over
       the applicable lease term.

       INCOME TAXES

       The Corporation is operating with the intention of qualifying as a real
       estate investment trust ("REIT") under Sections 856-860 of the Internal
       Revenue Code of 1986 as amended. Under those sections, a REIT which pays
       at least 90% of its ordinary taxable income as a dividend to its
       stockholders each year and which meets certain other conditions will not
       be taxed on that portion of its taxable income which is distributed to
       its stockholders.

       The Corporation paid to stockholders an amount greater than its taxable
       income; therefore, no provision for federal income taxes is required. For
       federal income tax purposes, the cash dividends distributed to
       stockholders are characterized as follows:

                                                 2003        2002       2001
                                                 ----        ----       ----

           Cash Liquidation Distribution          100%        100%        -
           Ordinary Income                          -           -        80%
           Return of Capital                        -           -        20%
                                                 ----        ----      ----
           Total                                  100%        100%      100%
                                                 ====        ====      ====


       Prior to conversion to a REIT, no provision had been made for federal,
       state and local income taxes since they were the personal responsibility
       of the partners. A final tax return and K-1's were issued for the short
       tax year ended April 17, 2001.

       Taxable income differs from net income for financial reporting purposes
       principally because of differences in the timing of recognition of rental
       income and depreciation. As a result of these differences, impairment of
       long-lived assets and the initial write off of organization costs for
       book purposes, the tax basis of the Corporation's net assets exceeded its
       book value by $24,447,813 at December 31, 2002.

       AMOUNTS PER SHARE

       Basic earnings (loss) per share is computed based on weighted average
       common shares outstanding during the period.

       DIVIDENDS PER SHARE

       On December 7, 2001, the Board of Directors declared a dividend of $1.87
       per share. The dividend was paid on December 21, 2001 to all stockholders
       of record as of December 17, 2001.


                                       59
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       DIVIDENDS PER SHARE (CONTINUED)

       On November 5, 2002, the Board of Directors declared a dividend of $8.25
       per common share. The dividend was paid November 21, 2002 to all
       stockholders of record as of November 15, 2002.

       On January 13, 2003, the Board of Directors declared a dividend of $2.50
       per share. The dividend was paid on January 31, 2003 to stockholders of
       record at the close of business on January 23, 2003.

       On February 28, 2003, the Board of Directors declared a dividend of
       $36.00 per share. The dividend was paid on March 18, 2003 to stockholders
       of record at the close of business on March 10, 2003.

       On June 19, 2003 the Board of Directors declared a dividend of $1.90 per
       share. The dividend was paid on July 9, 2003 to the stockholders of
       record at the close of business on June 30, 2003.

       On December 16, 2003, the Board of Directors declared a dividend of
       $13.21 per share. The dividend was paid January 8, 2004 to stockholders
       of record as of the close of business on December 26, 2003.

       The stockholders' Priority Return (defined in note 8 below) as of January
       8, 2004 was $5.51, which was satisfied on that date. Consequently, the
       Class B Unitholder, which is entitled to receive distributions only after
       the satisfaction of the Priority Return, was paid a distribution of
       $1,071,941 on January 8, 2004.

       RECENTLY ISSUED ACCOUNTING STANDARDS

       In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
       Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and
       Technical Corrections," which updates, clarifies and simplifies existing
       accounting pronouncements will be effective for fiscal years beginning
       after May 15, 2002. This statement had no material effect on the
       Corporation's financial statements.

       In November 2002, the FASB issued Interpretation No. 45, Guarantors'
       Accounting and Disclosure Requirements for Guarantees, Including Indirect
       Guarantees of Indebtedness of Others. The Interpretation elaborates on
       the disclosures to be made by a guarantor in its financial statements
       about its obligations under certain guarantees that it has issued. It
       also clarifies that a guarantor is required to recognize, at the
       inception of a guarantee, a liability for the fair value of the
       obligation undertaken in issuing the guarantee. This Interpretation does
       not prescribe a specific approach for subsequently measuring the
       guarantor's recognized liability over the term of the related guarantee.
       The disclosure provisions of this Interpretation were effective for the
       Corporation's December 31, 2002 financial statements. The initial
       recognition and initial measurement provisions of this Interpretation are
       applicable on a prospective basis to guarantees issued or modified after
       December 31, 2002. This Interpretation had no material effect on the
       Corporation's financial statements.

       In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133
       on Derivative Instruments and Hedging Activities." This statement amends
       and clarifies financial accounting and reporting for derivative
       instruments, including certain derivative instruments embedded in other
       contracts (collectively referred to as derivatives) and for hedging
       activities under SFAS No. 133, "Accounting for Derivative Instruments and
       Hedging Activities." This statement had no material effect on the
       Corporation's financial statements.

       In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
       Financial Instruments with Characteristics of both Liabilities and
       Equity." The statement improves the accounting for certain financial
       instruments that under previous guidance, issuers could account for as
       equity. The new statement requires that those instruments be classified
       as liabilities in statements of financial position. SFAS No. 150 affects
       the issuer's accounting for three types of freestanding financial
       instruments. One type is mandatorily redeemable


                                       60
<PAGE>

                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)

       shares, which the issuing company is obligated to buy back in exchange
       for cash and other assets. A second type, which includes put options and
       forward purchase contracts, involves instruments that do or may require
       the issuer to buy back some of its shares in exchange for cash or other
       assets. The third type of instruments that are liabilities under this
       statement is obligations that can be settled with shares, the monetary
       value of which is fixed, tied solely or predominately to a variable such
       as a market index, or varies inversely with the value of the issuer's
       shares. SFAS No. 150 does not apply to features embedded in a financial
       instrument that is not a derivative in its entirety. In addition to its
       requirements for the classification and measurement of financial
       instruments in its scope, SFAS No. 150 also requires disclosures about
       alternative ways of settling the instruments and the capital structure of
       entities, all of whose shares are mandatorily redeemable. Most of the
       guidance in SFAS No. 150 is effective for all financial instruments
       entered into or modified after May 31, 2003 and otherwise is effective at
       the beginning of the first interim period beginning after June 15, 2003.
       This statement had no material effect on the Corporation's financial
       statements.

       In December 2003, the FASB issued FASB Interpretation No. 46 (revised
       December 2003). Consolidation of Variable Interest Entities ("VIEs"),
       which addresses how a business enterprise should evaluate whether it has
       a controlling financial interest in an entity through means other than
       voting rights and accordingly should consolidate the entity. FIN 46R
       replaces FASB Interpretation No. 46, Consolidation of Variable Interest
       Entities, which was issued in January 2003. The Corporation will be
       required to adopt FIN 46R in the first fiscal period ending after March
       15, 2004. Upon adoption of FIN 46R, the assets, liabilities and
       noncontrolling interest of the VIE initially would be measured at their
       carrying amounts with any difference between the net amount added to the
       balance sheet and any previously recognized interest being recognized as
       the cumulative effect of an accounting change. If determining the
       carrying amounts is not practicable, fair value at the date FIN 46R first
       applies may be used to measure the assets, liabilities and noncontrolling
       interest of the VIE. The Corporation does not expect that this will have
       a material impact on the Corporation's consolidated financial statements.

3.     CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

       During the years ended December 31, 2001, 2002 and 2003, property
       management services (the "Property Management Services") and asset
       management services, investor relation services and accounting services
       (the "Asset Management Services") have been provided to (i) the
       Predecessor Partnership by affiliates of the general partners of the
       Predecessor Partnership's (the "Predecessor General Partners") and (ii)
       the Company by affiliates of the Company.

       ASSET MANAGEMENT SERVICES

       For the period January 1, 2001 through April 16, 2001, an affiliate of
       the Predecessor General Partners, Resources Supervisory, provided Asset
       Management Services for an annual fee equal to 1.25% of the Predecessor
       Partnership's gross asset value. In addition, the Predecessor Partnership
       was obligated to (i) pay $200,000 for non-accountable expenses and (ii)
       reimburse Resources Supervisory for expenses incurred in connection with
       the performance of its services.




                                       61
<PAGE>



                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3.     CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
       -----------------------------------------------------------------------

       ASSET MANAGEMENT SERVICES (CONTINUED)

       Effective April 17, 2001 through February 14, 2002, Shelbourne Management
       LLC ("Shelbourne Management"), a wholly-owned subsidiary of Presidio
       Capital Investment Company, LLC ("PCIC"), provided asset management
       services to the Company pursuant to the terms of an Advisory Agreement
       (the "Advisory Agreement") between the Corporation, the Operating
       Partnership and Shelbourne Management. Pursuant to the terms of the
       Advisory Agreement, the Corporation was obligated to pay for asset
       management services, an annual asset management fee, payable quarterly,
       equal to 1.25% of the Corporation's gross asset value as of the last day
       of each year. In addition, the Corporation was obligated to (i) pay
       $200,000 for non-accountable expenses and (ii) reimburse Shelbourne
       Management for expenses incurred in connection with the performance of
       its services.

       Effective February 14, 2002, in connection with the Transaction (as
       described below), PCIC began providing such services for a reduced fee of
       $333,333 per annum (the "Transaction Management Fee"). Both Shelbourne
       Management and PCIC were affiliates of the then management of the
       Corporation.

       Effective October 1, 2002, as contemplated by the Plan of Liquidation,
       the agreement with PCIC was terminated and Kestrel Management, L.P.
       ("Kestrel") began providing the Asset Management Services for a fee of
       $200,000 per annum. Kestrel is an affiliate of the Corporation's current
       Chief Executive Officer.

       PROPERTY MANAGEMENT SERVICES

       During the years ended December 31, 2001, 2002 and 2003, property
       management services were provided by Kestrel pursuant to agreements that
       provide for a fee of up to 3% of property revenue.

       The following table summarizes the amounts paid to affiliates for Expense
       Reimbursements, Asset Management Fees, Transition Management Fee and
       Property Management Fees and for the twelve-month periods ended December
       31, 2003, 2002 and 2001. All numbers in the tables below include the
       Corporation's share of fees paid to Kestrel by properties owned by joint
       ventures in which the Corporation currently has or previously had an
       interest.

       YEAR ENDED DECEMBER 31, 2003

<TABLE>
<CAPTION>
                                             Resources       Shelbourne
                                            Supervisory      Management       Kestrel
                                            -----------      ----------       -------
<S>                                        <C>              <C>             <C>
         Expense Reimbursement             $      -         $      -        $       -
         Asset Management Fee                     -                -          200,000
         Property Management Fees                 -                -          124,796
</TABLE>


       YEAR ENDED DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                             Resources       Shelbourne
                                            Supervisory      Management       Kestrel
                                            -----------      ----------       -------
<S>                                        <C>              <C>             <C>
         Expense Reimbursement              $      -        $  25,000        $      -
         Asset Management Fee                      -          105,863          50,000
         Transition Management Fee                 -          208,250               -
         Property Management Fees                  -                -         246,833
</TABLE>



                                       62
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3.     CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
       -----------------------------------------------------------------------

       PROPERTY MANAGEMENT SERVICES  (CONTINUED)


       YEAR ENDED DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                             Resources       Shelbourne
                                            Supervisory      Management       Kestrel
                                            -----------      ----------       -------
<S>                                        <C>              <C>             <C>
         Expense Reimbursement              $   59,444       $  140,556        $      -
         Asset Management Fee                  394,808          477,055               -
         Property Management Fees                    -                -         235,036
</TABLE>


       ALLOCATIONS OF DIVIDENDS BY THE CORPORATION

       Dividends payable to affiliates for the years ended December 31, 2003,
       2002 and 2001 on account of shares of common stock owned are as follows:

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                            2003           2002            2001
                                                            ----           ----            ----
<S>                                                    <C>               <C>            <C>
        Presidio Capital Investment Company LLC        $          -      $              $720,373
        HX Investors, L.P.                               13,270,754       2,709,993      60,027
</TABLE>


       In addition, effective August 19, 2002, in connection with the settlement
       of the lawsuit brought by HX Investors L.P. ("HX Investors"), Shelbourne
       Management agreed to pay to HX Investors approximately 42% of the amounts
       paid to Shelbourne Management with respect to the Class A units.
       Distributions paid to Shelbourne Management on account of its Class A
       units for the years ended December 31, 2003 and 2002 were $34,076 and
       $42,584, respectively, of which $14,312 and $7,720, respectively, were
       paid by Shelbourne Management to HX Investors pursuant to their
       agreement.

       THE TRANSACTION

       On February 14, 2002, the Corporation, Shelbourne Properties I, Inc. and
       Shelbourne Properties II, Inc. (the "Companies") consummated a
       transaction (the "Transaction") whereby the Corporation purchased the
       385,226 shares of the Corporation's common stock held by subsidiaries of
       PCIC and the Advisory Agreement was contributed to the Operating
       Partnership. Pursuant to the Transaction, the Corporation paid PCIC
       $11,830,337 in cash and the Operating Partnership issued preferred
       partnership interests with an aggregate liquidation preference of
       $672,178 and a note in the amount of $14,589,936. This note was satisfied
       in April 2002 from the proceeds of the Credit Facility (see note 6). The
       liquidation preference was eliminated on January 15, 2003 in connection
       with the Accotel transaction (see note 11).

       RELATED PARTY LOAN RECEIVABLE

       In connection with the Fleet Loan financing, the Corporation, Shelbourne
       Properties I, Inc. and Shelbourne Properties II, Inc. entered into
       Indemnity, Contribution and Subrogation Agreements, the purpose and
       intent of which was to place operating partnerships in the same position
       (as among each other) as each would have been had the lender made three
       separate loans. Under the terms of the Fleet Loan, the Corporation was
       required to utilize a portion of its proceeds generated by property sales
       to make principal payments on the Fleet Loan on behalf of Shelbourne
       Properties II, Inc. and Shelbourne Properties I, Inc. In accordance with


                                       63
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3.     CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
       -----------------------------------------------------------------------

       RELATED PARTY LOAN RECEIVABLE (CONTINUED)

       the terms of the Indemnity, Contribution and Subrogation Agreements, the
       portion of the principal payments made by the Corporation that were
       allocable to Shelbourne Properties II, Inc. were recorded as a loan
       receivable. The loan due from Shelbourne Properties II, Inc. is secured
       by Shelbourne Properties II, Inc.'s interests in the entities that own
       its properties and requires payments of interest under the same terms as
       the Fleet Loan, which is LIBOR plus 2.75% (3.875% at December 31, 2003).
       The principal and accrued interest due to the Corporation at December 31,
       2003 from Shelbourne Properties II, Inc. is $5,383,586. On December 11,
       2003 the loan due from Shelbourne Properties I, Inc. was repaid in full
       to the Corporation. During 2003, the Corporation earned interest income
       of $30,956 related to the loans receivable.

4.     REAL ESTATE HELD FOR SALE

       As of December 31, 2003, the Corporation sold all of its real estate.

       On January 29, 2003, Livonia Shopping Plaza located in Livonia, Michigan
       was sold for a gross sales price of $12,969,000. The Corporation received
       proceeds of $12,737,781 after closing costs. After the mortgage repayment
       of $4,700,000 and closing adjustments the Corporation received net
       proceeds of $7,864,544. The Corporation recognized a gain for financial
       reporting purposes of $4,481,423.

       On February 28, 2003, the Corporation sold its property located in
       Melrose Park, Illinois for a gross purchase price of $2,164,800. The
       Corporation received proceeds of approximately $1,970,000 after closing
       costs and adjustments. The Corporation recognized a gain for financial
       reporting purposes of $137,549.

       On November 5, 2003, the Corporation sold its property located in Las
       Vegas, Nevada for a gross sales price of $17,500,000. After closing
       adjustments and costs, net proceeds were $17,026,657. In compliance with
       the Fleet Loan, the required principal paydown was $15,250,000 of which
       the Corporation was responsible for $12,611,202. Pursuant to the
       Indemnity, Contribution and Subrogation Agreements, the Corporation paid
       the remaining principal payment due in the amount of $2,638,798 on behalf
       of Shelbourne Properties I, Inc. After the total principal payment, the
       remaining proceeds from the sale amounted to $1,776,657. The Corporation
       recognized a gain for financial reporting purposes of $9,462,850.

       On December 11, 2003, Shelbourne Properties I, Inc. repaid the principal
       amount of $2,638,798 plus interest to the Corporation.

5.     INVESTMENT IN JOINT VENTURES

       As of December 31, 2003 the Corporation's only remaining joint venture
       investment was its investment in the Accor S.A. Properties, described in
       note 11. The joint ventures are accounted for utilizing the equity method
       of accounting.

       On January 14, 2002, one of the Corporation's joint ventures sold a
       supermarket in Edina, Minnesota for $3,500,000 that resulted in a gain on
       sale to the Company for financial reporting purposes of $649,092. On
       January 30, 2002, the same joint venture sold a supermarket in Toledo, OH
       for $3,600,000 that resulted in a net loss to the Company for financial
       reporting purposes of $186,380. These amounts are included in the
       Company's equity earnings from joint ventures.

       On August 5, 2002, one of the Company's joint ventures sold a supermarket
       in Norcross, Georgia. The net proceeds of approximately $325,000 from the
       sale were approximately equal to the joint ventures' net book value of
       the property, accordingly, there was no gain or loss for financial
       reporting purposes.

       On October 30, 2002, the Corporation adopted the liquidation basis of
       accounting. Subsequent to the adoption of the liquidation basis of
       accounting, the investments in joint ventures were adjusted to their net


                                       64
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



5.     INVESTMENT IN JOINT VENTURES (CONTINUED)

       realizable value based on current contracts, estimates as determined by
       independent appraisals and other indications of sales value.

       On January 31, 2003, the Hilliard, Ohio property, which was owned by
       Tri-Columbus Associates, in which the Corporation held a 79.34% interest,
       was sold for a gross sales price of $4,600,000. After satisfying the debt
       encumbering the property, closing adjustments and other closing costs,
       net proceeds were approximately $2,063,000, $1,636,784 of which is
       attributable to the Corporation's interest. The joint venture recognized
       no gain or loss on the sale as the joint venture's property was
       previously written down to its net realizable value.

       On February 28, 2003, 568 Broadway Joint Venture, a joint venture in
       which the Corporation indirectly held a 22.15% interest, sold its
       property located at 568 Broadway, New York, New York for a gross sale
       price of $87,500,000. After assumption of the debt encumbering the
       property ($10,000,000), closing adjustments and other closing costs, net
       proceeds were approximately $73,000,000, approximately $16,169,500 of
       which was allocated to the Operating Partnership. The joint venture
       recognized a gain for financial reporting purposes of $67,746,480 of
       which $14,565,894 was attributable to the Corporation and is reported as
       equity income from joint ventures.

       On May 8, 2003, Indiana Market Ltd., a joint venture in which the
       Corporation held a 50% interest, consummated the sale of its shopping
       center property located in Indianapolis, Indiana commonly referred to as
       Indiana Market Place for a purchase price of $700,000. After closing
       costs and adjustments, net proceeds were $600,210 of which $300,105 is
       allocable to the Corporation. The Corporation recognized a gain for
       financial reporting purposes of $26,610 which is included in income from
       joint ventures.

       On June 18, 2003, the Grove City, Ohio property which was owned by
       Tri-Columbus Associates was sold for a gross sales price of $4,090,000.
       The Fleet Loan (See note 7) required a principal payment equal to the
       greater of $3,300,000 or 90% of the net proceeds. After closing
       adjustments and costs, net proceeds were $3,938,286. As a result, the
       required principal payment was $3,544,457 of which the Corporation was
       allocated $2,812,172. The remaining proceeds after the principal payment
       were $393,829 of which the Corporation was allocated $312,464. The joint
       venture recognized no gain or loss on the sale as the joint venture's
       property was previously written down to its net realizable value.

       On December 11, 2003, the Orange, Ohio property, which was also owned by
       Tri-Columbus Associates, was sold for a gross sales price of $13,900,000.
       After the required principal paydown of $9,200,000, of which the
       Corporation was allocated $7,299,280, closing costs and adjustments, the
       net proceeds amounted to $4,419,613. The Corporation was allocated
       $3,506,521 and recognized a gain for financial reporting purposes of
       $902,060.

6.     CREDIT FACILITY

       On May 1, 2002, the operating partnerships of the Companies and certain
       of the operating partnerships' subsidiaries entered into a $75,000,000
       revolving credit facility with Bayerische Hypo-Und Vereinsbank AG, New
       York Branch, as agent for itself and other lenders (the "Credit
       Facility"). The Credit Facility had a term of three years and was
       prepayable in whole or in part at any time without penalty or premium.
       The Companies initially borrowed $73,330,073 under the Credit Facility.
       The Company's share of the proceeds amounted to $19,718,457, of which
       $14,589,936 was used to repay the note issued in the Transaction,
       $142,871 to pay associated accrued interest and $556,712 to pay costs
       associated with the Credit Facility. The excess proceeds of approximately
       $4,428,938 were deposited into the Company's operating cash account. The
       Credit Facility was subsequently satisfied on February 20, 2003 (see note
       7 below.)



                                       65
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.     FLEET LOAN

       On February 20, 2003, in a transaction designed to provide flexibility to
       the Corporation, Shelbourne Properties II, Inc. and Shelbourne Properties
       III, Inc., (collectively, the "Companies") and their respective operating
       partnerships (the "Shelbourne OPs") in implementing their respective
       plans of liquidation and to enable them to distribute 100% of the net
       proceeds from the sale of the New York, New York property, direct and
       indirect subsidiaries (the "Borrowers") of each of the Companies entered
       into a Loan Agreement with Fleet National Bank, as agent for itself and
       other lenders ("Fleet") pursuant to which the Borrowers obtained a
       $55,000,000 Fleet Loan (the "Fleet Loan"). The Companies believed that by
       entering into a single loan transaction instead of three separate loan
       transactions they were able to obtain a larger loan at a more favorable
       interest rate.

       The Borrowers were jointly and severally liable for the repayment of the
       amounts due under the Fleet Loan and the Shelbourne OPs and the Companies
       have guaranteed the repayment of the Fleet Loan. A portion of the Fleet
       Loan proceeds, as well as the balance of a note in the amount of
       $10,000,000 secured by the 568 Broadway property were used to satisfy the
       Credit Facility that had a payoff amount in aggregate of $37,417,249 as
       of February 20, 2003.

       The Fleet Loan was satisfied on December 11, 2003 from the proceeds of
       the sales of properties owned by the Corporation, Shelbourne Properties
       I, Inc. and Shelbourne Properties II, Inc..

       Pursuant to the terms of the Fleet Loan, each Borrower was jointly and
       severally liable for the repayment of the entire principal, interest and
       other amounts due under the Fleet Loan. Accordingly, the Borrowers, the
       Companies and the Shelbourne OPs entered into Indemnity, Contribution and
       Subrogation Agreements, the purpose and intent of which was to place the
       operating partnerships in the same position (as among each other) as each
       would have been had the lender made three separate loans, one to each of
       the operating partnerships. The principal benefit derived from obtaining
       one loan instead of three separate loans is that the interest rate on the
       Fleet Loan and the costs associated with the Fleet Loan were less than
       that which would have been incurred for three separate smaller loans.

8.     CLASS B PARTNERSHIP INTERESTS

       Under the Plan of Liquidation which has been approved by the
       Corporation's Board of Directors and stockholders, HX Investors is
       entitled to receive an incentive payment of 15% of (i) the cash and other
       proceeds generated from operating the assets and properties of the
       Company, plus the aggregate fair value of all consideration received from
       the disposal of the assets and properties of the Company less (ii) the
       sum of all direct costs incurred in connection with such disposal (the
       "Incentive Fee"), after the payment of a priority return of approximately
       $52.25 per share to stockholders of the Corporation plus interest thereon
       compounded quarterly at 6% per annum (the "Priority Return"). On August
       19, 2002, the Board of Directors of the Corporation authorized the
       issuance by the Operating Partnership of, and the Operating Partnership
       issued, Class B Units to HX Investors which Class B Units provide
       distribution rights to HX Investors consistent with the intent and
       financial terms of the Incentive Fee. The Class B Units entitle the
       holder thereof to receive distributions equal to 15% of gross proceeds
       after the Priority Return. On December 16, 2003 the Board of Directors
       declared a dividend to common stockholders of $13.21, payable on January
       8, 2004. The Priority Return was $5.51 as of January 8, 2004 and was
       satisfied on that date. As a result, the Class B Untiholder was paid a
       distribution of $1,071,941 on January 8, 2004. All future dividends will
       be subject to the 15% distribution to HX Investors.

9.     CLASS A 5% PREFERRED PARTNERSHIP INTERESTS

       In connection with the Transaction, the Operating Partnership issued to
       Shelbourne Management 672.178 Class A 5% Preferred Partnership Units (the
       "Class A Units"). The Class A Units entitled the holder to a quarterly
       distribution equal to 1.25% of the aggregate liquidation preference of
       the Class A Units ($672,178). In addition, upon the liquidation of the
       Operating Partnership, each Class A Unit was entitled to a liquidation


                                       66
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



9.     CLASS A 5% PREFERRED PARTNERSHIP INTERESTS (CONTINUED)

       preference of $1,000 per unit. The Class A Units are not convertible into
       common units of the Operating Partnership or shares in the Corporation
       and the holders of the Class A Units do not have voting rights except in
       limited circumstances. Although the holders of the Class A Units do not
       have redemption rights, pursuant to the terms of the Purchase and
       Contribution Agreement entered into in connection with the Transaction,
       Shelbourne Management had the right to cause the Operating Partnership to
       reacquire the Class A Units upon the occurrence of certain events
       including, without limitation, if the aggregate assets of the Companies
       is below approximately $75 million or the outstanding debt under which
       the Companies are obligated is less than $55 million, for a purchase
       price equal to the liquidation preference plus an amount (the "Put
       Premium") which was equal to approximately $4,374,000 at December 31,
       2002 and declined each February 13, May 13, August 13 and November 13
       until it reached zero on May 13, 2007.

       The terms of the Class A Units were subsequently modified to eliminate
       the liquidation preference and limit the circumstances under which the
       holders of the Class A Units can cause the Operating Partnership to
       purchase the Class A Units at a premium. These circumstances include the
       occurrence of any of the following if any of the Class A Units are
       outstanding; (i) the filing of bankruptcy by a Shelbourne OP; (ii) the
       failure of a Shelbourne OP to be taxed as a partnership; (iii) the
       termination of the Advisory Agreement; (iv) the issuing of a guaranty by
       any of the Companies on the debt securing the Accor S.A. Properties (see
       below); or (v) the taking of any action with respect to the Accor S.A.
       Properties without the consent of the Class A Unitholder (the "Class A
       Trigger Events").

       Effective August 19, 2002, in connection with the settlement of the
       lawsuit brought by HX Investors, Shelbourne Management agreed to pay to
       HX Investors 42% of the amounts paid to Shelbourne Management with
       respect to the Class A units (see note 3).

10.    CHANGE IN CONTROL

       On July 1, 2002, the Companies entered into a settlement agreement with
       respect to certain outstanding litigation involving the Companies. In
       connection with the settlement, the Corporation entered into a stock
       purchase agreement (the "Stock Purchase Agreement") with HX Investors,
       and Exeter Capital Corporation ("Exeter"), the general partner of HX
       Investors, pursuant to which HX Investors, the owner of approximately 12%
       of the outstanding common stock of the Corporation, agreed to conduct a
       tender offer for up to an additional 30% of the Corporation's outstanding
       stock at a price per share of $49.00 (the "HX Investors Offer"). The
       tender offer commenced on July 5, 2002 following the filing of the
       required tender offer documents with the Securities and Exchange
       Commission by HX Investors.

       Pursuant to the Stock Purchase Agreement, the Board of Directors of the
       Corporation approved a plan of liquidation for the Corporation (the "Plan
       of Liquidation") and agreed to submit the Plan of Liquidation to its
       stockholders for approval. HX Investors agreed to vote all of its shares
       in favor of the Plan of Liquidation. Under the Plan of Liquidation, HX
       Investors was to receive an incentive payment of 25% of gross proceeds
       after the payment of a priority return of approximately $52.25 per share
       was made to the stockholders of the Corporation.

       Subsequently, on July 29, 2002, Longacre Corp.("Longacre") commenced a
       lawsuit individually and derivatively against the Corporation, Shelbourne
       Properties I, Inc., Shelbourne Properties II, Inc., their boards, HX
       Investors, and Exeter seeking preliminary and permanent injunctive relief
       and monetary damages based on purported violations of the securities laws
       and mismanagement related to the tender offer by HX Investors, the Stock
       Purchase Agreement, and the Plan of Liquidation. The suit was filed in
       federal court in New York, New York. On August 1, 2002, the court denied
       Longacre's motion for a preliminary injunction, and, on September 30,
       2002, the court dismissed the lawsuit at the request of Longacre.



                                       67
<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10.    CHANGE IN CONTROL (CONTINUED)

       Contemporaneous with filing its July 29, 2002 lawsuit, Longacre publicly
       announced that its related companies, together with outside investors,
       were prepared to initiate a competing tender offer for the same number of
       shares of common stock of the Corporation as were tendered for under the
       HX Investors Offer, at a price per share of $53.90. Over the course of
       the next several days, Longacre and HX Investors submitted competing
       proposals to the board of directors of the Corporation and made those
       proposals public. On August 4, 2002, Longacre notified the Corporation
       that it was no longer interested in proceeding with its proposed offer.

       On August 5, 2002, the Corporation entered into an amendment to the Stock
       Purchase Agreement. Pursuant to the terms of the amendment, the purchase
       price per share offered under the HX Investors Offer was increased from
       $49.00 to $58.30. The amendment also reduced the incentive payment
       payable to HX Investors under the Plan of Liquidation from 25% to 15% of
       gross proceeds after payment of the approximately $52.25 per share
       priority return to stockholders of the Corporation (the "Incentive Fee"),
       and included certain corporate governance provisions.

       On August 16, 2002, the HX Investors offer expired and HX Investors
       acquired 236,631 shares representing 30% of the outstanding shares.

       On August 19, 2002, as contemplated by the Stock Purchase Agreement, the
       existing Board of Directors and executive officer of the Corporation
       resigned and the Board was reconstituted to consist of six members, four
       of whom are independent directors. In addition, new executive officers
       were appointed.

       Also on August 19, 2002, the Board of Directors of the Corporation
       authorized the issuance by the Operating Partnership of Class B Units to
       HX Investors which Class B Units provide distribution rights consistent
       with the intent and financial terms of the incentive payment provided for
       in the Stock Purchase Agreement described above and which distributions
       are payable only in the event that the Plan of Liquidation was adopted.
       On August 19, 2002, the Operating Partnership issued the Class B Units to
       HX Investors in full satisfaction of the Incentive Fee payment otherwise
       required under the Plan of Liquidation.

11.    ACCOTEL TRANSACTION

       On January 15, 2003, a joint venture owned by the Operating Partnership
       and the operating partnerships of Shelbourne Properties I, Inc. and
       Shelbourne Properties II, Inc. acquired from Realty Holdings of America,
       LLC, an unaffiliated third party, a 100% interest in an entity that owns
       20 motel properties which are triple net leased to an affiliate of Accor
       S.A. (the "Accor S.A. Properties"). The cash purchase price, which was
       provided from working capital, was $2,668,272, of which $867,806,
       $1,079,675 and $720,791 was paid by Shelbourne Properties I, Inc.,
       Shelbourne Properties II, Inc., and the Corporation respectively. The
       Accor S.A. Properties are also subject to existing mortgage indebtedness
       in the current principal amount of approximately $72,200,000.

       The Companies formed the joint venture and acquired the interest in the
       new properties in order to facilitate the disposition of the other
       properties of the Companies and the distribution to stockholders of the
       sales proceeds in accordance with the Plan of Liquidation. Prior to the
       acquisition of the Accor S.A. Properties, the holder of the Class A Units
       had the right to cause the Operating Partnerships to purchase the Class A
       Units at a substantial premium to their liquidation value (at the time of
       the acquisition, a premium of approximately $4,374,000 in the case of the
       Operating Partnership and approximately $16,265,000 for all three
       operating partnerships) unless the operating partnerships maintained at
       least approximately $54,200,000 of aggregate indebtedness ($14,574,000 in
       the case of the Operating Partnership) guaranteed by the holder of the
       Class A Units and secured by assets having an aggregate market value of
       at least approximately $74,800,000 ($20,100,000 in the case of the
       Operating Partnership). These requirements significantly impaired the
       ability of the Corporation to sell its properties and make distributions
       in accordance with the Plan of Liquidation. In


                                       68
<PAGE>



                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



11.    ACCOTEL TRANSACTION (CONTINUED)

       lieu of these requirements, the operating partnerships acquired the Accor
       S.A. Properties for the benefit of the holder of the Class A Units. The
       holder of the Class A Units does, however, continue to have the right,
       under certain limited circumstances which the Companies do not anticipate
       will occur, to cause the operating partnerships to purchase the Class A
       Units at the premium as described above.

       The terms of the Class A Units were also modified to eliminate the
       $2,500,000 aggregate liquidation preference to which the holder of the
       Class A Units was previously entitled ($672,178 in the case of the
       Operating Partnership).

       The holder of the Class A Units has the right to require the operating
       partnerships to acquire other properties for its benefit at an aggregate
       cash cost to the operating partnerships of $2,500,000 (approximately
       $670,000 of which would be paid by the Operating Partnership). In that
       event the Accor S.A. Properties would not be held for the benefit of the
       holder of the Class A Units and would be disposed of as part of the
       liquidation of the Companies.

12.    SUBSEQUENT EVENT

       On March 17, 2004, the holder of the Class A Units agreed to retain its
       beneficial ownership of the motel properties and relinquish its right to
       require the acquisition of other properties, thereby enabling the
       Corporation to set up liquidating trusts to complete its liquidation as
       early as April 16, 2004. In consideration of the Class A Unitholder
       electing to take title to the Accor S.A. Properties earlier than
       required, the Corporation waived its right to require the Class A
       Unitholder to reimburse it for up to $75,000 of costs associated with the
       acquisition of the Accor S.A. Properties and agreed to make a payment to
       the Class A Unitholder of approximately $41,667.


13.    QUARTERLY DATA (UNAUDITED)

       The following table presents the unaudited financial data by quarter for
       the years ended December 31, 2003 and 2002. Periods prior to October 30,
       2002 were on a going concern basis, liquidation basis was used
       thereafter:


<TABLE>
<CAPTION>
                                                                                         Income (Loss) Available to
                                   Total Rental Revenues   Income (Loss) Available to      Common Stockholders Per
                                                               Common Stockholders                  Share
                                   ---------------------- ------------------------------ ----------------------------
<S>           <C>                             <C>                          <C>                              <C>
         Year 2003 Total                      $2,176,380                   $ 30,839,455                     $  39.10
         4th Quarter 2003                        156,441                     10,686,730                        13.56
         3rd Quarter 2003                        466,568                        228,963                          .29
         2nd Quarter 2003                        754,820                        309,730                          .39
         1st Quarter 2003                        798,551                     19,614,032                        24.87

         Year 2002 Total                      $3,677,437                  $(15,522,491)                 $(18.56) (c)
         4th Quarter 2002                        963,163                        806,214                     1.02 (b)
         3rd Quarter 2002                        887,383                         51,355                     0.07 (b)
         2nd Quarter 2002                        991,242                    (1,652,224)                   (2.09) (b)
         1st Quarter 2002                        835,649                   (14,727,836)                  (15.01) (a)
</TABLE>



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<PAGE>


                         SHELBOURNE PROPERTIES III, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13.    QUARTERLY DATA (UNAUDITED) (CONTINUED)


       (a)  Net Loss per Common Share was calculated using a weighted average
            shares outstanding of 981,385.

       (b)  Net Income per Common Share was calculated using a weighted average
            shares outstanding of 788,772.

       (c)  Net Loss per Common Share was calculated using a weighted average
            shares outstanding of 836,266.


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