INDEPENDENCE TAX CREDIT PLUS LP III - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 1999
OR

_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File Number 0-24650

INDEPENDENCE TAX CREDIT PLUS L.P. III
(Exact name of registrant as specified in its charter)

Delaware 13-3746339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (212) 421-5333

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Limited Partnership Interests and Beneficial Assignment Certificates

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the reg-
istrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____

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

DOCUMENTS INCORPORATED BY REFERENCE
None

Index to exhibits may be found on page 93
Page 1 of 106

PART I

Item 1. Business.

General

Independence Tax Credit Plus L.P. III (the "Partnership") is a limited part-
nership which was formed under the laws of the State of Delaware on December
23, 1993. The general partner of the Partnership is Related Independence As-
sociates III L.P., a Delaware limited partnership (the "General Partner").
The general partner of the General Partner is Related Independence Associates
III Inc., a Delaware corporation ("RIAI III").

On June 7, 1994, the Partnership commenced a public offering (the "Offering")
of Beneficial Assignment Certificates ("BACs") representing assignments of
limited partnership interests in the Partnership ("Limited Partnership Inter-
ests"), managed by Related Equities Corporation (the "Dealer Manager"), pur-
suant to a prospectus dated June 7, 1994 (the "Prospectus").

As of March 31, 1999, the Partnership had received $43,440,000 of gross pro-
ceeds of the Offering (the "Gross Proceeds") from 2,810 investors ("BACs
holders"). The Offering was terminated on May 9, 1995. (Item 8, "Financial
Statements and Supplementary Data," Note 1).

The Partnership's business is primarily to invest in other partnerships ("Lo-
cal Partnerships") owning apartment complexes ("Apartment Complexes" or
"Properties") that are eligible for the low-income housing tax credit ("Hous-
ing Tax Credit") enacted in the Tax Reform Act of 1986, some of which may
also be eligible for the historic rehabilitation tax credit ("Historic Tax
Credit"; together with Housing Tax Credits, "Tax Credits"). The Partner-
ship's investment in each Local Partnership represents from 98.99% to 99.98%
with one Local Partnership at 41.86% of the Partnership's interests in the
Local Partnerships. As of March 31, 1999, the Partnership had acquired in-
terests in twenty Local Partnerships. As of March 31, 1999, approximately
$35,075,000 (including approximately $3,142,000 classified as a loan repay-
able from sale/refinancing proceeds in accordance with the Contribution
Agreement and including acquisition fees of approximately $2,510,000) of net
proceeds has been invested in Local Partnerships of which approximately
$2,598,000 remains to be paid to the Local Partnerships (including approxi-
mately $1,509,000 being held in escrow), as certain benchmarks such as occu-
pancy levels must be attained prior to the release of such funds. The Part-
nership does not intend to acquire additional subsidiary partnerships.

Investment Objectives/General Incentives

The Partnership has been formed to invest in low-income Apartment Complexes
that are eligible for the Housing Tax Credit enacted in the Tax Reform Act of
1986. Some Apartment Complexes may also be eligible for Historic Rehabilita-
tion Tax Credits ("Historic Complexes"). The investment objectives of the
Partnership are described below.

1. Entitle qualified BACs holders to Tax Credits over the period of the
Partnership's entitlement to claim Tax Credits (for each Property, generally
ten years from the date of investment or, if later, the date the Property is
leased to qualified tenants; referred to herein as the "Credit Period") with
respect to each Apartment Complex.

2. Preserve and protect the Partnership's capital.

3. Participate in any capital appreciation in the value of the Properties
and provide distributions of Sale or Refinancing Proceeds upon the disposi-
tion of the Properties.

4. Allocate passive losses to individual BACs holders to offset passive in-
come that they may realize from rental real estate investments and other pas-
sive activities, and allocate passive losses to corporate BACs holders to
offset business income.

One of the Partnership's objectives is to entitle qualified BACs holders to
Tax Credits over the Credit Period. Each of the Local Partnerships in which
the Partnership has acquired an interest has been allocated by the relevant
state credit agencies the authority to recognize Tax Credits during the
Credit Period provided that the Local Partnership satisfies the rent restric-
tion, minimum set-aside and other requirements for recognition of the Tax
Credits at all times during such period. Once a Local Partnership has become
eligible to recognize Tax Credits, it may lose such eligibility and suffer an
event of "recapture" if its Property fails to remain in compliance with the
Tax Credit requirements. None of the Local Partnerships in which the Part-
nership has acquired an interest has suffered an event of recapture.

There can be no assurance that the Partnership will achieve its investment
objectives as described above.

Competition

The real estate business is highly competitive and substantially all of the
properties acquired by the Partnership are expected to have active competi-
tion from similar properties in their respective vicinities. In addition,
various other limited partnerships may, in the future, be formed by the Gen-
eral Partner and/or its affiliates to engage in businesses which may be com-
petitive with the Partnership.

Employees

The Partnership does not have any direct employees. All services are per-
formed for the Partnership by the General Partner and its affiliates. The
General Partner receives compensation in connection with such activities as
set forth in Items 11 and 13. In addition, the Partnership reimburses the
General Partner and certain of its affiliates from expenses incurred in con-
nection with the performance by their employees of services for the Partner-
ship in accordance with the Partnership's Amended and Restated Agreement of
Limited Partnership (the "Partnership Agreement").

Item 2. Properties.

As of March 31, 1999, the Partnership had acquired an interest in twenty Lo-
cal Partnerships, all of which have been consolidated for accounting pur-
poses. Except for the interest in New Zion Apartments, L.P. ("New Zion"),
the Partnership's investment in each Local Partnership represents 98.99% or
99.89% of the partnership interests in the Local Partnership. The Partner-
ship's investment in New Zion represents 41.86% of the partnership interest
in the subsidiary partnership (the other 58.12% limited partnership interest
is owned by an affiliate of the Partnership, with the same management). Set
forth below is a schedule of the Local Partnerships including certain infor-
mation concerning their respective Apartment Complexes (the "Local Partner-
ship Schedule"). Further information concerning these Local Partnerships and
their properties, including any encumbrances affecting the properties, may be
found in Schedule III to the financial statements which are included herein.

Local Partnership Schedule

Name and Location % of Units Occupied at May 1,
(Number of Units) Date Acquired 1999 1998 1997 1996 1995

Edward Hotel Limited Partnership
Los Angeles, CA (47) November 1994 100% 98% 100% 98% 0%*
Pacific-East L.P.
Brooklyn, NY (39) December 1994 100% 100% 97% 100% 97%

Overtown Development Group, Ltd.
Miami, FL (65) December 1994 83% 78% 89% 90% 86%**

Sumpter Commons
Associates, L.P. April 1995 95% 95% 95% 100% 0%*
Brooklyn, NY (21)

Park Housing
Limited Partnership May 1995 100% 93% 97% 86%**
Hartford, CT (30)

Livingston Manor
Urban Renewal
Associates, L.P. June 1995 98% 96% 94% 34% **
New Brunswick, NJ (50)

Jefferis Square Housing
Partnership L.P. June 1995 97% 100% 97% 0%*
Chester, PA (36)

2301 First Avenue
Limited Partnership August 1995 99% 99% 97% 96%
New York, NY (92)

Lewis Street L.P. October 1995 94% 97% 100% 0%*
Buffalo, NY (32)

Savannah Park Housing
Limited Partnership October 1995 95% 79% 77% 92%
Washington, DC (64)

Brannon Group, L.C. December 1995 76% 94% 95% 96%
Leisure City, FL (80)

Mansion Court Phase II
Venture December 1995 95% 100% 100% 0%*
Philadelphia, PA (19)

Primm Place
Partners, L.P. December 1995 97% 97% 31%* 0%*
St. Louis, MI (128)

BK-9-A Partners L.P. December 1995 100% 100% 100% 100%
Brooklyn, NY (23)

BK-10K Partners L.P. December 1995 95% 81% 91% 100%
Brooklyn, NY (21)

Aspen-Olive Associates
Philadelphia, PA (22) October 1996 100% 100% 0%*

West Mill Creek Associates III L.P.
Philadelphia, PA (72) January 1997 99% 99% 0%*

Universal Court Associates
Philadelphia, PA (32) April 1997 100% 0%*

New Zion Apartments
Shreveport, LA (100) November 1997 98% 0%*

Dreitzer House
New York, NY (32) December 1997 0% 0%*

*Properties in construction phase.
**Properties in rent-up phase.

All leases are generally for periods not greater than one to two years and no
tenant occupies more than 10% of the rentable square footage.

Commercial tenants (to which average rental per square foot applies) comprise
less than 5% of the rental revenues of the Partnership. Maximum rents for
the residential units are determined annually by HUD and reflect in-
creases/decreases in consumer price indices in various geographic areas.
Market conditions, however, determine the amount of rent actually charged.

Management periodically reviews the physical state of the properties and sug-
gests to the respective Local General Partners budget improvements which are
generally funded from cash flow from operations or release of replacement re-
serve escrows.

Management annually reviews the insurance coverage of the properties and be-
lieves such coverage is adequate.

See Item 1, Business, above for the general competitive conditions to which
the properties described above are subject.

Real estate taxes are calculated using rates and assessed valuations deter-
mined by the township or city in which the property is located. Such taxes
have approximated 1% of the aggregate cost of the properties as shown in
Schedule III to the financial statements included herein.

In connection with investments in development-stage Apartment Complexes, the
General Partner generally requires that the general partners of the Local
Partnerships ("Local General Partners") provide completion guarantees and/or
undertake to repurchase the Partnership's interest in the Local Partnership
if construction or rehabilitation is not completed substantially on time or
on budget ("Development Deficit Guarantees"). The Development Deficit Guar-
antees generally also require the Local General Partner to provide any funds
necessary to cover net operating deficits of the Local Partnership until such
time as the Apartment Complex has achieved break-even operations. The Gen-
eral Partner generally requires that the Local General Partners undertake an
obligation to fund operating deficits of the Local Partnership (up to a
stated maximum amount) during a limited period of time (typically three to
five years) following the achievement of break-even operations ("Operating
Deficit Guarantees"). Under the terms of the Development and Operating Defi-
cit Guarantees, amount funded will be treated as Operating Loans which will
not bear interest and which will be repaid only out of 50% of available cash
flow or out of available net sale or refinancing proceeds. In some in-
stances, the Local General Partners are required to undertake an obligation
to comply with a Rent-Up Guaranty Agreement, whereby the Local General Part-
ner agrees to pay liquidating damages if predetermined occupancy rates are
not achieved. These payments are made without right of repayment. In cases
where the General Partner deems it appropriate, the obligations of a Local
General Partner under the Development Deficit, Operating Deficit and/or Rent-
Up Guarantees are secured by letters of credit and/or cash escrow deposits.

Tax Credits with respect to a given Apartment Complex are available for a
ten-year period that commences when the property is placed into service.
However, the annual Tax Credits available in the year in which the Apartment
Complex is placed in service, must be prorated based upon the number of
months remaining in the year. The amount of the annual Tax Credit not avail-
able in the first year will be available in the eleventh year. In certain
cases, the Partnership acquired its interest in a Local Partnership after the
Local Partnership had placed its Apartment Complex in service. In these
cases, the Partnership may be allocated Tax Credits only beginning in the
month following the month in which it acquired its interest and Tax Credits
allocated in any prior period are not available to the Partnership.

Item 3. Legal Proceedings.

This information is incorporated by reference to the discussion of 2301 First
Avenue in the Results of Operations of Certain Local Partnerships contained
in Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

PART II

Item 5. Market for the Registrant's Common Equity and Related Security
Holder Matters.

As of March 31, 1999, the Partnership had issued and outstanding 43,440 Lim-
ited Partnership Interests, each representing a $1,000 capital contribution
to the Partnership, or an aggregate capital contribution of $43,440,000. All
of the issued and outstanding Limited Partnership Interests have been issued
to Independence Assignor Inc. (the "Assignor Limited Partner"), which has in
turn issued 43,440 BACs to the purchasers thereof for an aggregate purchase
price of $43,440,000. Each BAC represents all of the economic and virtually
all of the ownership rights attributable to a Limited Partnership Interest
held by the Assignor Limited Partner. BACs may be converted into Limited
Partnership Interests at no cost to the holder (other than the payment of
transfer costs not to exceed $100), but Limited Partnership Interests so ac-
quired are not thereafter convertible into BACs.

Neither the BACs nor the Limited Partnership Interests are traded on any es-
tablished trading market. The Partnership does not intend to include the
BACs for quotation on NASDAQ or for listing on any national or regional stock
exchange or any other established securities market. The Revenue Act of 1987
contained provisions which have an adverse impact on investors in "publicly
traded partnerships". Accordingly, the General Partner has imposed limited
restrictions on the transferability of the BACs and the Limited Partnership
Interests in secondary market transactions. Implementation of the restric-
tions should prevent a public trading market from developing and may ad-
versely affect the ability of an investor to liquidate his or her investment
quickly. It is expected that these procedures will remain in effect until
such time, if ever, as further revision of the Revenue Act of 1987 may permit
the Partnership to lessen the scope of the restrictions.

As of June 1, 1999, the Partnership has approximately 2,566 registered hold-
ers of an aggregate of 43,440 BACs.

All of the Partnership's general partnership interests, representing an ag-
gregate capital contribution of $1,000, are held by the General Partner.

There are no material legal restrictions in the Partnership Agreement on the
ability of the Partnership to make distributions. However, the Partnership
has made no distributions to the BACs holders as of March 31, 1999. The
Partnership does not anticipate providing cash distributions to its BACs
holders other than from net refinancing or sales proceeds.

Item 6. Selected Financial Data.

The information set forth below presents selected financial data of the Part-
nership. There were no operations prior to commencement of the Offering of
BACs on June 7, 1994. Additional financial information is set forth in the
audited financial statements in Item 8 hereof.

Year Ended March 31,
OPERATIONS
1999 1998 1997 1996 1995

Revenues $5,457,954 $4,224,259 $3,420,191 $2,289,930 $489,375

Operating
expenses (8,521,362) (6,403,970) (4,840,028) (2,573,212) (465,423)

Net (loss) income
before minority
interest (3,063,408) (2,179,711) (1,419,837) (283,282) 23,952

Minority interest in
(income) loss of
subsidiary
partnerships (23,590) 30,346 2,563 415 383

Net (loss)
income $(3,086,998) $(2,149,365) $(1,417,274) $(282,867) $24,335

Net (loss) income
per weighted
average
BAC $ (70.35) $ (48.98) $ (32.30) $ (6.60) $ 1.79

FINANCIAL POSITION
March 31,
1999 1998 1997 1996
1995

Total
assets $90,312,704 $85,077,315 $76,809,088 $74,448,444 $35,005,729

Total
liabilities $55,319,950 $46,678,291 $38,050,750 $34,647,450 $6,862,014

Minority
interest $3,192,313 $3,511,585 $1,721,534 $1,346,916 $ 95,670

Total
partners'
capital $31,800,441 $34,887,439 $37,036,804 $38,454,078 $28,048,045

During the year ended March 31, 1999, total assets increased due primarily to
increases in property and equipment and construction in progress. The in-
crease in total liabilities is due primarily to the proceeds from the mort-
gage notes payable and construction loans payable used to pay for the prop-
erty and equipment, and construction in progress acquisitions. During the
years ended March 31, 1998, 1997 and 1996, total assets and liabilities in-
creased due primarily to the continued acquisition of Local Partnerships.
For the years ended March 31, 1998, 1997 and 1996, property and equipment in-
creased approximately $18,000,000, $11,600,000 and $28,600,000, respectively,
construction in progress (decreased) increased approximately $(700,000),
$600,000 and $4,700,000, respectively, and mortgage notes increased approxi-
mately $6,000,000, $4,900,000 and $16,000,000, respectively. For the years
ended March 31, 1996 and 1995, construction notes increased approximately
$600,000 and $2,200,000, respectively. For the years ended March 31, 1996
and 1995, the increase in assets was also due to capital contributions which
were not fully expended. For the year ended March 31, 1997, the increase in
property and equipment and construction in progress was partially offset by a
decrease in cash and cash equivalents, investments available-for-sale and
cash held in escrow as a result of the funding of such acquisitions and con-
struction. For the years ended March 31, 1998, 1997, 1996 and 1995, minority
interest increased due to capital contributions from local general partners.

Cash Distributions
The Partnership has made no distributions to the BACs holders as of March 31,
1999.

Item 7. Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations.

Liquidity and Capital Resources

General

The Partnership's primary sources of funds include (i) interest earned on
Gross Proceeds which are invested in tax-exempt money market instruments
pending final payments to the Local Partnerships and (ii) working capital re-
serves and interest earned thereon. All these sources of funds are available
to meet obligations of the Partnership.

The Partnership had received $43,440,000 in gross proceeds for BACs pursuant
to a public offering resulting in net proceeds available for investment of
approximately $35,000,000 after volume discounts, payment of sales commis-
sions, acquisition fees and expenses, organization and offering expenses and
establishment of a working capital reserve.

As of March 31, 1999, the Partnership has invested approximately $35,075,000
(including approximately $3,142,000 classified as loans repayable from
sale/refinancing proceeds in accordance with the Contribution Agreement and
not including acquisition fees of approximately $2,510,000) of net proceeds
in twenty Local Partnerships of which approximately $2,598,000 remains to be
paid to the Local Partnerships (not including approximately $1,509,000 being
held in escrow) as certain benchmarks, such as occupancy level, must be at-
tained prior to the release of the funds. There were upward price adjust-
ments during the year ended March 31, 1999 in the amount of approximately
$664,000 related to four Local Partnerships which were purchased in the pre-
vious fiscal years. There was one downward price adjustment during the year
ended March 31, 1999 in the amount of approximately $4,000 related to one Lo-
cal Partnership which was purchased in the previous fiscal year. There were
increases in guarantee fees during the year ended March 31, 1999 in the
amount of approximately $231,000 related to two Local Partnerships which were
purchased in the previous fiscal years. The Partnership does not intend to
acquire additional properties. During the year ended March 31, 1999, ap-
proximately $2,423,000 was paid to Local Partnerships, including purchase
price adjustments (of which approximately $890,000 was released from escrow).
No funds were placed into escrow for purchase price payments during the year
ended March 31, 1999. Although the Partnership will not be acquiring addi-
tional properties, the Partnership may be required to fund potential purchase
price adjustments based on tax credit adjustor clauses. Such adjustments re-
sulted in a net increase in the purchase price of approximately $891,000 dur-
ing the year ended March 31, 1999.

During the year ended March 31, 1999, cash and cash equivalents decreased ap-
proximately $3,355,000. This decrease is due to construction in progress of
($4,166,000), acquisition of property and equipment of ($5,490,000), an in-
crease in deferred costs of ($11,000), an increase in investments available-
for-sale ($1,700,000), a decrease in capitalization of consolidated subsidi-
aries attributable to minority interest ($343,000), a decrease in accounts
payable and other liabilities ($203,000) and a net decrease in due to local
general partners and affiliates relating to investing and financing activi-
ties of ($1,575,000) which exceeded net proceeds from mortgage notes and con-
struction loans of ($7,712,000), a decrease in cash held in escrow
($1,712,000) and net cash provided by operating activities ($709,000). In-
cluded in the adjustments to reconcile the net loss to cash flows provided by
operating activities is depreciation and amortization of approximately
$2,631,000.

A working capital reserve has been established from the Partnership's funds
available for investment, which includes amounts which may be required for
potential purchase price adjustments based on tax credit adjustor clauses.
At March 31, 1999, all funds were used.

The Partnership has negotiated development deficit guarantees with the Local
Partnerships in which it has invested. The Local General Partners have
agreed to fund development deficit through certain dates as defined in the
Partnership Agreement of each of the Local Partnerships. Such guarantees are
defined in their respective agreements and generally there is no right of re-
payment to such Local General Partners. All current development deficit
guarantees expire within the next two years. Management does not expect
their expiration to have a material impact on liquidity, based on prior
years' fundings.

The Partnership has negotiated Operating Deficit Guaranty Agreements with all
Local Partnerships by which the general partners of the Local Partnerships
have agreed to fund operating deficits for a specified period of time. The
terms of the Operating Deficit Guaranty Agreements vary for each Local Part-
nership, with maximum dollar amounts to be funded for a specified period of
time, generally three years, commencing on the break-even date. As of March
31, 1999, 1998 and 1997, the gross amounts of the Operating Deficit Guaran-
tees aggregate approximately $5,129,000, $4,597,000 and $3,360,000, respec-
tively, none of which have expired as of March 31, 1999, 1998 and 1997. All
current operating deficit guarantees expire within the next three years.
Management does not expect that expiration to have a material impact on li-
quidity, based on prior years' fundings. As of March 31, 1999, approximately
$343,000, has been funded under the Operating Deficit Guaranty agreements.
Amounts funded under such agreements are treated as noninterest bearing
loans, which will be paid only out of 50% of available cash flow or out of
available net sale or refinancing proceeds.

In addition, several Local Partnerships have Rent-Up Guaranty Agreements, in
which the Local General Partner agrees to pay liquidated damages if predeter-
mined occupancy rates are not achieved. The terms of the Rent-Up Guaranty
Agreements vary for each Local Partnership, with maximum dollar amounts to be
funded for a specified period of time. As of March 31, 1999, 1998 and 1997,
the gross amounts of these Rent-Up Guarantees for the Local Partnerships ag-
gregate approximately $1,779,000, $1,779,000 and $1,326,000, respectively, of
which approximately $1,755,000, $1,755,000 and $542,000 have expired as of
March 31, 1999, 1998 and 1997, respectively. All current rent-up deficit
guarantees expire within the next two years. There has not been any funding
under these guaranty agreements. Amounts received under rental guaranty from
the sellers of the properties purchased by the Partnership will be treated as
a reduction of the asset. Management does not expect a material impact on
liquidity, based on prior years' fundings.

The Operating Deficit Guaranty Agreements, Rent-Up Guaranty Agreements, and
Development Deficit Guaranty Agreements are negotiated to protect the Part-
nership's interest in the Local Partnerships and to provide incentive to the
Local General Partners to generate positive cash flow.

Partnership management fees owed to the General Partner amounting to approxi-
mately $527,000 and $200,000 were accrued and unpaid as of March 31, 1999 and
1998, respectively.

For discussion of contingencies affecting certain subsidiary partnerships,
see Results of Operations of Certain Local Partnerships, below. Since the
maximum loss the Partnership would be liable for is its net investment in the
respective subsidiary partnerships, the resolution of the existing contingen-
cies is not anticipated to impact future results of operations, liquidity or
financial condition in a material way. However, the Partnership's loss of
its investment in a Local Partnership will eliminate the ability to generate
future Tax Credits from such Local Partnership and may also result in recap-
ture of tax credits if the investment is lost before the expiration of the
Credit Period.

Except as described above, management is not aware of any trends or events,
commitments or uncertainties, which have not otherwise been disclosed that
will or are likely to impact liquidity in a material way. Management be-
lieves the only impact would be for laws that have not yet been adopted. The
portfolio is diversified by the location of the properties around the United
States so that if one area of the country is experiencing downturns in the
economy, the remaining properties in the portfolio may be experiencing up-
swings. However, the geographic diversification of the portfolio may not
protect against a general downturn in the national economy. The Partnership
has invested the proceeds of its offering in seventeen Local Partnerships,
all of which fully have their Tax Credits in place. The Tax Credits are at-
tached to the project for a period of ten years, and are transferable with
the property during the remainder of the ten-year period. If trends in the
real estate market warranted the sale of a property, the remaining Tax Cred-
its would transfer to the new owner; thereby adding significant value to the
property on the market, which are not included in the financial statement
carrying amount.

Results of Operations

Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period inter-
est and any other costs incurred in acquiring the properties. The cost of
property and equipment is depreciated over their estimated useful lives using
accelerated and straight-line methods. Expenditures for repairs and mainte-
nance are charged to expense as incurred; major renewals and betterments are
capitalized. At the time property and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are eliminated from the
assets and accumulated depreciation accounts and the profit or loss on such
disposition is reflected in earnings. A loss on impairment of assets is re-
corded when management estimates amounts recoverable through future opera-
tions and sale of the property on an undiscounted basis are below depreciated
cost. At that time property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is con-
sidered to be impaired and the depreciated cost exceeds estimated fair value.

Through March 31, 1999, the Partnership has not recorded any loss on impair-
ment of assets or reduction to estimated fair value.

At the time management commits to a plan to dispose of assets, said assets
are adjusted to the lower of carrying amount or fair value less costs to
sell. These assets are classified as property and equipment-held for sale
and are not depreciated. Through March 31, 1999, the Partnership has not re-
corded or classified any property and equipment as held for sale.

The following is a summary of the results of operations of the Partnership
for the years ended March 31, 1999, 1998 and 1997 (the 1998, 1997 and 1996
Fiscal Years).

The net loss for the 1998, 1997 and 1996 Fiscal Years aggregated $3,086,998,
$2,149,365 and $1,417,274, respectively.

The Partnership and BACs holders began recognizing Tax Credits with respect
to a Property when the Credit Period for such Property commenced. Because of
the time required for the acquisition, completion and rent-up of Properties,
the amount of Tax Credits per BAC has gradually increased over the first
three years of the Partnership. Tax Credits not recognized in the first
three years will be recognized in the 11th through 13th years. The Partner-
ship generated $4,743,808, $3,683,727 and $2,386,725 Housing Tax Credits dur-
ing the 1998, 1997 and 1996, tax years, respectively.

1998 vs. 1997
As of March 31, 1999 and 1998, the Partnership had acquired an interest in
twenty Local Partnerships. The Partnership does not intend to acquire addi-
tional interests in Local Partnerships.

The Partnership's results of operations for the years ended March 31, 1999
and 1998 consisted primarily of (1) approximately $117,000 and $287,000, re-
spectively, of tax-exempt interest income earned on funds not currently in-
vested in Local Partnerships and (2) the results of the Partnership's invest-
ment in twenty consolidated Local Partnerships.

During the year ended March 31, 1999, rental income and all categories of ex-
penses increased and the results of operations are not comparable due to the
continued acquisition, construction and rent-up of properties and are not re-
flective of future operations of the Partnership due to uncompleted property
construction and rent-up of properties and the continued utilization of the
net proceeds of the offering to invest in Local Partnerships. In addition,
interest income will decrease in future periods as a substantial portion of
the proceeds from the Offering are invested in Local Partnerships. Other in-
come decreased approximately $40,000 for the year ended March 31, 1999 as
compared to 1998, due primarily to a decrease in interest income as a result
of the release of proceeds to the Local Partnerships. For the years ended
March 31, 1999 and 1998, zero and three of the Partnership's twenty consoli-
dated properties, respectively, completed construction and were in various
stages of rent up. Also for the years ended March 31, 1998 and 1997, nine-
teen and thirteen of the properties had completed construction and were
rented up in a previous fiscal year. As of the end of the years ended March
31, 1999 and 1998, three and three of the Partnership's twenty consolidated
properties, respectively, were still under construction and four and three of
the properties, respectively, had construction loans with a commitment for
permanent financing.

1997 vs. 1996
As of March 31, 1998 and 1997, the Partnership had acquired an interest in
twenty and seventeen Local Partnerships, respectively (zero and one of which
were not consolidated and are shown on the balance sheet, at cost, as prop-
erty and equipment). The Partnership does not intend to acquire additional
interests in Local Partnerships.

The Partnership's results of operations for the years ended March 31, 1998
and 1997 consisted primarily of (1) approximately $287,000 and $535,000, re-
spectively, of tax-exempt interest income earned on funds not currently in-
vested in Local Partnerships and (2) the results of the Partnership's invest-
ment in twenty and sixteen consolidated Local Partnerships, respectively.

During the year ended March 31, 1998, rental income and all categories of ex-
penses increased except general and administrative-related parties and the
results of operations are not comparable due to the continued acquisition,
construction and rent-up of properties and are not reflective of future op-
erations of the Partnership due to uncompleted property construction and
rent-up of properties and the continued utilization of the net proceeds of
the offering to invest in Local Partnerships. In addition, interest income
will decrease in future periods as a substantial portion of the proceeds from
the Offering are invested in Local Partnerships. Other income decreased ap-
proximately $42,000 for the year ended March 31, 1998 as compared to 1997,
due primarily to a decrease in interest income as a result of the acquisition
of and the release of proceeds to the Local Partnerships. For the years
ended March 31, 1998 and 1997, three and seven of the Partnership's twenty
and sixteen consolidated properties, respectively, completed construction and
were in various stages of rent up. In addition, zero and zero of the proper-
ties, respectively, had completed construction in a previous fiscal year, but
were in various stages of rent up for the years ended March 31, 1998 and
1997. Also for the two years ended March 31, 1998 and 1997, thirteen and
seven of the properties had completed construction and were rented up in a
previous fiscal year. As of the end of the years ended March 31, 1998 and
1997, three and two of the Partnership's twenty and sixteen consolidated
properties, respectively, were still under construction and three and three
of the properties, respectively, had construction loans with a commitment for
permanent financing.

Results of Operations of a Certain Local Partnership

2301 First Avenue Limited Partnership
2301 First Avenue Limited Partnership ("2301 First Avenue") is a defendant in
a lawsuit alleging personal injury. The amount of the claim may exceed 2301
First Avenue's insurance coverage limits. Another lawsuit by a Class Z lim-
ited partner seeking damages, in a material amount, has been commenced
against the buildings' general contractor, and the sole stockholder of the
corporate general partner alleging breach of agreements involving several
projects including 2301 First Avenue. Since it is premature to make an
evaluation of the amount of 2301 First Avenue's potential loss, it is manage-
ment's opinion that no accrual for potential losses is currently warranted in
the financial statements. The Partnership's investment in and advances to
2301 First Avenue at March 31, 1999 and 1998 was approximately $450,000 and
$531,000, respectively, and the minority interest balance was zero at each
date. 2301 First Avenue's net loss after minority interest amounted to ap-
proximately $79,000, $135,000 and $261,000 for the 1998, 1997 and 1996 Fiscal
Years, respectively.

Year 2000 Compliance

The Partnership utilizes the computer services of an affiliate of the General
Partner. The affiliate of the General Partner has upgraded their computer in-
formation systems to be year 2000 compliant. The year 2000 compliance issue
concerns the inability of a computerized system to accurately record dates af-
ter December 31, 1999. The affiliate of the General Partner converted their
financial systems applications and upgraded all of their non-compliant in-
house software and hardware inventory. The work stations that experienced
problems from the testing process were corrected with an upgrade patch. The
costs incurred by the affiliate of the General Partner are not being charged
to the Partnership. The most likely worst case scenario that the General
Partner faces is that computer operations will be suspended for a few days to
a week commencing on January 1, 2000. The Partnership's contingency plan is
to (i) have a complete backup done on December 31, 1999 and (ii) both elec-
tronic and printed reports generated for all critical data up to and including
December 31, 1999.

In regard to third parties, the General Partner is in the process of evaluat-
ing the potential adverse impact that could result from the failure of mate-
rial service providers to be year 2000 compliant. A detailed survey and as-
sessment was sent to material third parties in the fourth quarter of 1998.
The Partnership has received assurances from a majority of the material serv-
ice providers with which it interacts that they have addressed the year 2000
issues and is evaluating these assurances for their adequacy and accuracy.
In cases where the Partnership has not received assurances from third par-
ties, it is initiating further mail and/or phone correspondence. The Part-
nership relies heavily on third parties and is vulnerable to the failures of
third parties to address their year 2000 issues. There can be no assurances
given that the third parties will adequately address their year 2000 issues.

Other

The Partnership's investment as a limited partner in the Local Partnerships
is subject to the risks of potential losses arising from management and own-
ership of improved real estate. The Partnership's investments also could be
adversely affected by poor economic conditions generally, which could in-
crease vacancy levels and rental payment defaults and increase operating ex-
penses, any or all of which could threaten the financing viability of one or
more of the Local Partnerships.

There also are substantial risks associated with the operation of Apartment
Complexes receiving government assistance. These include governmental regu-
lations concerning tenant eligibility, which may make it more difficult to
rent apartments in the complexes; difficulties in obtaining government ap-
proval for rent increases; limitations on the percentage of income which low
and moderate-income tenants may pay as rent; the possibility that Congress
may not appropriate funds to enable HUD to make the rental assistance pay-
ments it has contracted to make; and that when the rental assistance con-
tracts expire there may not be market demand for apartments at full market
rents in a Local Partnership's Apartment Complex.

The Local Partnerships are impacted by inflation in several ways. Inflation
allows for increases in rental rates generally to reflect the impact of
higher operating and replacement costs. Inflation also affects the Local
Partnerships adversely by increasing operating costs, for example, for such
items as fuel, utilities and labor.

There continues to be a number of requests for the list of BACs holders of
limited partnerships such as the Partnership. Often these requests are made
by a person who, only a short time before making the request, acquired merely
a small number of BACs in the Partnership and seeks the list for an improper
purpose, a purpose that is not in the best interests of the Partnership or is
harmful to the Partnership. In order to best serve and protect the interests
of the Partnership and all of its investors, the General Partner of the Part-
nership has adopted a policy with respect to requests for the Partnership's
list of BACs holders. This policy is intended to protect investors from un-
solicited and coercive offers to acquire BACs holders' interest and does not
limit any other rights the General Partner may have under the Partnership
Agreement or applicable law.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.
Sequential
Page
(a) 1. Consolidated Financial Statements

Independent Auditors' Report 16

Consolidated Balance Sheets at March 31, 1999 and 1998 68

Consolidated Statements of Operations for the Years Ended March
31, 1999, 1998 and 1997 69

Consolidated Statements of Changes in Partners' Capital (Defi-
cit) for the Years Ended March 31, 1999, 1998 and 1997 70

Consolidated Statements of Cash Flows for the Years Ended March
31, 1999, 1998 and 1997 71

Notes to Consolidated Financial Statements 74

INDEPENDENT AUDITORS' REPORT

To the Partners of
Independence Tax Credit Plus L.P. III and Subsidiaries
(A Delaware Limited Partnership)

We have audited the consolidated balance sheets of Independence Tax Credit
Plus L.P. III and Subsidiaries (a Delaware Limited Partnership) as of March
31, 1999 and 1998 and the related consolidated statements of operations,
changes in partners' capital (deficit), and cash flows for the years ended
March 31, 1999, 1998 and 1997 (the 1998, 1997 and 1996 Fiscal Years, respec-
tively). These financial statements are the responsibility of the Partner-
ship's management. Our responsibility is to express an opinion on these fi-
nancial statements based on our audits. We did not audit the financial
statements for twenty (1998 and 1997 Fiscal Years) and sixteen (1996 Fiscal
Year) subsidiary partnerships whose losses aggregated $2,305,752, $2,083,742
and $1,339,398 for the years ended March 31, 1999, 1998 and 1997, respec-
tively, and whose assets constituted 92% and 89% of the Partnership's assets
at March 31, 1999 and 1998, respectively, presented in the accompanying con-
solidated financial statements. The financial statements of these subsidiary
partnerships were audited by other auditors whose reports thereon have been
furnished to us and our opinion expressed herein, insofar as it relates to
the amounts included for these subsidiary partnerships, is based solely upon
the reports of the other auditors.

We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of mate-
rial 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 esti-
mates made by management, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, based upon our audits, and the reports of the other auditors
referred to above, the consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the financial posi-
tion of Independence Tax Credit Plus L.P. III and Subsidiaries at March 31,
1999 and 1998, and the results of their operations and their cash flows for
the years ended March 31, 1999, 1998 and 1997 in conformity with generally
accepted accounting principles.

TRIEN ROSENBERG ROSENBERG
WEINBERG CIULLO & FAZZARI, LLP

New York, New York
June 14, 1999

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

March 31,
1999 1998

Property and equipment -
at cost, less
accumulated depreciation
(Notes 2 and 4) $72,827,630 $65,105,052
Construction in progress 6,267,185 5,419,271
Cash and cash equivalents (Notes 2 and 10) 3,802,808 7,157,348
Investments available-for-sale (Note 2) 1,700,000 0
Cash held in escrow (Note 5) 3,808,330 5,331,779
Deferred costs, less accumulated
amortization (Notes 2 and 6) 982,440 1,076,148
Other assets 924,311 987,717

Total assets $90,312,704 $85,077,315

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

Liabilities:
Mortgage notes payable (Note 7) $32,422,677 $29,673,823
Construction loan payable (Note 7) 12,043,984 7,080,766
Accounts payable
and other liabilities 5,311,397 3,322,397
Due to local general partners
and affiliates
(Note 8) 4,474,016 5,986,326
Due to general partner and
affiliates (Note 8) 1,067,876 614,979

Total liabilities 55,319,950 46,678,291

Minority interest 3,192,313 3,511,585

Commitments and contingencies (Notes 7, 8 and 10)

Partners' capital (deficit):
Limited partners
(43,440 BACs issued and
outstanding)
(Note 1) 31,868,564 34,924,692
General Partner (68,123) (37,253)

Total partners' capital (deficit) 31,800,441 34,887,439

Total liabilities and
partners' capital
(deficit) $90,312,704 $85,077,315

See accompanying notes to consolidated financial statements.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended March 31,
1999 1998 1997

Revenues
Rental income $4,857,184 $3,583,763 $2,737,310
Other income 600,770 640,496 682,881

5,457,954 4,224,259 3,420,191

Expenses
General and administrative 1,588,732 1,340,081 1,118,716
General and administrative-
related parties
(Note 8) 760,890 392,769 494,031
Repairs and maintenance 740,706 477,641 345,582
Operating and other 578,949 513,816 427,306
Real estate taxes 379,762 198,566 109,362
Insurance 385,568 252,926 187,773
Financial, principally interest 1,456,055 1,271,723 772,263
Depreciation and amortization 2,630,700 1,956,448 1,384,995

Total expenses 8,521,362 6,403,970 4,840,028

Loss before minority interest (3,063,408) (2,179,711) (1,419,837)

Minority interest in (income) loss of
subsidiary partnerships (23,590) 30,346 2,563

Net loss $(3,086,998) $(2,149,365) $(1,417,274)

Net loss - limited partners $(3,056,128) $(2,127,871) $(1,403,101)

Weighted average number of
BACs outstanding 43,440 43,440 43,440

Net loss per weighted
average BAC $ (70.35) $ (48.98) $ (32.30)

See accompanying notes to consolidated financial statements.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

Limited General
Total Partners Partner

Partners' capital
(deficit) -
April 1, 1996 $38,454,078 $38,455,664 $ (1,586)

Net loss (1,417,274) (1,403,101) (14,173)

Partners' capital
(deficit) -
March 31, 1997 37,036,804 37,052,563 (15,759)

Net loss (2,149,365) (2,127,871) (21,494)

Partners' capital
(deficit) -
March 31, 1998 34,887,439 34,924,692 (37,253)

Net loss (3,086,998) (3,056,128) (30,870)

Partners' capital
(deficit) -
March 31, 1999 $31,800,441 $31,868,564 $ (68,123)

See accompanying notes to consolidated financial statements.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Year Ended March 31,
1999 1998 1997*

Cash flows from
operating activities:
Net loss $ (3,086,998) $ (2,149,365) $(1,417,274)
Adjustments to
reconcile net loss
to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 2,630,700 1,956,448 1,384,995
Minority interest in
income (loss)
of subsidiary
partnerships 23,590 (30,346) (2,563)
(Increase) decrease
in assets:
Cash held in escrow (188,444) (636,458) (45,158)
Increase in deferred costs (80,000) 0 0
Other assets 63,406 (411,029) 357,751
Increase (decrease)
in liabilities:
Accounts payable
and other liabilities 831,495 689,710 (366,636)
Increase in due to local general partners
and affiliates 140,777 143,079 65,509
Decrease in due to
local general partners
and affiliates (78,055) (28,370) (22,316)
Due to general partners
and affiliates 452,897 379,949 205,997
Total adjustments 3,796,366 2,062,983 1,577,579
Net cash provided by
(used in)
operating activities 709,368 (86,382) 160,305

Cash flows from
investing activities:
Acquisition of property
and equipment (5,490,477) (7,935,339) (874,638)
(Increase) decrease in
investments available
for sale (1,700,000) 6,500,000 5,002,412
Construction in progress (4,165,535) (10,422,857) (13,962,919)
Proceeds from HUD
Upfront Grant 0 739,060 3,153,274
Decrease in cash
held in escrow 1,711,893 2,278,187 2,478,213
Increase in deferred costs 0 (40,414) 0
Decrease in accounts
payable and
other liabilities (202,617) (146,575) (1,479,462)
Decrease in due to
local general partners
and affiliates (1,685,520) (726,170) (1,304,711)
Increase in due to
local general partners
and affiliates 113,806 2,461,021 1,148,356
Decrease (increase) in due
from general partner
and affiliates 0 317,056 (317,056)
Net cash used in
investing activities (11,418,450) (6,976,031) (6,156,531)

Cash flows from
financing activities:
Proceeds from
mortgage notes 2,968,224 6,015,334 4,706,715
Principal payments
of mortgage notes (219,370) (1,498,191) (955,253)
Proceeds from
construction loans 4,963,218 365,306 2,967,158
Repayments of
construction loans 0 0 (1,898,737)
Increase in due to
local general partners
and affiliates 682 25,716 19,950
Decrease in due to
local general partners
and affiliates (4,000) 0 (985,707)
(Increase) decrease
in deferred costs (11,350) (82,014) 4,596
(Decrease) increase in
capitalization
of consolidated
subsidiaries attributable
to minority interest (342,862) 1,820,397 377,181
Net cash provided by
financing activities 7,354,542 6,646,548 4,235,903

Net decrease in cash
and cash equivalents (3,354,540) (415,865) (1,760,323)

Cash and cash
equivalents at
beginning of year 7,157,348 7,573,213 9,333,536

Cash and cash
equivalents at
end of year $ 3,802,808 $ 7,157,348 $ 7,573,213

Supplemental disclosure
of cash flows information:
Cash paid during the
year for interest $ 987,277 $ 728,365 $ 705,544

Supplemental disclosures
of noncash investing
and financing activities:
Capitalization of
acquisition costs $ 0 $605,351 $532,418

Construction in progress
reclassified to
property and equipment 4,686,807 10,730,982 11,062,675

Mortgage notes payable
converted from
construction notes payable 0 1,450,000 1,164,918

(Decrease) increase in
deferred financing
costs through
accounts payable and
other liabilities (9,064) 9,064 0

Increase in property
and equipment through
increase in due to
local general partners
and affiliates 0 631,019 0

Increase in construction
in progress through
accounts payable and
other liabilities 1,369,186 264,148 752,724

Increase in construction
in progress through
accounts payable and other
liabilities and a
decrease in deferred
financing costs 0 55,033 0

Increase in construction
in progress through
due to local general
partners and affiliates 0 0 62,805

Increase in property
and equipment through
accounts payable
and other liabilities 0 0 486,909

Increase in deferred
financing costs through
construction in progress 0 0 15,000

Increase in construction
in progress through
deferred financing costs 0 0 66,857

*Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999

NOTE 1 - General

Independence Tax Credit Plus L.P. III (a Delaware limited partnership) (the
"Partnership") was organized on December 23, 1993 and commenced the public
offering on June 7, 1994. The general partner of the Partnership is Related
Independence Associates III L.P., a Delaware limited partnership (the "Gen-
eral Partner").

The Partnership's business is to invest in other partnerships ("Local Part-
nerships," "subsidiaries" or "subsidiary partnerships") owning apartment com-
plexes that are eligible for the low-income housing tax credit ("Housing Tax
Credit") enacted in the Tax Reform Act of 1986, some of which complexes may
also be eligible for the historic rehabilitation tax credit ("Historic Tax
Credit"; together with Housing Tax Credits, "Tax Credits").

As of March 31, 1999, the Partnership had acquired a limited partnership in-
terest in twenty subsidiary partnerships.

The Partnership was authorized to issue a total of 100,000 ($100,000,000)
Beneficial Assignment Certificates ("BACs") which have been registered with
the Securities and Exchange Commission for sale to the public. Each BAC rep-
resents all of the economic and virtually all of the ownership rights attrib-
utable to a limited partnership interest in the Partnership. As of March 31,
1999, the Partnership had raised a total of $43,440,000 representing 43,440
BACs.

The terms of the Partnership's Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") provide, among other things, that
net profits or losses and distributions of cash flow are, in general, allo-
cated 99% to the limited partners and BACs holders and 1% to the general
partner.

NOTE 2 - Summary of Significant Accounting Policies

a) Basis of Accounting

For financial reporting purposes the Partnership's fiscal year ends on March
31. All subsidiaries have fiscal years ending December 31. Accounts of the
subsidiaries have been adjusted for intercompany transactions from January 1
through March 31. The Partnership's fiscal year ends March 31 in order to
allow adequate time for the subsidiaries financial statements to be prepared
and consolidated. The books and records of the Partnership are maintained on
the accrual basis of accounting, in accordance with generally accepted ac-
counting principles ("GAAP").

b) Basis of Consolidation

The consolidated financial statements include the accounts of the Partnership
and twenty, twenty and seventeen (one of which has not been consolidated and
is shown on the balance sheet, at cost, as property and equipment) subsidiary
partnerships in which the Partnership is a limited partner for the years
ended March 31, 1999, 1998 and 1997, respectively, (the 1998, 1997 and 1996
Fiscal Years). Through the rights of the Partnership and/or affiliate of the
General Partner, which affiliate has a contractual obligation to act on be-
half of the Partnership, to remove the general partner of the subsidiary lo-
cal partnerships and to approve certain major operating and financial deci-
sions, the Partnership has a controlling financial interest in the subsidiary
partnerships. All intercompany accounts and transactions with the subsidiary
partnerships have been eliminated in consolidation.

Increases (decreases) in the capitalization of consolidated subsidiaries at-
tributable to minority interest arise from cash contributions and cash dis-
tributions to the minority interest partners.

(Income) losses attributable to minority interest which exceed the minority
interests' investment in a subsidiary have been charged to the Partnership.
Such (income) losses aggregated approximately ($20,000), $8,700 and $10,300
for the years ended March 31, 1999, 1998 and 1997, respectively. The Part-
nership's investment in each subsidiary is equal to the respective subsidi-
ary's partners' equity less minority interest capital, if any. In consoli-
dation, all subsidiary partnership losses are included in the Partnership's
capital account except for losses allocated to minority interest capital.

c) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks, and invest-
ments in short-term highly liquid investments purchased with original maturi-
ties of three months or less.

d) Investments Available-For-Sale

At inception, the Partnership adopted the provisions of the Financial Ac-
counting Standards Board's Statement of Financial Accounting Standards No.
115 ("SFAS No. 115"), Accounting for Certain Investments in Debt and Equity
Securities. At March 31, 1999 and 1998, the Partnership has classified its
securities as available-for-sale.

Available-for-sale securities are carried at fair value with net unrealized
gain (loss) reported as a separate component of shareholders' equity until
realized. A decline in the market value of any available-for-sale security
below cost that is deemed other than temporary is charged to earnings result-
ing in the establishment of a new cost basis for the security.

At March 31, 1999, the Partnership's investments classified as investments
available-for-sale are carried at cost which approximates fair market value,
have maturities of less than one year and consists of municipal bonds and mu-
nicipal bond instruments. As further clarification, the maturities of the
investments are approximately one month and, therefore, there are no material
unrealized gains or losses.

e) Property and Equipment

Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period inter-
est and any other costs incurred in acquiring the properties. The cost of
property and equipment is depreciated over their estimated useful lives using
accelerated and straight-line methods. Expenditures for repairs and mainte-
nance are charged to expense as incurred; major renewals and betterments are
capitalized. At the time property and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are eliminated from the
assets and accumulated depreciation accounts and the profit or loss on such
disposition is reflected in earnings. A loss on impairment of assets is re-
corded when management estimates amounts recoverable through future opera-
tions and sale of the property on an undiscounted basis are below depreciated
cost. At that time, property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is con-
sidered to be impaired and the depreciated cost exceeds estimated fair value.

Through March 31, 1999, the Partnership has not recorded any loss on impair-
ment of assets or reduction to estimated fair value.

At the time management commits to a plan to dispose of assets, said assets
are adjusted to the lower of carrying amount or fair value less costs to
sell. These assets are classified as property and equipment-held for sale
and are not depreciated. Through March 31, 1999, the Partnership has not re-
corded or classified any property and equipment as held for sale.

f) Income Taxes

The Partnership is not required to provide for, or pay, any federal income
taxes. Net income or loss generated by the Partnership is passed through to
the partners and is required to be reported by them. The Partnership may be
subject to state and local taxes in jurisdictions in which it operates. For
income tax purposes, the Partnership has a fiscal year ending December 31
(Note 9).

g) Organization and Offering Costs

Costs incurred to organize the Partnership, including but not limited to le-
gal, accounting and registration fees, are considered deferred organization
expenses. These costs are capitalized and are being amortized over a 60-
month period. Costs incurred in connection with obtaining permanent mortgage
financing are amortized over the lives of the related mortgage notes. Costs
incurred to sell BACs, including brokerage and the nonaccountable expense al-
lowance, are considered selling and offering expenses. These costs are
charged directly to limited partners' capital.

h) Deferred Acquisition Costs

Acquisition costs and fees incurred in connection with the proposed purchase
of interests in certain subsidiary partnerships have been deferred. In the
event these partnerships are acquired, these amounts will be capitalized as
property costs. If the subsidiary partnerships are not acquired, these
amounts will be charged to operations.

i) Loss Contingencies

The Partnership records loss contingencies as a charge to income when infor-
mation becomes available which indicates that it is probable that an asset
has been impaired or a liability has been incurred as of the date of the fi-
nancial statements and the amount of loss can be reasonably estimated.

j) Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.

k) Recent Pronouncements

In April 1998, the AICPA issued S0P No. 98-5, "Reporting on the costs of
Start-Up Activities". S0P No. 98.5, which will be adopted effective April 1,
1999, requires that costs of start-up activities, including organizational
costs be expensed as incurred. In addition, at the time of adoption the un-
amortized balance of any previously deferred organizational costs must be ex-
pensed. This adoption will have no material effect on the result of opera-
tions or financial condition for the 1999 Fiscal Year, as the unamortized
balance is immaterial to the financial statements.

NOTE 3 - Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments (all of which are held for non-trading
purposes) for which it is practicable to estimate that value:

Cash and Cash Equivalents, Investments Available-for-Sale and Cash Held in
Escrow
The carrying amount approximates fair value.

Mortgage Notes Payable
The fair value of mortgage notes payable and construction loans payable is
estimated, where practicable, based on the borrowing rate currently available
for similar loans.

The estimated fair values of the Partnership's mortgage notes payable and
construction loans payable are as follows:

March 31, 1999 March 31, 1998
Carrying Carrying
Amount Fair Value Amount Fair Value

Mortgage notes
payable for
which it is:

Practicable to
estimate
fair value $ 1,224,606 $ 1,221,796 $ 2,838,263 $1,635,922
Not practicable 31,198,071 * 26,835,560 *

Construction
Loans Payable for
which it is:

Practicable to
estimate
fair value 0 0 0 0
Not Practicable 12,043,984 * 7,080,766 *

*Management believes it is not practical to estimate the fair value of the
mortgage notes payable because mortgage programs with similar characteristics
are not currently available to the partnerships.

Management believes it is not practical to estimate the fair value of due to
local and general partners and affiliates because market information on such
unique loans are not currently available to the partnerships.

The carrying amount of other financial instruments that require such disclo-
sure approximates fair value.

NOTE 4 - Property and Equipment

The components of property and equipment and their estimated useful lives are
as follows:

Estimated
March 31, Useful Lives
1999 1998 (Years)

Land $ 1,166,783 $ 1,166,783 -
Building and improvements 76,926,841 66,799,722 20-40
Furniture and fixtures 988,829 938,664 5-12

79,082,453 68,905,169
Less: Accumulated
depreciation (6,254,823) (3,800,117)

$72,827,630 $65,105,052

Included in property and equipment is $2,509,717 of acquisition fees paid to
the General Partner and $1,178,468 of acquisition expenses as of March 31,
1999 and 1998. In addition, as of March 31, 1999 and 1998, building and im-
provements and construction in progress includes $1,096,544 and $945,183, re-
spectively, of capitalized interest.

In connection with the rehabilitation of the properties, the subsidiary part-
nerships have incurred developer's fees of $8,980,181 and $7,983,690 to the
local general partners and affiliates as of March 31, 1999 and 1998, respec-
tively. Such fees have been included in the cost of property and equipment.

Depreciation expense for the years ended March 31, 1999, 1998 and 1997
amounted to $2,454,706, $1,862,118 and $1,328,528, respectively.

NOTE 5 - Cash Held in Escrow

Cash held in escrow consists of the following:

March 31,
1999 1998

Purchase price
payments* $1,508,996 $2,398,699
Construction 78,621 967,165
Real estate taxes,
insurance and
other 1,628,221 1,439,777
Reserve for
replacements 592,492 526,138

$3,808,330 $5,331,779

*Represents amounts to be paid to seller upon completion of properties under
construction and upon meeting specified rental achievement criteria.

NOTE 6 - Deferred Costs

The components of deferred costs and their periods of amortization are as
follows:

March 31,
1999 1998 Period

Financing costs $1,047,110 $1,044,824 *
Deferred acquisition
costs 0 96,683 **
Organization
costs 257,811 177,811 60 months
1,304,921 1,319,318
Less: Accumulated
amortization (322,481) (243,170)

$ 982,440 $1,076,148
*Over the life of
the related
mortgages.

**Were capitalized as part of the cost of the acquisitions and the balance
was written off during the year end March 31, 1999.

Amortization expense for the years ended March 31, 1999, 1998 and 1997
amounted to $79,311, $94,330 and $56,467, respectively.

NOTE 7 - Mortgage and Construction Notes Payable

The mortgage and construction notes, which are collateralized by land and
buildings, are payable in aggregate monthly installments of approximately
$51,000 including principal and interest at rates varying from 0% to 10.5%
per annum, through the year 2046. Each subsidiary partnership's mortgage
note payable is collateralized by the land and buildings of the respective
subsidiary partnership, the assignment of certain subsidiary partnership's
rents and leases, and is without further recourse.

Annual principal payment requirements, as of March 31, 1999 for each of the
next five fiscal years and thereafter, are as follows:

Fiscal Year Ending Amount

1999 $ 241,614
2000 253,315
2001 271,087
2002 291,187
2003 312,523
Thereafter 31,052,951

$32,422,677

The mortgage agreements require monthly deposits to replacement reserves of
approximately $15,000 and monthly deposits to escrow accounts for real estate
taxes, hazard and mortgage insurance and other (Note 5).

As of December 31, 1998, four subsidiary partnerships have construction loan
commitments totaling approximately $12,527,000. As of December 31, 1998,
such loans have an outstanding balance of approximately $12,044,000.

At December 31, 1998, Sumpter Commons Associates, L.P. was in default on this
construction loan payable to CPC, resulting in the loan balance of $1,253,898
being accelerated and becoming immediately due. In addition, the Sumpter
Commons Associates, L.P. has reserved for default interest of $33,929. On
February 22, 1999, Sumpter Commons Associates, L.P. entered into a forbear-
ance agreement with CPC to cure the default and satisfy all of the terms, re-
quirements and conditions necessary for the conversion of the construction
financing into permanent financing. In exchange, CPC has agreed to forbear
from proceeding with the foreclosure action for a period of sixty days or un-
til an earlier default under the terms and conditions of the agreement.

In addition, the U.S. Department of Housing and Urban Development ("HUD") has
committed to provide an Upfront Grant totaling $4,160,000 towards the con-
struction and development of one Local Partnership. Grant funds totaling
$3,951,813 were utilized by the Local Partnership as of December 31, 1998.

NOTE 8 - Related Party Transactions

An affiliate of the General Partner has a .01% interest as a special limited
partner, in each of the Local Partnerships.

Pursuant to the Partnership Agreement and the Local Partnership Agreements,
the General Partner and affiliate receive their pro rata shares of profits,
losses and tax credits.

The General Partner and its affiliates perform services for the Partnership.
The costs incurred for the years ended March 31, 1999, 1998 and 1997 are as
follows:

A) Guarantees

The Partnership has negotiated development deficit guarantees with the Local
Partnerships in which it has invested. The Local General Partners have
agreed to fund development deficit through certain dates as defined in the
Partnership Agreement of each of the Local Partnerships. Such guarantees are
defined in their respective agreements and generally there is no right of re-
payment to such Local General Partners. All current development deficit
guarantees expire within the next two years. Management does not expect
their expiration to have a material impact on liquidity, based on prior
years' fundings.

The Partnership has negotiated Operating Deficit Guaranty Agreements with all
Local Partnerships by which the general partners of the Local Partnerships
have agreed to fund operating deficits for a specified period of time. The
terms of the Operating Deficit Guaranty Agreements vary for each Local Part-
nership, with maximum dollar amounts to be funded for a specified period of
time, generally three years, commencing on the break-even date. As of March
31, 1999, 1998 and 1997, the gross amounts of the Operating Deficit Guaran-
tees aggregate approximately $5,129,000, $4,597,000 and $3,360,000, respec-
tively, $1,280,319 of which has expired as of March 31, 1999. All current
operating deficit guarantees expire within the next three years. As of March
31, 1999, approximately $343,000 has been funded under the Operating Deficit
Guaranty agreements. Amounts funded under such agreements are treated as
noninterest bearing loans, which will be paid only out of 50% of available
cash flow or out of available net sale or refinancing proceeds. Management
does not expect the expiration of such guarantees to have a material impact
on liquidity, based on prior years' fundings.

In addition, several Local Partnerships have Rent-Up Guaranty Agreements, in
which the Local General Partner agrees to pay liquidating damages if prede-
termined occupancy rates are not achieved. The terms of the Rent-Up Guaranty
Agreements vary for each Local Partnership, with maximum dollar amounts to be
funded for a specified period of time. As of March 31, 1999, 1998 and 1997,
the gross amounts of these Rent-Up Guarantees for the Local Partnerships ag-
gregate approximately $1,779,000, $1,779,000 and $1,326,000, respectively, of
which approximately $1,779,000, $1,755,000 and $542,000 have expired as of
March 31, 1999, 1998 and 1997, respectively. All current rent-up deficit
guarantees expire within the next two years. There has not been any funding
under these guaranty agreements. Amounts received under rental guaranty from
the sellers of the properties purchased by the Partnership will be treated as
a reduction of the asset. Management does not expect a material impact on
liquidity, based on prior years' fundings.

The Operating Deficit Guaranty Agreements, Rent-Up Guaranty Agreements, and
Development Deficit Guaranty Agreements are negotiated to protect the Part-
nership's interest in the Local Partnerships and to provide incentive to the
Local General Partners to generate positive cash flow.

B) Other Related Party Expenses

The costs incurred to related parties for the years ended March 31, 1999,
1998 and 1997 were as follows:

Year Ended March 31,
1999 1998 1997

Partnership
management
fees (a) $ 376,139 $ 50,000 $ 237,252
Expense
reimburse-
ment (b) 116,085 119,911 91,999
Local
administrative
fees (d) 51,000 44,000 25,000
Total
general and
administrative-
General Partner 543,224 213,911 354,251
Property
management
fees
incurred to
affiliates
of the
subsidiary
partnerships'
general partners (c) 217,666 178,858 139,780

Total general and
administrative-
related parties $ 760,890 $ 392,769 $ 494,031

(a) The General Partner is entitled to receive a partnership management fee,
after payment of all Partnership expenses, which together with the annual lo-
cal administrative fees will not exceed a maximum of 0.5% per annum of in-
vested assets (as defined in the Partnership Agreement), for administering
the affairs of the Partnership. Subject to the foregoing limitation, the
partnership management fee will be determined by the General Partner in its
sole discretion based upon its review of the Partnership's investments. Un-
paid partnership management fees for any year will be accrued without inter-
est and will be payable only to the extent of available funds after the Part-
nership has made distributions to the limited partners of sale or refinancing
proceeds equal to their original capital contributions plus a 10% priority
return thereon (to the extent not theretofore paid out of cash flow). Part-
nership management fees owed to the General Partner amounting to approxi-
mately $527,000 and $200,000 were accrued and unpaid as of March 31, 1999 and
1998, respectively.

(b) The Partnership reimburses the General Partner and its affiliates for
actual Partnership operating expenses incurred by the General Partner and its
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the Partnership Agreement. An-
other affiliate of the General Partner performs asset monitoring for the
Partnership. These services include site visits and evaluations of the sub-
sidiary partnerships' performance.

(c) Property management fees incurred by Local Partnerships amounted to
$339,925, $262,356 and $180,668 for the years ended March 31, 1999, 1998 and
1997, respectively. Of these fees, $217,666, $178,858 and $139,780 were in-
curred to affiliates of the subsidiary partnerships' general partners.

(d) Independence SLP III L.P., a limited partner of the subsidiary partner-
ships, is entitled to receive a local administrative fee of up to $5,000 per
year from each subsidiary partnership.

D) Due to Local General Partners and Affiliates

Due to local general partners and affiliates consists of the following:

March 31,
1999 1998

Operating
advances $ 142,008 $ 41,001
Development
fee
payable 3,155,817 3,595,647
Other
capitalized
costs 116,335 116,335
Construction
costs
payable 506,855 731,017
General
Partner
loan
payable (*) 139,919 143,237
Construction
advances 316,068 1,223,790
Management
and other
operating
fees 97,014 135,299

$4,474,016 $5,986,326
(*) General Partner loan payable consists of the follow-
ing:

Sumpter Commons Associates, L.P.
This loan bears interest
at 8% per annum and
is expected to be paid
in 1998. $ 139,919 $ 139,237

New Zion Apartments L.P.
This loan was unsecured,
noninterest bearing and
due on demand. $ 0 $ 4,000

NOTE 9 - Income Taxes

A reconciliation of the financial statement net loss to the income tax loss
for the Partnership and its consolidated subsidiaries follows:

For the Year Ended December 31,
1998 1997 1996

Financial statement
net loss $(3,086,998) $(2,149,365) $(1,417,274)

Differences between depreciation and amortization
expense records for financial reporting purposes
and the accelerated costs recovery system utilized
for income tax
purposes (198,881) (179,924) (134,273)

Differences resulting from parent company having a
different fiscal year for income tax and financial
reporting
purposes 151,387 59,523 0

Tax exempt interest
income (132,500) (356,817) (595,958)

Other, including accruals for financial reporting
not deductible for tax purposes until
paid (477,454) 122,513 119,542

Net loss as shown on the income tax return for the
calendar year
ended $(3,744,446) $(2,504,070) $(2,027,963)

NOTE 10 - Commitments and Contingencies

2301 First Avenue Limited Partnership
2301 First Avenue Limited Partnership ("2301 First Avenue") is a defendant in
a lawsuit alleging personal injury. The amount of the claim may exceed 2301
First Avenue's insurance coverage limits. Another lawsuit by a Class Z lim-
ited partner seeking damages, in a material amount, has been commenced
against the buildings' general contractor, and the sole stockholder of the
corporate general partner alleging breach of agreements involving several
projects including 2301 First Avenue. Since it is premature to make an
evaluation of the amount of 2301 First Avenue's potential loss, it is manage-
ment's opinion that no accrual for potential losses is currently warranted in
the financial statements. The Partnership's investment in and advances to
2301 First Avenue at March 31, 1999 and 1998 was approximately $450,000 and
$531,000, respectively, and the minority interest balance was zero at each
date. 2301 First Avenue's net loss after minority interest amounted to ap-
proximately $79,000, $135,000 and $261,000 for the 1998, 1997 and 1996 Fiscal
Years, respectively.

Pacific East L.P.
The Pacific East L.P. is a defendant in a lawsuit filed by one of its tenants
for injuries allegedly sustained as a result of an assault by an intruder in
the tenant's apartment. Outside counsel for the Pacific East L.P. has ad-
vised that an opinion as to probable outcome cannot be made, as the case is
in the preliminary stages.

b) Leases

One of the subsidiary partnerships is leasing the land on which the Project
is located, for a term of 50 years and monthly rent payments of $1,449. Es-
timated future minimum payments due under the terms of the lease are as fol-
lows:

1999 $ 21,252
2000 21,252
2001 21,252
2002 21,252
2003 21,252
Thereafter 913,836
$1,020,096

c) Uninsured Cash and Cash Equivalents

The Partnership maintains its cash and cash equivalents in various banks.
The accounts at each bank are guaranteed by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured cash and cash equivalents approximated
$3,427,000 at March 31, 1999.

d) Year 2000 Compliance

The Partnership utilizes the computer services of an affiliate of the General
Partner. The affiliate of the General Partner has upgraded their computer in-
formation systems to be year 2000 compliant and beyond. The year 2000 compli-
ance issue concerns the inability of a computerized system to accurately rec-
ord dates after December 31, 1999. The affiliate of the General Partner con-
verted their financial systems applications and upgraded all of their non-
compliant in-house software and hardware inventory. The work stations that
experienced problems from the testing process were corrected with an upgrade
patch. The costs incurred by the affiliate of the General Partner are not be-
ing charged to the Partnership. The most likely worst case scenario that the
General Partner faces is that computer operations will be suspended for a few
days to a week commencing on January 1, 2000. The Partnership's contingency
plan is to (i) have a complete backup done on December 31, 1999 and (ii) both
electronic and printed reports generated for all critical data up to and in-
cluding December 31, 1999.

In regard to third parties, the General Partner is in the process of evaluat-
ing the potential adverse impact that could result from the failure of mate-
rial service providers to be year 2000 compliant. A detailed survey and as-
sessment was sent to material third parties in the fourth quarter of 1998.
The Partnership has received assurances from a majority of the material serv-
ice providers with which it interacts that they have addressed the year 2000
issues and is evaluating these assurances for their adequacy and accuracy.
In cases where the Partnership has not received assurances from third par-
ties, it is initiating further mail and/or phone correspondence. The Part-
nership relies heavily on third parties and is vulnerable to the failures of
third parties to address their year 2000 issues. There can be no assurances
given that the third parties will adequately address their year 2000 issues.

e) Other

The Partnership and BACs holders began to recognize Tax Credits with respect
to a Property when the Credit Period for such Property commenced. Because of
the time required for the acquisition, completion and rent-up of Properties,
the amount of Tax Credits per BAC have gradually increased over the first
three years of the Partnership. Tax Credits not recognized in the first
three years will be recognized in the 11th through 13th years. The Partner-
ship generated $4,743,808, $3,683,727 and $2,386,725 Tax Credits during the
1998, 1997 and 1996 tax years, respectively.

Item 9. Changes in and Disagreements with Accountants on Accounting and Fi-
nancial Disclosure.

None

PART III

Item 10. Directors and Executive Officers of the Registrant.

The Partnership has no directors or executive officers. The Partnership's
affairs are managed and controlled by the General Partner. Certain informa-
tion concerning the directors and executive officers of RIAI III, the sole
general partner of the General Partner, is set forth below.

Name Position

Stephen M. Ross Director

J. Michael Fried President, Chief Executive Officer and Director

Alan P. Hirmes Senior Vice President

Stuart J. Boesky Vice President

Marc D. Schnitzer Vice President

Glenn F. Hopps Treasurer

Teresa Wicelinski Secretary

STEPHEN M. ROSS, 59, President, Director and shareholder of The Related Re-
alty Group, Inc., the General Partner of The Related Companies, L.P. He
graduated from the University of Michigan School of Business Administration
with a Bachelor of Science degree and from Wayne State University School of
Law with a Juris Doctor degree. Mr. Ross then received a Master of Laws de-
gree in taxation from New York University School of Law. He joined the ac-
counting firm of Coopers & Lybrand in Detroit as a tax specialist and later
moved to New York, where he worked for two large Wall Street investment bank-
ing firms in their real estate and corporate finance departments. Mr. Ross
formed the predecessor of The Related Companies, L.P. in 1972 to develop,
manage, finance and acquire subsidized and conventional apartment develop-
ments.

J. MICHAEL FRIED, 55, is the sole shareholder of one of the general partners
of Related Capital Company ("Capital"), a real estate finance and acquisition
affiliate of the Related General Partner. In that capacity, he is responsi-
ble for all of Capital's syndication, finance, acquisition and investor re-
porting activities. Mr. Fried practiced corporate law in New York City with
the law firm of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined
Capital in 1979. Mr. Fried graduated from Brooklyn Law School with a Juris
Doctor degree, magna cum laude; from Long Island University Graduate School
with a Master of Science degree in Psychology; and from Michigan State Uni-
versity with a Bachelor of Arts degree in History.

ALAN P. HIRMES, 44, has been a Certified Public Accountant in New York since
1978. Prior to joining Related in October 1983, Mr. Hirmes was employed by
Weiner & Co., Certified Public Accountants. Mr. Hirmes is also a Vice Presi-
dent of Capital. Mr. Hirmes graduated from Hofstra University with a Bache-
lor of Arts degree.

STUART J. BOESKY,43, practiced real estate and tax law in New York City with
the law firm of Shipley & Rothstein from 1984 until February 1986 when he
joined Capital. From 1983 to 1984, Mr. Boesky practiced law with the Boston
law firm of Kaye Fialkow Richard & Rothstein (which subsequently merged with
Strook & Strook & Lavan LLP) and from 1978 to 1980 was a consultant special-
izing in real estate at the accounting firm of Laventhol & Horwath. Mr. Boe-
sky graduated from Michigan State University with a Bachelor of Arts degree
and from Wayne State School of Law with a Juris Doctor degree. He then re-
ceived a Master of Laws degree in Taxation from Boston University School of
Law.

MARC D. SCHNITZER, 38, is responsible both for financial restructuring of
real estate properties and directing Related's acquisitions of properties
generating Housing Tax Credits. Mr. Schnitzer received a Masters of Business
Administration from The Wharton School of the University of Pennsylvania in
December 1987 before joining Related in January 1988. From 1983 to January
1986, he was a financial analyst for the First Boston Corporation in New
York. Mr. Schnitzer graduated summa cum laude with a Bachelor of Science in
Business Administration from the School of Management at Boston University in
May 1983.

GLENN F. HOPPS, 36, joined Related in December 1990, and prior to that date
was employed by Marks Shron & Company and Weissbarth, Altman and Michaelson,
certified public accountants. Mr. Hopps graduated from New York State Uni-
versity at Albany with a Bachelor of Science Degree in Accounting.

TERESA WICELINSKI, 33, joined Related in June 1992, and prior to that date
was employed by Friedman, Alpren & Green, certified public accountants. Ms.
Wicelinski graduated from Pace University with a Bachelor of Arts Degree in
Accounting.

Item 11. Executive Compensation.

The Partnership has no officers or directors. The Partnership does not pay
or accrue any fees, salaries or other forms of compensation to directors or
officers of the General Partner for their services. However, under the terms
of the Partnership Agreement, the Partnership has entered into certain ar-
rangements with the General Partner and its affiliates, which provide for
compensation to be paid to the General Partner and its affiliates. Such ar-
rangements include (but are not limited to) agreements to pay nonrecurring
Acquisition Fees, a nonaccountable Acquisition Expense allowance, an account-
able expense reimbursement and Subordinated Disposition Fees to the General
Partner and/or its affiliates. In addition, the General Partner is entitled
to a subordinated interest in Cash from Sales or Financings and a 1% interest
in Net Income, Net Loss, Distributions of Adjusted Cash from Operations and
Cash from Sales or Financings. Certain directors and officers of the General
Partner receive compensation from the General Partner and its affiliates for
services performed for various affiliated entities which may include services
performed for the Partnership. The maximum annual partnership management fee
paid to the General Partner is 0.5% of invested assets. See Note 8 to the
Financial Statements in Item 8 above, which is incorporated herein by refer-
ence.

Tabular information concerning salaries, bonuses and other types of compensa-
tion payable to executive officers has not been included in this annual re-
port. As noted above, the Partnership has no executive officers. The levels
of compensation payable to the General Partner and/or its affiliates is lim-
ited by the terms of the Partnership Agreement and may not be increased
therefrom on a discretionary basis.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
Name and Address of Amount and Nature of Percentage
Title of Class Beneficial Ownership Beneficial Ownership of Class

General Partnership Related Independence $1,000 capital
contribution 100%
Interest in the Associates III L.P. -directly owned
Partnership 625 Madison Avenue
New York, NY 10022

Independence SLP III L.P., a limited partnership whose general partner is the
general partner of the General Partner of the Partnership and which acts as
the special limited partner of each Local Partnership, holds a .01% limited
partnership interest in each Local Partnership. See Note 8 to the Financial
Statements in Item 8 above, which information is incorporated herein by ref-
erence thereto. The following table sets forth the number of BACs benefi-
cially owned, as of June 18, 1999, by (i) each BACs holder known to the Part-
nership to be a beneficial owner of more than 5% of the BACs, (ii) each di-
rector and executive officer of the general partner of the General Partner
and (iii) the directors and executive officers of the general partner of the
General Partner as a group. Unless otherwise noted, all BACs are owned di-
rectly with sole voting and dispositive powers.

Except as set forth below, no person is known by the Partnership to be the
beneficial owner of more than five percent of the Limited Partnership Inter-
ests and/or BACs; and neither the General Partner nor any director or officer
of the General Partner beneficially owns any Limited Partnership Interests or
BACs.

Amount and Nature of
Name of Beneficial Owner (1) Beneficial Ownership Percent of Class

Lehigh Tax Credit Partners, Inc. 3,242.94 (2) (3) 7.5%

J. Michael Fried 3,242.94 (2) (3) 7.5%

Alan P. Hirmes 3,242.94 (2) (3) 7.5%

Stuart J. Boesky 3,242.94 (2) (3) 7.5%

Stephen M. Ross 3,242.94 (2) (3) 7.5%

Marc D. Schnitzer 3,242.94 (2) (3) 7.5%

Glenn F. Hopps - -

Teresa Wicelinski - -

All directors and
executive officers 3,242.94 (2) (3) 7.5%
of the general partner of the
Related General Partner as a group
(seven persons)

(1) The address for each of the persons in the table is 625 Madison Avenue,
New York, New York 10022.

(2) As set forth in Schedule 13D filed by Lehigh Tax Credit Partners III
L.L.C. ("Lehigh III") and Lehigh Tax Credit Partners, Inc., (the "Managing
Member") on January 25, 1999 with the Securities and Exchange Commission (the
"Commission") and pursuant to a letter agreement dated October 6, 1998 among
the Partnership, Lehigh III and the General Partner (the "Standstill Agree-
ment"), Lehigh III agreed that, prior to October 6, 2008 (the "Standstill Ex-
piration Date"), it will not and it will cause certain affiliates not to (i)
seek to propose to enter into, directly or indirectly, any merger, consolida-
tion, business combination, sale or acquisition of assets, liquidation, dis-
solution or other similar transaction involving the Partnership, (ii) form,
join or otherwise participate in a "group" (within the meaning of Section 13
(d)(3) of the Act) with respect to any voting securities of the Partnership,
except that those affiliates bound by the Standstill Agreement will not be
deemed to have violated it and formed a "group" solely by acting in accor-
dance with the Standstill Agreement, (iii) disclose in writing to any third
party intention, plan or arrangement inconsistent with the terms of the
Standstill Agreement, or (iv) loan money to, advise, assist or encourage any
person in connection with any action inconsistent with the terms of the
Standstill Agreement, Lehigh III also agreed to vote its BACs in the same
manner as a majority of all voting BACs holders; provided, however, Lehigh is
entitled to vote its BACs as it determines with regard to any proposal (i) to
remove the General Partner as a general partner of the Partnership or (ii)
concerning the reduction of any fees, profits, distributions or allocations
for the benefit of the General Partner or its affiliates. The discussion
herein of the Standstill Agreement is subject to and qualified in its en-
tirety by reference to such agreement, a copy of which is attached hereto as
an exhibit and incorporated herein by reference. The addresses of each of
the Partnership, Lehigh III and the General Partner is 625 Madison Avenue,
New York, New York 10022.

(3) Each such party serves as a director and executive officer of the Manag-
ing Member and owns an equity interest therein.

Item 13. Certain Relationships and Related Transactions.

The Partnership has and will continue to have certain relationships with the
General Partner and its affiliates, as discussed in Item 11 and also Note 8
to the Financial Statements in Item 8 above, which is incorporated herein by
reference thereto. However, there have been no direct financial transactions
between the Partnership and the directors and officers of the General Part-
ner.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential
Page

(a) 1. Financial Statements

Independent Auditors' Report 16

Consolidated Balance Sheets at March 31, 1999 and 1998 68

Consolidated Statements of Operations for the Years Ended March
31, 1999, 1998 and 1997 69

Consolidated Statements of Changes in Partners' Capital (Defi-
cit) for the Years Ended March 31, 1999, 1998 and 1997 70

Consolidated Statements of Cash Flows for the Years Ended March
31, 1999, 1998 and 1997 71

Notes to Consolidated Financial Statements 74

(a) 2. Consolidated Financial Statement Schedules

Independent Auditors' Report 98

Schedule I - Condensed Financial Information of Registrant 99

Schedule III - Real Estate and Accumulated Depreciation 102

All other schedules have been omitted because they are not re-
quired or because the required information is contained in the
financial statements or notes thereto.

(a) 3. Exhibits

(3A) Agreement of Limited Partnership of Independence Tax Credit
Plus L.P. III as adopted on December 23, 1993*

(3B) Form of Amended and Restated Agreement of Limited Partnership
of Independence Tax Credit Plus L.P. III, attached to the Pro-
spectus as Exhibit A**

(3C) Certificate of Limited Partnership of Independence Tax Credit
Plus L.P. III as filed on December 23, 1993*

(10A) Form of Subscription Agreement attached to the Prospectus as
Exhibit B**

(10B) Escrow Agreement between Independence Tax Credit Plus L.P. III
and Bankers Trust Company*

(10C) Form of Purchase and Sales Agreement pertaining to the Partner-
ship's acquisition of Local Partnership Interests*

(10D) Form of Amended and Restated Agreement of Limited Partnership
of Local Partnerships*

(21) Subsidiaries of the Registrant 95

(27) Financial Data Schedule (filed herewith) 105

*Incorporated herein as an exhibit by reference to exhibits
filed with Post-Effective Amendment No. 4 to the Registration
Statement on Form S-11 {Registration No. 33-37704}

**Incorporated herein as an exhibit by reference to exhibits
filed with Post-Effective Amendment No. 8 to the Registration
Statement on Form S-11 {Registration No. 33-37704}

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the quarter.

Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K. (continued)

Jurisdiction
(c) Subsidiaries of the Registrant (Exhibit 21) of Organization

Edward Hotel Limited Partnership CA
Pacific-East L.P. NY
Overtown Development Group, Ltd. FL
Sumpter Commons Associates, L.P. NY
Park Housing Limited Partnership CT
Livingston Manor Urban Renewal Associates, L.P. NJ
Jefferis Square Housing Partnership, L.P. PA
2301 First Avenue Limited Partnership NY
Lewis Street Limited Partnership NY
Savannah Park Housing Limited Partnership DC
Brannon Group, L.C. FL
Mansion Court Phase II Venture PA
Primm Place Partners, L.P. MI
BK-9-A Partners L.P. NY
BK-10K Partners L.P. NY
Aspen-Olive Associates PA
West Mill Creek Associates, III L.P. PA
Universal Court Associates PA
New Zion Apartments LA
Dreitzer House NY

(d) Not applicable

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Ex-
change Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

INDEPENDENCE TAX CREDIT PLUS L.P. III
(Registrant)

By: RELATED INDEPENDENCE ASSOCIATES III L.P.,
General Partner

By: RELATED INDEPENDENCE ASSOCIATES III INC.,
General Partner

Date: June 25, 1999 By: /s/ J. Michael Fried
J. Michael Fried
President, Chief Executive Officer and Director
(principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this re-
port has been signed below by the following persons on behalf of the regis-
trant and in the capacities and on the dates indicated:

Signature Title Date

President and Chief Executive Officer
(principal executive officer)
/s/ J. Michael Fried and Director of Related
J. Michael Fried Independence Associates III Inc. June 25, 1999

Senior Vice President
/s/ Alan P. Hirmes (principal financial officer) of Related
Alan P. Hirmes Independence Associates III Inc. June 25, 1999

Treasurer (principal
/s/ Glenn F. Hopps accounting officer) of Related
Glenn F. Hopps Independence Associates III Inc. June 25, 1999

/s/ Stephen M. Ross Director of Related
Stephen M. Ross Independence Associates III Inc. June 25, 1999

INDEPENDENT AUDITORS' REPORT

To the Partners of
Independence Tax Credit Plus L.P. III and Subsidiaries
(A Delaware Limited Partnership)

In connection with our audits of the consolidated financial statements of In-
dependence Tax Credit Plus L.P. III and Subsidiaries included in the Form 10-
K as presented in our opinion dated June 14, 1999 on page 16, and based on
the reports of other auditors, we have also audited supporting Schedule I for
the 1998, 1997 and 1996 Fiscal Years and Schedule III as of March 31, 1999.
In our opinion, and based on the reports of the other auditors, these con-
solidated schedules present fairly, when read in conjunction with the related
consolidated financial statements, the financial data required to be set
forth therein.

TRIEN ROSENBERG ROSENBERG
WEINBERG CIULLO & FAZZARI, LLP

New York, New York
June 14, 1999

INDEPENDENCE TAX CREDIT PLUS L.P. III
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Not Including Consolidated Subsidiary Partnerships)

CONDENSED BALANCE SHEETS

ASSETS

March 31,
1999 1998

Cash and cash equivalents $ 668,586 $ 4,540,828
Investments available-for-sale 1,700,000 0
Investment in subsidiary
partnerships 28,578,012 28,091,849
Cash held in escrow 1,508,996 2,398,699
Other assets 32,699 130,959

Total assets $32,488,293 $35,162,335

LIABILITIES AND PARTNERS' CAPITAL

Due to general partner
and affiliates $ 667,772 $ 274,364
Other liabilities 20,081 532

Total liabilities 687,853 274,896

Partners' capital 31,800,440 34,887,439

Total liabilities and partners'
capital $32,488,293 $35,162,335

INDEPENDENCE TAX CREDIT PLUS L.P. III
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Not Including Consolidated Subsidiary Partnerships)

CONDENSED STATEMENTS OF OPERATIONS

Year Ended March 31,
1999 1998 1997

Revenues

Interest income $ 120,135 $ 292,655 $ 545,693
Other 0 200 150

Total revenues 120,135 292,855 545,843

Expenses

Administrative and
management 184,673 169,780 256,133
Administrative and
management-
related parties 492,224 169,911 329,251
Amortization 106,683 10,000 10,000

Total expenses 783,580 349,691 595,384

Loss from operations (663,445) (56,836) (49,541)

Equity in loss of
subsidiary
partnerships (2,423,553) (2,092,529) (1,367,733)

Net loss $(3,086,998) $(2,149,365) $(1,417,274)

INDEPENDENCE TAX CREDIT PLUS L.P. III
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CONDENSED STATEMENTS OF CASH FLOWS

Year Ended March 31,
1999 1998 1997

Cash flows from
operating activities:

Net loss $(3,086,998) $(2,149,365) $(1,417,274)

Adjustments to
reconcile net loss
to net cash (used in)
provided by
operating activities:

Amortization 106,683 10,000 10,000
Equity in loss of
subsidiary
partnerships 2,423,553 2,092,529 1,367,733
Due from
subsidiary
partnerships 0 317,056 (251,082)
Increase (decrease)
in assets:
Other assets (8,423) 645,280 626,868
Increase (decrease)
in liabilities:
Due to general partners
and affiliates 393,408 65,834 198,497
Other
liabilities 19,549 (1,003) (565)

Total
adjustments 2,934,770 3,129,696 1,951,451

Net cash (used in)
provided by
operating activities (152,228) 980,331 534,177

Cash flows from investing activities:

(Increase) decrease
in investments
available-for-sale (1,700,000) 6,500,000 5,002,412
Investment in
subsidiary
partnerships (2,931,609) (8,473,919) (6,290,122)
Distributions from
subsidiary
partnerships 21,892 3,751 9,147
Decrease (increase)
in cash held in escrow 889,703 (753,720) 1,100,752

Net cash used in
investing activities (3,720,014) (2,723,888) (177,811)

Net (decrease) increase
in cash and
cash equivalents (3,872,242) (1,743,557) 356,366

Cash and cash equivalents,
beginning of year 4,540,828 6,284,385 5,928,019

Cash and cash equivalents,
end of year $ 668,586 $ 4,540,828 $6,284,385

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 1999

Cost Capitalized
Initial Cost to Partnership Subsequent to
Buildings and Acquisition:
Description Encumbrances Land Improvements Improvements

Apartment Complexes

Edward Hotel
Limited Partnership $ 2,399,459 $ 275,000 $ 591,240 $2,569,916
Los Angeles, CA
Pacific East, L.P. 2,146,021 1,950 3,125,584 156,037
Brooklyn, NY
Overtown
Development
Group, Ltd. 1,414,711 52,284 2,627,099 147,487
Miami, FL
Sumpter Commons
Associates, L.P. 1,253,898 500 1,862,916 46,663
Park Housing
Limited Partnership 848,953 5,000 2,343,351 64,880
Livingston Manor
Urban Renewal 3,080,000 119,988 7,047,532 583,264
Associates, L.P.
Jefferis Square
Housing 1,900,000 55,158 0 4,588,014
Partnership, L.P.
2301 First Avenue
Limited Partnership 5,558,532 64,350 5,818,269 83,080
Lewis Street
Limited
Partnership 1,600,000 7,000 0 2,750,002
Savannah Park
Housing Limited 873,568 0 2,049,888 2,057,857
Partnership
Brannon Group, L.C. 4,929,490 380,000 2,598,402 5,538,378
Independence Tax
Credit Fund L.P. 2,510,527 1,732 339,661 6,164,035
(Mansion Court
Phase II Venture
and Aspen Olive
Associates
Consolidated)
Primm Place
Partners, L.P. 4,310,000 168,258 0 7,038,333
BK-9-A
Partners L.P. 1,065,958 0 1,517,313 (57,378)
BK-10K
Partners L.P. 1,199,556 11,000 1,637,762 (8,271)
Westmill Creek
Associates III L.P. 2,767,457 37,031 6,922,563 16,181
Universal Court
Associates 1,500,000 31,024 279,220 4,639,401
New Zion
Apartments 1,166,426 20,000 2,688,770 12,362
Dreitzer House 3,942,105 5 0 12,362

$44,466,661 $1,230,280 $41,449,570 $36,402,603

Gross Amount at which Carried At Close of Period
Buildings and
Description Land Improvements Total

Apartment Complexes

Edward Hotel
Limited Partnership $281,123 $ 3,155,033 $ 3,436,156
Los Angeles, CA
Pacific East, L.P. 8,075 3,275,496 3,283,571
Brooklyn, NY
Overtown
Development
Group, Ltd. 58,408 2,768,462 2,826,870
Miami, FL
Sumpter Commons
Associates, L.P. 3,673 1,906,406 1,910,079
Park Housing
Limited Partnership 8,173 2,405,058 2,413,231
Livingston Manor
Urban Renewal 123,161 7,627,623 7,750,784
Associates, L.P.
Jefferis Square
Housing 39,347 4,603,825 4,643,172
Partnership, L.P.
2301 First Avenue
Limited Partnership 67,523 5,898,176 5,965,699
Lewis Street
Limited
Partnership 10,173 2,746,829 2,757,002
Savannah Park
Housing Limited 3,173 4,104,572 4,107,745
Partnership
Brannon Group, L.C. 383,173 8,133,607 8,516,780
Independence Tax
Credit Fund L.P. 5,123 6,500,305 6,505,428
(Mansion Court
Phase II Venture
and Aspen Olive
Associates
Consolidated)
Primm Place
Partners, L.P. 67,777 7,138,814 7,206,591
BK-9-A
Partners L.P. 3,173 1,456,762 1,459,935
BK-10K
Partners L.P. 14,176 1,626,315 1,640,491
Westmill Creek
Associates III L.P. 37,649 6,938,126 6,975,775
Universal Court
Associates 31,642 4,918,003 4,949,645
New Zion
Apartments 20,618 2,700,514 2,721,132
Dreitzer House 623 11,744 12,367

$1,166,783 $77,915,670 $79,082,453

Life on which
Depreciation in
Year of Latest Income
Accumulated Construction/ Date Statements are
Description Depreciation Renovation Acquired Computed(a)(b)

Apartment Complexes

Edward Hotel
Limited Partnership $ 394,608 1994-95 Nov. 1994 27.5 years
Los Angeles, CA
Pacific East, L.P. 581,621 1994-95 Dec. 1994 27.5 years
Brooklyn, NY
Overtown
Development
Group, Ltd. 309,454 1994-95 Dec. 1994 40 years
Miami, FL
Sumpter Commons
Associates, L.P. 233,769 1995-96 Apr. 1995 27.5 years
Park Housing
Limited Partnership 266,446 1995-96 May 1995 27.5 years
Livingston Manor
Urban Renewal 590,270 1995-96 June 1995 15-40 years
Associates, L.P.
Jefferis Square
Housing 313,571 1995-96 June 1995 20 - 40 years
Partnership, L.P.
2301 First Avenue
Limited Partnership 852,834 1995-96 Aug. 1995 27.5 years
Lewis Street
Limited
Partnership 294,082 1995-96 Oct. 1995 27.5 years
Savannah Park
Housing Limited 434,162 1995-96 Oct. 1995 27.5 years
Partnership
Brannon Group, L.C. 268,146 1995-96 Dec. 1995 40 years
Independence Tax
Credit Fund L.P. 298,550 1995-96 Dec. 1995 20 - 40 years
(Mansion Court
Phase II Venture
and Aspen Olive
Associates
Consolidated)
Primm Place
Partners, L.P. 314,209 1995-96 Dec. 1995 10 - 40 years
BK-9-A
Partners L.P. 144,161 1995-96 Dec. 1995 40 years
BK-10K
Partners L.P. 160,876 1995-96 Dec. 1995 40 years
Westmill Creek
Associates III L.P. 592,722 1997-98 Dec. 1996 27.5 years
Universal Court
Associates 56,392 1997-98 Apr. 1997 20-40 years
New Zion
Apartments 144,974 1997-98 Nov. 1997 15 - 27.5 years
Dreitzer House 3,976 1997-99 Dec. 1997 27.5 years

$6,254,823

(a) Depreciation is computed using primarily the straight-line
method over the estimated useful lives determined by the Partnership
date of acquisition.
(b) Personal property is depreciated primarily by the straight-line
method over the estimated useful lives of 5 - 12 years.

Cost of Property and Equipment
Year Ended March 31,
1999 1998 1997

Balance at
beginning of period $68,905,169 $49,002,477 $36,045,837
Additions
during period:
Improvements 10,177,284 19,902,692 12,956,640
Depreciation expense

Balance at
close of period $79,082,453 $68,905,169 $49,002,477

Accumulated Depreciation
Year Ended March 31,
1999 1998 1997

Balance at
beginning of period $3,800,117 $1,937,998 $ 609,470
Additions during
period:
Improvements
Depreciation
expense 2,454,706 1,862,119 1,328,528

Balance at
close of period $6,254,823 $3,800,117 $1,937,998

At the time the local partnerships were acquired by Independence Tax
Credit Plus III Limited Partnership, the entire purchase price paid by
Independence Tax Credit Plus III Limited Partnership was pushed down to
the local partnerships as property and equipment with an offsetting
credit to capital. Since the projects were in the construction phase at
the time of acquisition, the capital accounts were insignificant at the
time of purchase. Therefore, there are no material differences between
the original cost basis for tax and GAAP.