10-Q 1 qh3q3fy10.txt QH3Q3FY1010Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2009 -------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ ------------- Commission file number 01-18462 Boston Financial Qualified Housing Tax Credits L.P. III --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 04-3032106 ------------------------------------ --------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 101 Arch Street, Boston, Massachusetts 02110-1106 -------------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 439-3911 -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ___ Accelerated Filer ___ Non-accelerated filer ___ (Do not check if a smaller reporting company) Smaller reporting company X ------- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X . BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) TABLE OF CONTENTS

BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) BALANCE SHEETS December 31, 2009 (Unaudited) and March 31, 2009 (Audited)

The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) STATEMENTS OF OPERATIONS For the Three and Nine Months Ended December 31, 2009 and 2008 (Unaudited)

The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) STATEMENT OF CHANGES IN PARTNERS' EQUITY For the Nine Months Ended December 31, 2009 (Unaudited)

The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) STATEMENTS OF CASH FLOWS For the Nine Months Ended December 31, 2009 and 2008 (Unaudited)

The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (Unaudited) The unaudited financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the financial statements and notes thereto included with the Partnership's Form 10-K for the year ended March 31, 2009. In the opinion of the Managing General Partner, these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Partnership's financial position and results of operations. The results of operations for the period may not be indicative of the results to be expected for the year. The Managing General Partner of the Partnership has elected to report results of the Local Limited Partnerships in which the Partnership has a limited partnership interest on a 90-day lag basis because the Local Limited Partnerships report their results on a calendar year basis. Accordingly, the financial information of the Local Limited Partnerships that is included in the accompanying financial statements is as of September 30, 2009 and 2008. Generally, profits, losses, tax credits and cash flow from operations are allocated 99% to the Limited Partners and 1% to the General Partners. Net proceeds from a sale or refinancing will be allocated 95% to the Limited Partners and 5% to the General Partners, after certain priority payments. The General Partners may have an obligation to fund deficits in their capital accounts, subject to limits set forth in the Partnership Agreement. However, to the extent that the General Partners' capital accounts are in a deficit position, certain items of net income may be allocated to the General Partners in accordance with the Partnership Agreement. 1. Investment in Local Limited Partnership The Partnership currently owns a limited partnership interest in one Local Limited Partnership which was organized for the purpose of owning and operating a multi-family housing complex, which is government-assisted. The Partnership's ownership interest in the Local Limited Partnership is 99%. The Partnership may have negotiated or may negotiate options with the Local General Partners to purchase or sell the Partnership's interest in the Local Limited Partnership at the end of the Compliance Period at nominal prices. In the event that Property is sold to third parties, or upon dissolution of the Local Limited Partnership, proceeds will be distributed according to the terms of the Local Limited Partnership agreement. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) (Unaudited) 1. Investment in Local Limited Partnership (continued)

The Partnership had recorded a valuation allowance for its investments in certain Local Limited Partnerships in order to appropriately reflect the estimated net realizable value of these investments. The Partnership's share of the net losses of the Local Limited Partnerships for the nine months ended December 31, 2009 and 2008 is $1,614,245 and $2,453,762, respectively. For the nine months ended December 31, 2009 and 2008, the Partnership has not recognized $1,614,245 and $2,353,300, respectively, of equity in losses relating to certain Local Limited Partnerships in which cumulative equity in losses and distributions exceeded its total investments in these Local Limited Partnerships. During the nine months ended December 31, 2009, the Partnership sold its investments in three Local Limited Partnerships, resulting in a net gain of $200,000. During the nine months ended December 31, 2008, the Partnership sold its investments in two Local Limited Partnerships, resulting in a net gain of $1,838,090. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) (Unaudited) 2. Fair Value Measurements In September 2006, the Financial Accounting Standards Board ("FASB") issued authoritative guidance which provided enhanced guidance for using fair value to measure assets and liabilities. The authoritative guidance, which is effective for financial statements issued in fiscal years beginning after November 15, 2007 and interim periods within those fiscal years, established a common definition of fair value, providing a framework for measuring fair value under U.S. generally accepted accounting principles and expanding disclosure requirements about fair value measurements. In February 2008, additional authoritative guidance was issued which delays the above effective date for fair value measurement of all nonfinancial assets and liabilities except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis until November 15, 2008. The Partnership adopted certain provisions of the authoritative guidance for financial assets and liabilities recognized at fair value on a recurring basis effective April 1, 2008. This partial adoption did not have a material impact on the Partnership's Financial Statements. The Partnership does not expect the adoption of the remaining provisions to have a material effect on the Partnership's financial position, operations or cash flow. This authoritative guidance requires that a Partnership measure its financial assets and liabilities using inputs from the three levels of the fair value hierarchy. A financial asset or liability classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are as follows: Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Partnership has the ability to access at the measurement date. Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3 - Unobservable inputs reflect the Partnership's judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Partnership develops these inputs based on the best information available, including the Partnership's own data. In February 2007, the FASB issued authoritative guidance which permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. This guidance is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Partnership has not elected to measure any financial assets and financial liabilities at fair value. 3. New Accounting Principles Accounting for Uncertainty in Income Taxes In June 2006, the FASB issued authoritative guidance which provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. As required, the Partnership adopted this authoritative guidance effective April 1, 2007 and concluded that the effect was not material to its financial statements. In December 2008, the FASB issued additional authoritative guidance which deferred the effective date for certain nonpublic organizations. The deferred effective date is intended to give the FASB additional time to develop guidance on the application of this authoritative guidance by pass through and not-for-profit entities. If required, the General Partner may modify the Partnership's disclosures in accordance with the FASB's guidance. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) (Unaudited) 3. New Accounting Principles (continued) Codification and Hierarchy of Generally Accepted Accounting Principles In June 2009, the FASB issued authoritative guidance which establishes the FASB Standards Accounting Codification ("Codification") as the source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities. It is effective for interim and annual reporting periods ending after September 15, 2009. The Partnership has adopted this authoritative guidance with its September 30, 2009 reporting. The only other source of authoritative GAAP is the rules and interpretive releases of the SEC which only apply to SEC registrants. The Codification supersedes all the existing non-SEC accounting and reporting standards upon its effective date. Since the issuance of the Codification is not intended to change or alter existing GAAP, adoption of this statement did not have an impact on the Partnership's financial position or results of operations, but did change the way in which GAAP is referenced in the Partnership's financial statements. Subsequent Events In May 2009, the FASB issued authoritative guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The Partnership adopted this authoritative guidance for the quarter ended June 30, 2009 and has evaluated subsequent events after the balance sheet date of December 31, 2009 through February 16, 2009, the date the financial statements were issued. Interim Disclosures about Fair Value Measurement In April 2009, the FASB issued authoritative guidance which amends previous professional standards, to require disclosures about the fair value of financial instruments for interim reporting periods. The authoritative guidance, effective for interim and annual reporting periods ending after June 15, 2009, also requires companies to disclose the methods and significant assumptions used to estimate the fair value of financial instruments in financial statements on an interim basis and to describe any changes during the period. The Partnership adopted this authoritative guidance for the quarter ended June 30, 2009 and the adoption did not have a material impact on the Partnership's financial position or results of operations. Consolidation of Variable Interest Entities In June 2009, the FASB issued authoritative guidance which amends existing consolidation guidance for variable interest entities. The guidance requires ongoing reassessment to determine whether a variable interest entity must be consolidated, requires additional disclosures regarding involvement with variable interest entities and disclosure of any significant changes in risk exposure due to that involvement. This guidance will be effective for the Partnership's fiscal year beginning April 1, 2010. The Partnership is currently evaluating the effects of this guidance on its financial statements. 4. Significant Subsidiaries None of the Local Limited Partnerships invested in by the Partnership represent more than 20% of the Partnership's total assets or equity as of December 31, 2009 or 2008 or net losses for the three months then ended. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain matters discussed herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words like "anticipate, "intend," "project," "plan," "expect," "believe," "could," and similar expressions are intended to identify such forward-looking statements. The Partnership intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements and is including this statement for purposes of complying with these safe harbor provisions. Although the Partnership believes the forward-looking statements are based on reasonable assumptions, the Partnership can give no assurance that its expectations will be attained. Actual results and timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation, general economic and real estate conditions and interest rates. Critical Accounting Policies The Partnership's accounting policies include those that relate to its recognition of investments in Local Limited Partnerships using the equity method of accounting. The Partnership's policy is as follows: The Local Limited Partnerships in which the Partnership invests are Variable Interest Entities ("VIE"s). The Partnership is involved with the VIEs as a non-controlling limited partner equity holder. The investments in the Local Limited Partnerships are made primarily to obtain tax credits on behalf of the Partnership's investors. The general partners of the Local Limited Partnerships, who are considered to be the primary beneficiaries, control the day-to-day operations of the Local Limited Partnerships. The general partners are also responsible for maintaining compliance with the tax credit program and for providing subordinated financial support in the event operations cannot support debt and property tax payments. The Partnership, through its ownership percentages, may participate in property disposition proceeds. The timing and amounts of these proceeds are unknown but can impact the Partnership's financial position, results of operations or cash flows. Because the Partnership is not the primary beneficiary of these VIEs, it accounts for its investments in the Local Limited Partnerships using the equity method of accounting. As a result of its involvement with the VIEs, the Partnership's exposure to economic and financial statement losses is limited to its investments in the VIEs (zero at December 31 and March 31, 2009). The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future. Under the equity method, the investment is carried at cost, adjusted for the Partnership's share of net income or loss and for cash distributions from the Local Limited Partnerships; equity in income or loss of the Local Limited Partnerships is included currently in the Partnership's operations. A liability is recorded for delayed equity capital contributions to Local Limited Partnerships. Under the equity method, a Local Limited Partnership investment will not be carried below zero. To the extent that equity in losses are incurred when the Partnership's carrying value of the respective Local Limited Partnership has been reduced to a zero balance, the losses will be suspended and offset against future income. Income from Local Limited Partnerships, where cumulative equity in losses plus cumulative distributions have exceeded the total investment in Local Limited Partnerships, will not be recorded until all of the related unrecorded losses have been offset. To the extent that a Local Limited Partnership with a carrying value of zero distributes cash to the Partnership, that distribution is recorded as income on the books of the Partnership. The Partnership has implemented policies and practices for assessing other-than-temporary declines in the values of its investments in Local Limited Partnerships. Periodically, the carrying values of the investments are tested for other-than-temporary impairment. If an other-than-temporary decline in carrying value exists, a provision to reduce the investment to the sum of the estimated remaining benefits will be recorded in the Partnership's financial statements. The estimated remaining benefits for each Local Limited Partnership consist of estimated future tax losses and tax credits over the estimated life of the investment and estimated residual proceeds at disposition. Included in the estimated residual proceeds calculation is current net operating income capitalized at a regional rate specific to each Local Limited Partnership less the debt of the Local Limited Partnership. Generally, the carrying values of most Local Limited Partnerships will decline through losses and distributions in amounts sufficient to prevent other-than-temporary impairments. However, the Partnership may record similar impairment losses in the future if the expiration of tax credits outpaces losses and distributions from any of the Local Limited Partnerships. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Liquidity and Capital Resources At December 31, 2009, the Partnership has cash and cash equivalents of $445,609 as compared with $3,014,508 at March 31, 2009. The decrease is mainly attributable to cash distributions paid to Investor Limited Partners, partially offset by cash received from the sale of investments in Local Limited Partnerships. The Managing General Partner initially designated 3.00% of the Gross Proceeds as Reserves as defined in the Partnership Agreement. The Reserves were established to be used for working capital of the Partnership and contingencies related to the ownership of Local Limited Partnership interests. The Managing General Partner may increase or decrease such Reserves from time to time, as it deems appropriate. During the year ended March 31, 1993, the Managing General Partner increased the Reserve level to 3.75%. At December 31 and March 31, 2009, approximately $404,000 and $2,490,000, respectively, has been designated as Reserves. To date, professional fees relating to various Property issues totaling approximately $2,388,000 have been paid from Reserves. To date, Reserve funds in the amount of approximately $534,000 also have been used to make additional capital contributions to four Local Limited Partnerships and the Partnership has paid approximately $452,000 (net of paydowns) to purchase the mortgage of The Kyle Hotel. In the event a Local Limited Partnership encounters operating difficulties requiring additional funds, the Partnership's management might deem it in its best interest to voluntarily provide such funds in order to protect its investment. As of December 31, 2009, the Partnership has advanced approximately $1,578,000 to Local Limited Partnerships to fund operating deficits. The Managing General Partner believes that the investment income earned on the Reserves, along with cash distributions received from Local Limited Partnerships, to the extent available, will be sufficient to fund the Partnership's ongoing operations. Reserves may be used to fund Partnership operating deficits, if the Managing General Partner deems funding appropriate. If Reserves are not adequate to cover the Partnership's operations, the Partnership will seek other financing sources including, but not limited to, the deferral of Asset Management Fees paid to an affiliate of the Managing General Partner or working with Local Limited Partnerships to increase cash distributions. To date, the Partnership has used approximately $1,605,000 of operating funds and proceeds from sales of investments in Local Limited Partnerships to replenish Reserves. Since the Partnership invests as a limited partner, the Partnership has no contractual duty to provide additional funds to Local Limited Partnerships beyond its specified investment. Thus, as of December 31, 2009, the Partnership had no contractual or other obligation to any Local Limited Partnership which had not been paid or provided for. Cash Distributions During the nine months ended December 31, 2009, the Partnership made cash distributions of $2,600,350. The Partnership is currently working on disposing of its interest in the Local Limited Partnership during the next twelve months. This disposition may result in cash available for distribution, but due to the uncertainty of the sale, no guarantees can be made as to the extent of the outcome on distributions. Based on the results of 2008 Property operations, the Local Limited Partnership is not expected to distribute significant amounts of cash to the Partnership because such amounts will be needed to fund Property operating costs. In addition, many of the Properties benefit from some type of federal or state subsidy and, as a consequence, are subject to restrictions on cash distributions. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Results of Operations Three Month Period For the three months ended December 31, 2009, the Partnership's operations resulted in a net loss of $32,499 as compared to a net loss of $23,223 for the same period in 2008. The increase in net loss is primarily due to a gain on sale of investments in Local Limited Partnerships recognized in the 2008 period while none was recognized in the 2009 period. This is partially offset by a decrease in general and administrative expenses and Asset Management Fees. The decrease in these expenses is driven by fewer Local Limited Partnerships invested in by the Partnership in 2009 as compared to the same quarter in 2008. Nine Month Period For the nine months ended December 31, 2009, the Partnership's operations resulted in net income of $64,050 as compared to net income of $1,594,396 for the same period in 2008. The decrease in net income is primarily due to a larger gain on sale of investments in Local Limited Partnerships recognized in the 2008 period due to the sale of investments in two Local Limited Partnerships with large proceeds during the nine months ended December 31, 2008. The sale of three investments in Local Limited Partnerships during the nine months ended December 31, 2009 resulted in minimal proceeds. This decrease in net income is partially offset by a decrease in equity in losses. The decrease in equity in losses is caused by all investments in Local Limited Partnerships having a balance of zero as of December 31, 2009; therefore, the Partnership is no longer recognizing equity in losses. Portfolio Update The Partnership was formed on August 9, 1988 under the laws of the State of Delaware for the primary purpose of investing, as a limited partner, in Local Limited Partnerships, which own and operate apartment complexes, most of which benefit from some form of federal, state or local assistance program and each of which qualify for low-income housing tax credits. The Partnership's objectives are to: (i) provide current tax benefits in the form of tax credits which qualified investors may use to offset their federal income tax liability; (ii) preserve and protect the Partnership's capital; (iii) provide limited cash distributions which are not expected to constitute taxable income during Partnership operations; and (iv) provide cash distributions from sale or refinancing transactions. The fiscal year of the Partnership ends on March 31. Municipal Mortgage & Equity, LLC ("MuniMae") has now sold substantially all of the assets of its Low Income Housing Tax Credit ("LIHTC") business to a venture consisting of JEN Partners, LLC or its affiliates ("JEN") and Real Estate Capital Partners, LP or its affiliates ("RECP"). The first stage of this sale closed on July 30, 2009 and the second stage closed on October 13, 2009. The business is owned by Boston Financial Investment Management, LP, a Delaware limited partnership, which is directly and indirectly owned by JEN and RECP ("Boston Financial"). The general partner of Boston Financial is BFIM Management, LLC, a JEN affiliate. From July 30, 2009 through October 13, 2009, MuniMae had engaged BFIM Asset Management, LLC ("BFIM"), an affiliate of Boston Financial, to provide asset management to the Partnership. Most of the employees of MuniMae's LIHTC business have joined Boston Financial, the operations of the business are to remain intact in the Boston office and the Partnership will continue to be managed and administered in the ordinary course. Arch Street III, Inc. is the Managing General Partner of the Partnership ("Arch Street") and Arch Street III Limited Partnership is the co-General Partner of the Partnership ("Arch Street LP"). The general partner of Arch Street LP is Arch Street. In connection with the above-described transaction, on October 13, 2009, control of the Managing General Partner and the co-General Partner were directly and/or indirectly transferred from an affiliate of MuniMae to Boston Financial. The transfer did not change the organizational structure of the Partnership. The principal office and place of business of the Partnership will continue to be 101 Arch Street, 13th Floor, Boston, Massachusetts 02110. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Portfolio Update As of December 31, 2009, the Partnership's investment portfolio consisted of a limited partnership interest in one Local Limited Partnership, which owns and operates a multi-family apartment complex and which had generated Tax Credits. Since inception, the Partnership generated Tax Credits, net of recapture, of approximately $1,340 per Limited Partner Unit. The aggregate amount of Tax Credits generated by the Partnership is consistent with the objective specified in the Partnership's prospectus. In August 2009, the Partnership distributed $197,951, or $1.98 per Unit to Limited Partners, representing a distribution from the proceeds of previously reported dispositions of Properties and/or the Partnership's investments in the Local Limited Partnerships owning these Properties. In May 2009, the Partnership distributed $2,402,399, or $24.02 per Unit to Limited Partners, representing a distribution from the proceeds of previously reported dispositions of Properties and/or the Partnership's investments in the Local Limited Partnerships owning these Properties. The Managing General Partner anticipates making additional distributions in the future. Properties that receive low income housing Tax Credits must remain in compliance with rent restriction and set aside requirements for at least 15 calendar years from the date the Property is placed in service. Failure to do so would result in recapture of a portion of the Property's Tax Credits. The Compliance Period of the remaining Property in which the Partnership has an interest expired by December 31, 2006. The Managing General Partner has negotiated agreements that will ultimately allow the Partnership to dispose of its interest in the remaining Local Limited Partnership. The Managing General Partner will continue to pursue the disposition of the Partnership's remaining Local Limited Partnership interest. The Partnership shall dissolve and its affairs shall be wound up upon the disposition of the final Local Limited Partnership interest and other assets of the Partnership. Investors will continue to be Limited Partners, receiving K-1s and quarterly and annual reports, until the Partnership is dissolved. As described in previous periodic reports, in February, 2007, various Boston Financial public funds (the "Fund" or "Funds"), including Boston Financial Qualified Housing Tax Credits L.P. III (the "Partnership"), reached an agreement to resolve several lawsuits and pending disputes between the Partnership and the Funds and their general partners on the one hand, and a group of limited partner unit investors on the other hand. The group of investors included Park G.P., Inc., Bond Purchase, L.L.C. and various other entities related to David L. Johnson (the "Johnson Group") and Everest Housing Investors 2, LLC and various other Everest-related entities (the "Everest Group"; the Johnson Group and the Everest Group are hereinafter collectively referred to as the "Johnson and Everest Groups"). Per the terms of the parties' agreement, these lawsuits were then dismissed. The Johnson and Everest Groups further agreed at that time to refrain from interfering in various ways with the conduct of the business of the Partnership and the business of another Fund, Boston Financial Qualified Housing Tax Credits L.P. IV ("QH4"). Also as previously reported, beginning in November, 2007, the Johnson and Everest Groups filed new lawsuits against QH4 and its general partners in various jurisdictions, as part of an effort to replace the existing general partners with parties related to the Everest Group, to prevent QH4 from selling any of its assets without limited partner consent, and to interfere with specific arms length sales by QH4 of certain of its assets. QH4 responded with its own lawsuits against the Johnson and Everest Groups to block these efforts as well as to claim damages arising from the Johnson and Everest Groups' conduct. The following lawsuits concerning QH4 (collectively, the "Johnson/Everest Lawsuits"), were filed in the November 2007 through April 2008 time period: o On November 29, 2007, QH4 and its general partners were sued in Superior Court for the County of Los Angeles, California by a Limited Partner named Danford Baker and companies named Everest Housing Investors 2, LP and Everest Management, LLC with which Mr. Baker is affiliated (collectively, "Everest"). Everest dismissed this lawsuit without prejudice on April 17, 2008. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Portfolio Update o On or about, May 6, 2008, the same Everest parties referenced above in the 1st California lawsuit filed a nearly identical Complaint against QH4 and its general partners in the same Superior Court for the County of Los Angeles, California. Everest dismissed this 2nd California lawsuit without prejudice on November 11, 2008. o On January 22, 2008, QH4 and its general partners were sued in the District Court of Johnson County, Kansas by a Limited Partner named McDowell Investments, L.P. ("McDowell"). o On January 29, 2008, QH4 and its general partners filed suit against McDowell in the Superior Court for Suffolk County, Massachusetts. o On April 22, 2008, QH4 and its general partners filed suit in the Superior Court for Suffolk County, Massachusetts against the following defendants: Everest Housing Investors 2, L.P.; Everest Management LLC; Everest Properties, Inc.; Everest Properties, LLC; McDowell Investments, L.P.; MGM Holdings, LLC; Park G.P., Inc., Bond Purchase, L.L.C.; Anise L.L.C.; Paco Development, L.L.C.; Maxus Realty Trust, Inc.; David L. Johnson; W. Robert Kohorst; Danford M. Baker; Monte G. McDowell; and Kevan D. Acord. Effective April 24, 2009, the Partnership, along with QH4 and several of the other Funds, reached an agreement with the Johnson and Everest Groups to resolve their disputes and the Johnson/Everest Lawsuits (the "Settlement Agreement"). Pursuant to the Settlement Agreement, on May 19, 2009, McDowell filed a dismissal of the Johnson/Everest Lawsuit pending in Johnson County, Kansas. On May 21, 2009, the parties filed with the Massachusetts court joint stipulations of dismissal with respect to the two Johnson/Everest Lawsuits initiated in Massachusetts. The Settlement Agreement provides, among other things, that (a) the parties exchange mutual releases and covenant not to bring lawsuits against each other in the future, (b) the parties dismiss claims and counterclaims asserted in the various lawsuits without prejudice, and (c) the Johnson and Everest Groups agree not to take a variety of actions which could interfere with the conduct of the business of the Partnership and other Funds. The Settlement Agreement also sets out a schedule for future cash distributions to the limited partners and for the eventual dissolution of the Partnership and QH4. The Settlement Agreement was attached as Exhibit 99-1 to the Partnership's Form 8-K filed on May 21, 2009. In addition, effective April 24, 2009, the Partnership and QH4 entered into purchase agreements (the "Purchase Agreements") with certain members of the Johnson and Everest Groups permitting them to purchase, subject to various conditions and at specified prices which the Partnership believes represent fair market value, certain interests held by the Partnership and by QH4 in Local Limited Partnerships. The Settlement Agreement remains effective regardless of whether any of the Local Limited Partnership interests are purchased. With respect to the Partnership, the Purchase Agreements provide for the purchase by affiliates of the Everest Group, for the total price of $200,000, of the Partnership's interests in: River Front Apartments, L.P., which owns a property in Sunbury, PA; and Susquehanna View, L.P., which owns a property in Camp Hill, PA. The sale of these Partnership interests closed on July 24, 2009. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Property Discussions The remaining Property, in which the Partnership currently has an interest, operated below breakeven as of September 30, 2009. The Local General Partner funds the Property deficits through project expense loans, subordinated loans or operating escrows. This Property, Waterfront, has had persistent operating difficulties that could either: (i) have an adverse impact on the Partnership's liquidity; or (ii) result in the Managing General Partner deeming it appropriate for the Partnership to dispose of its interest in the Local Limited Partnership. In addition to the Property discussion for this one remaining property, included in the Property Discussions are any properties that have been dissolved in the current and prior fiscal year. As previously reported, the Managing General Partner anticipated the Partnership's interest in the Local Limited Partnership that owns Walker Woods, located in Dover, Delaware, would be terminated upon the sale of the Property in late 2008. On September 12, 2008, the underlying Property was sold, effectively terminating the Partnership's interest in the Local Limited Partnership that owned Walker Woods. The Partnership received $424,239, or $4.24 per Unit, for its interest in this Local Limited Partnership. On February 2, 2009, the Partnership received an additional $4,814, or $0.05 per Unit, from the final contingency holdback. The Managing General Partner, in accordance with and as permitted by the Partnership Agreement, has retained the sales proceeds in Reserves for the time being until it deems a subsequent distribution to be prudent. The Managing General Partner does not expect to receive any further proceeds. The sale resulted in a 2008 taxable loss of $97,952, or about $0.98, per Unit. The Partnership no longer has an interest in this Local Limited Partnership. As previously reported, the Managing General Partner and Local General Partner of Wood Creek, located in Calcium, New York, were exploring an exit strategy that would result in a mid-2008 disposal of the Partnership's interest in the Local Limited Partnership. On September 12, 2008 the underlying Property was sold, effectively terminating the Partnership's interest in the Local Limited Partnership that owned Wood Creek. The Partnership received $1,413,851, or about $14.14 per Unit, for its interest. The Managing General Partner, in accordance with and as permitted by the Partnership Agreement, has retained the sales proceeds in Reserves for the time being until it deems a subsequent distribution to be prudent. The sale resulted in 2008 taxable loss of $224,885, or about $2.25, per Unit. The Partnership no longer has an interest in this Local Limited Partnership. As previously reported, Shoreline, located in Buffalo, New York, had operating deficits as a result of a soft rental market, low occupancy and deferred maintenance. The mortgage loan on the Property was payable only out of available cash flow and the Property had not made mortgage payments in several years. The Managing General Partner and the Local General Partner commenced discussions regarding the options available to improve operations at, or dispose of, the Property. An agreement was reached whereby the Managing General Partner would allow the Local General Partner to transfer its Local General Partner interest to a developer that will re-syndicate the Property. In return, the Partnership obtained both a put option allowing the Partnership to transfer its interest in the Local Limited Partnership for a nominal sum and a pledge by the incoming Local General Partner to pay any Tax Credit recapture incurred due to the transfer of the Local Limited Partnership prior to the end of the Compliance Period. This transfer of the Local General Partner interest occurred during April 2005. The transfer of the Partnership's interest in Shoreline occurred June 8, 2009. The transaction did not result in any net sales proceeds to the Partnership. This transaction is expected to result in 2009 taxable income projected to be approximately $10,300,000, or about $103 per Unit. The Partnership no longer has an interest in this Local Limited Partnership. As previously reported, Waterfront, located in Buffalo, New York, continues to have operating deficits as a result of a soft rental market, low occupancy and deferred maintenance, which impacts the marketability of the development. The mortgage loan on the Property is payable only out of available cash flow and the Property has not made mortgage payments in several years. The Managing General Partner and the Local General Partner commenced discussions regarding the options available to improve operations at, or dispose of, the Property. An agreement was reached whereby the Managing General Partner would allow the Local General Partner to transfer its Local General Partner interest to a developer that will re-syndicate the Property. In return, the Partnership obtained both a put BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Property Discussions option allowing the Partnership to transfer its interest in the Local Limited Partnership for a nominal sum and a pledge by the incoming Local General Partner to pay any Tax Credit recapture incurred due to the transfer of the Local Limited Partnership prior to the end of the Compliance Period. This transfer of the Local General Partner interest occurred during April 2005. The transfer of the Partnership's interests in Waterfront is currently expected to occur in the fiscal year ending March 31, 2011. The Managing General Partner does not expect this transaction to result in any net sales proceeds to the Partnership. This transaction is expected to result in taxable income projected to be approximately $36,400,000, or $364 per Unit. As previously reported, in accordance with the terms of their respective Partnership Agreements, the Managing General Partner, effective November 28, 2007, transferred the Partnership's interest in the Local Limited Partnerships that owned River Front Apartments, L.P., located in Sunbury, PA, and Susquehanna View, L.P., located in Camp Hill, PA. The interests in the aforementioned Local Limited Partnerships were transferred to MMA River Front, L.P., and MMA Susquehanna View, L.P. (together, the "Transferee Partnerships"). The Partnership is the sole Limited Partner of each of the Transferee Partnerships. An affiliate of the Partnership is the general partner of each of the Transferee Partnerships and has obtained a 1% interest in each of the Transferee Partnerships in exchange for a promissory note in favor of the Partnership. In processing these transactions, the Managing General Partner acted out of necessity, due to the impending expiration of the Partnership's ability to transfer its interest in the above-mentioned Local Limited Partnerships without the Local General Partner's consent. As previously disclosed, these Local Limited Partnership Interests were originally expected to be sold as part of a settlement between the Partnership, Qualified Housing Tax Credits L.P. IV, several of the Funds, and certain of their affiliates on the one hand, and the Johnson and Everest Groups on the other hand. When the Johnson and Everest Groups failed to exercise their option to purchase these Local Limited Partnership Interests, the above-described transfers were carried out. The Managing General Partner then had flexibility in being able to dispose of the Partnership's interest in the Local Limited Partnerships without the Local General Partners' consent, expediting the Managing General Partner's ability to liquidate the assets of, and dissolve, the Local Limited Partnerships. It is possible that such Local General Partner may contest this right to free transferability. Effective April 24, 2009, contemporaneously with signing the Settlement Agreement of the same date, the Managing General Partner and certain members of the Johnson and Everest Groups entered into Purchase Agreements which created rights for the Johnson and Everest Groups to acquire the Partnership's interests in River Front Apartments, L.P., located in Sunbury, PA, and Susquehanna View, L.P., located in Camp Hill, PA, for cash at fair market prices, for an aggregate price of $200,000, or $2.00 per Unit. The Johnson and Everest Groups' purchase of the Investor Limited Partner's interest was effective July 24, 2009. The Managing General Partner expects the sale of the Partnerships interest in River Front Apartments to result in a 2009 estimated taxable gain of approximately $600,000, or about $6.00 per Unit. The Managing General Partner expects the sale of the Partnerships interest in Susquenhanna View to result in a 2009 estimated taxable gain of approximately $3,330,000, or about $33.30 per Unit. The Partnership no longer has an interest in these two Local Limited Partnerships. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Non Applicable CONTROLS AND PROCEDURES Disclosure Controls and Procedures The Partnership maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 ("Exchange Act") is recorded, processed, summarized and reported within the specified time periods. The Partnership's Chief Executive Officer and its Chief Financial Officer (collectively, the "Certifying Officers") are responsible for maintaining disclosure controls for the Partnership. The controls and procedures established by the Partnership are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. As of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of the Partnership's disclosure controls and procedures. Based on the evaluation, the Certifying Officers concluded that as of December 31, 2009, the Partnership's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure. Internal Control over Financial Reporting The Certifying Officers have also concluded that there was no change in the Partnership's internal controls over financial reporting identified in connection with the evaluation that occurred during the Partnership's third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) PART II OTHER INFORMATION Items 1-5 Not applicable Item 6 Exhibits and reports on Form 8-K (a) Exhibits 31.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter ended December 31, 2009 BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III (A Limited Partnership) SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 16, 2010 BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III By: Arch Street III, Inc., its Managing General Partner /s/Kenneth J. Cutillo ----------------------------- Kenneth J. Cutillo President Arch Street III, Inc.

BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS LP III 10-Q