United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June~~September 30, 2011

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

For the transition period from ____________ to ____________

Commission file number 0-11962

CAPITAL REALTY INVESTORS-III

LIMITED PARTNERSHIP

(Exact Name of Issuer as Specified in its Charter)

Maryland	52-1311532
(State of Incorporation)	(I.R.S. Employer Identification No.)

11200 Rockville Pike
Rockville, MD	20852
(Address of Principal Executive Offices)	(ZIP Code)

(301) 468-9200

(Issuer’s Telephone Number, Including Area Code)

_____________________

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 o

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o

Non-accelerated filer (Do not check if a smaller reporting company) o Smaller reporting companyx

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

INDEX TO FORM 10-Q

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2011

		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheets
	- June 30, 2011 and December 31, 2010	1
	- September 30, 2011 and December 31, 2010	1
	Statements of Operations and Accumulated Losses
	- for the three and six months ended June 30, 2011 and 2010	2
	- for the three and nine months ended September 30, 2011 and 2010	2
	Statements of Cash Flows
	- for the six months ended June 30, 2011 and 2010	3
	- for the nine months ended September 30, 2011 and 2010	3
	Notes to Financial Statements
	- June 30, 2011 and 2010	4
	- September 30, 2011 and 2010	4
Item 2.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations	10
Item 4.	Controls and Procedures	12
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	12
Item 5.	Other Information	12
Item 6.	Exhibits	13
Signature		14

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

BALANCE SHEETS

ASSETS

(Unaudited)

	June 30,		December 31,
	2011		2010
	(Unaudited)
Investments in partnerships	$	2,897,353	$	2,836,317
Cash and cash equivalents		2,444,066		2,813,153
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $72,276 and $70,990, respectively		4,878		6,164
Property purchase costs, net of
accumulated amortization of $43,572 and $42,764, respectively		4,910		5,718
Other assets		1,323		14,446
Total assets	$	5,352,530	$	5,675,798

ASSETS

	September 30,		December 31,
	2011		2010

Investments in partnerships	$	2,867,560	$	2,836,317
Cash and cash equivalents		2,286,208		2,813,153
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $72,919 and $70,990, respectively		4,235		6,164
Property purchase costs, net of
accumulated amortization of $43,976 and $42,764, respectively		4,506		5,718
Other assets		529		14,446

Total assets	$	5,163,038	$	5,675,798

LIABILITIES AND PARTNERS' CAPITAL

Due on investment in partnership	$	119,544		$	119,544
Accrued interest payable		33,976			33,976
Accounts payable and accrued expenses		7456,~~718~~777			48,344
Total liabilities		~~228~~210,~~238~~297			201,864
Commitments and contingencies
Partners' capital:
Capital paid-in:
General Partners		2,000			2,000
Limited Partners		60,001,500			60,001,500
		60,003,500			60,003,500
Less:
Accumulated distributions to partners		(27,472,135	)		(27,472,135	)
Offering costs		(6,156,933	)		(6,156,933	)
Accumulated losses		(21,~~250~~421,~~140~~691	)		(20,900,498	)
Total partners' capital		54,~~124~~952,~~292~~741			5,473,934
Total liabilities and partners' capital	$	5,~~352~~163,~~530~~038		$	5,675,798

The accompanying notes are an integral part

of these financial statements.

- 1 -

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS

AND ACCUMULATED LOSSES

(Unaudited)

	For the three months ended						For the ~~six~~nine months ended
	June 30,						June 30,
	September 30,						September 30,
	2011			2010			2011			2010
Share of income (loss) from partnerships	$	(618,~~988~~260	)	$	~~(40~~12,~~495~~400	)	$	6142,~~036~~778		$	(186,~~588~~188	)
Other revenue and expenses:
Revenue:
Interest		6,~~666~~836			~~4,860~~--			1320,~~821~~654			9,521
		6,666			4,860			13,821			9,521
		6,836			--			20,654			9,521
Expenses:
General and administrative		~~120~~57,~~039~~517			7955,~~409~~716			~~173~~231,~~953~~470			~~176~~232,~~308~~024
Management fee		75,000			75,000			~~150~~225,000			~~150~~225,000
Professional fees		1326,~~633~~563			1721,~~077~~670			98125,~~452~~014			~~112~~133,~~253~~923
Amortization of deferred costs		1,047			1,047			23,~~094~~141			23,~~094~~141
		209,719			172,533			424,499			440,655
		160,127			153,433			584,625			594,088
Total other revenue and expenses		(~~203~~153,~~053~~291	)		(~~167~~153,~~673~~433	)		(~~410~~563,~~678~~971	)		(~~431~~584,~~134~~567	)
Net loss		(~~210~~171,~~041~~551	)		(~~208~~141,~~168~~033	)		(~~349~~521,~~642~~193	)		(~~449~~590,~~722~~755	)
Accumulated losses, beginning of period		(21,~~040~~250,~~099~~140	)		(2021,~~868~~076,~~758~~926	)		(20,900,498	)		(20,627,204	)
Accumulated losses, end of period	$	(21,~~250~~421,~~140~~691	)	$	(21,~~076~~217,~~926~~959	)	$	(21,~~250~~421,~~140~~691	)	$	(21,~~076~~217,~~926~~959	)
Net loss allocated
to General Partners (1.51%)	$	(32,~~172~~590	)	$	(32,~~143~~130	)	$	(57,~~280~~870	)	$	(68,~~791~~921	)
Net loss allocated
to Initial and Special Limited Partners (1.49%)	$	(32,~~130~~556	)	$	(32,~~102~~101	)	$	(57,~~210~~766	)	$	(68,~~701~~802	)
Net loss allocated
to Additional Limited Partners (97%)	$	(~~203~~166,~~739~~405	)	$	(~~201~~136,~~923~~802	)	$	(~~339~~505,~~152~~557	)	$	(~~436~~573,~~230~~032	)
Net loss per unit of
Additional Limited Partner Interest,
based on 59,882 units outstanding	$	(32.4078	)	$	(32.3728	)	$	(58.6644	)	$	(79.2857	)

The accompanying notes are an integral part

of these financial statements.

- 2 -

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

(Unaudited)

	For the six months ended
	For the nine months ended
	June 30,
	September 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(~~349~~521,~~642~~193	)	$	(~~449~~590,~~722~~755	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Share of (income) loss from partnerships		(6142,~~036~~778	)		186,~~588~~188
Amortization of deferred costs		23,~~094~~141			23,~~094~~141
Changes in assets and liabilities:
Decrease in other assets		13,~~123~~917			--
Increase in accounts payable and accrued expenses		268,~~374~~433			4434,~~391~~462
Net cash used in operating activities		(~~369~~538,~~087~~480	)		(~~384~~546,~~649~~964	)
Cash flows from investing activities:
Advances to local partnerships		--			(13,686	)
Net cash used in investing activities		--			(13,686	)
Receipt of distribution from partnership		11,535			--
Net decrease in cash and cash equivalents		(369,087	)		(398,335	)
Net cash provided by (used in) investing activities		11,535			(13,686	)
Cash flows from financing activities:
Distribution to Limited Partners		--			(898,230	)
Net cash used in financing activities		--			(898,230	)
Net decrease in cash and cash equivalents		(526,945	)		(1,458,880	)
Cash and cash equivalents, beginning of period		2,813,153			4,442,208
Cash and cash equivalents, end of period	$	2,~~444~~286,~~066~~208		$	42,~~043~~983,~~873~~328

The accompanying notes are an integral part

of these financial statements.

- 3 -

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

~~June~~September 30, 2011 and 2010

(Unaudited)

1. ORGANIZATION

Capital Realty Investors-III Limited Partnership (the “Partnership”) is a limited partnership which was formed under the Maryland Revised Uniform Limited Partnership Act on June 27, 1983. The Partnership was formed for the purpose of raising capital by offering and selling limited partnership interests and then investing in limited partnerships ("Local Partnerships"), each of which owns and operates an existing rental housing project which was originally financed and/or operated with one or more forms of rental assistance or financial assistance from the U.S. Department of Housing and Urban Development ("HUD"). The Partnership originally made investments in thirty-seven Local Partnerships. As of ~~June~~September 30, 2011, the Partnership retained investments in four Local Partnerships.

The General Partners of the Partnership are C.R.I., Inc. (“CRI”), which is the Managing General Partner, and current and former shareholders of CRI. Services for the Partnership are performed by CRI, as the Partnership has no employees of its own.

2. BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) and with the instructions to Form 10-Q. Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in conformity with US GAAP have been condensed or omitted pursuant to such instructions. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's annual report on Form 10-K at December 31, 2010.

In the opinion of CRI, the Managing General Partner of the Partnership, the accompanying unaudited financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position of the Partnership as of ~~June~~September 30, 2011, and the results of its operations and its cash flows for the three and ~~six~~nine month periods ended ~~June~~September 30, 2011 and 2010. The results of operations for the interim period ended ~~June~~September 30, 2011 are not necessarily indicative of the results to be expected for the full year.

3. PLAN OF LIQUIDATION

On November 21, 2005, the General Partners recommended that the limited partners approve a plan of liquidation and dissolution for the Partnership. The plan of liquidation and dissolution was approved by the limited partners on January 20, 2006. Since the approval of the plan of liquidation and dissolution, we have continued to seek to sell the assets of the Partnership and use the sales proceeds and/or other Partnership funds to pay all expenses in connection with such sales, pay or make provision for payment of all Partnership obligations and liabilities, and distribute the remaining assets as set forth in the Partnership Agreement. Numerous variables, including adverse general economic conditions, as well as, partnership and regulatory restrictions, have impacted the timeframe required to accomplish the liquidation and dissolution of the Partnership. There can be no assurance as to when the liquidation and dissolution of the Partnership will be completed.

- 4 -

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

~~June~~September 30, 2011 and 2010

(Unaudited)

4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

At ~~June~~September 30, 2011 and 2010, the Partnership had limited partnership equity interests in four Local Partnerships, owning five apartment complexes.

A schedule of the apartment communities owned by the Local Partnerships in which the Partnership is invested is provided below:

Property	City	State	Units
Meadow Lanes	Holland	MI	118
Monterey/Hillcrest	Waukesha	WI	300
Villa Mirage	Rancho Mirage	CA	50
Villa Mirage II	Rancho Mirage	CA	48

Under the terms of the Partnership's investment in each Local Partnership, the Partnership was required to make capital contributions to the Local Partnerships. These contributions were payable in installments upon each Local Partnership achieving specified levels of construction and/or operations. At ~~June~~September 30, 2011 and 2010, all such capital contributions had been paid to the Local Partnerships.

a. Summarized financial information

Combined statements of operations for the four Local Partnerships in which the Partnership was invested as of ~~June~~September 30, 2011 and 2010, respectively, follow. The combined statements have been compiled from information supplied by the management agents of the Local Partnership properties and are unaudited. The information for each of the periods is presented separately for those Local Partnerships which have investment basis (equity method), and for those Local Partnerships which have cumulative losses in excess of the amount of the Partnership’s investments in those Local Partnerships (equity method suspended). Appended after the combined statements is information concerning the Partnership’s share of income from partnerships related to cash distributions recorded as income, and related to the Partnership’s share of income from Local Partnerships.

- 5 -

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

~~June~~September 30, 2011 and 2010

(Unaudited)

4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended
	June 30,
	September 30,
	2011						2010
	Equity						Equity
	Method			Suspended			Method			Suspended	~~Suspended~~
Number of Local Partnerships		2	(a)		2	(b)		1	(c)		3	(d)
Revenue:
Rental	$	~~326~~331,~~327~~710		$	~~826~~845,~~156~~522		$	~~170~~183,~~211~~171		$	~~926~~958,~~487~~111
Other		~~(36~~5,~~928~~441	)		9572,~~462~~082			~~(17~~3,~~292~~735	)		9880,~~368~~117
Total revenue		~~289~~337,~~399~~151			~~921~~917,~~618~~604			~~152~~186,~~919~~906			1,~~024~~038,~~855~~228
Expenses:
Operating		~~222~~281,~~094~~348			~~469~~511,~~885~~152			~~139~~133,~~950~~928			~~361~~546,~~319~~354
Interest		13,071			204,656			(12,391	)		246,543
Depreciation and amortization		61,364			159,003			52,716			214,739
Total expenses		~~296~~355,~~529~~783			~~833~~874,~~544~~811			~~180~~174,~~275~~523			~~822~~1,~~601~~007,636
Net (loss) income	$	(718,~~130~~632	)	$	8842,~~074~~793		$	~~(27~~12,~~356~~653	)	$	~~202~~30,~~254~~592
Cash distributions	$	--11,535		$	--		$	--		$	--
Partnership’s share of Local
Partnership's share of Local Partnership net income (loss)	$	(18,260	)	$	--		$	12,400		$	--
Partnership net loss	$	(6,988	)	$	--		$	(26,809	)	$	--
Advance to Local Partnership		--			--			--			--
Advance to Local Partnership		--			--			--			(13,686	)
Share of income (loss) from partnerships		$(18,260)						$12,400
Share of loss from partnerships		$(6,988)						$(40,495)

- 6 -

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

~~June~~September 30, 2011 and 2010

(Unaudited)

4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

	For the six months ended
	For the nine months ended
	June 30,
	September 30,
	2011						2010
	Equity						Equity
	Method			Suspended			Method			Suspended
Number of Local Partnerships		2	(a)		2	(b)		1	(c)		3	(d)
Revenue:
Rental	$	~~658~~990,~~483~~192		$	12,~~657~~502,~~050~~572		$	~~349~~532,~~727~~898		$	12,~~831~~789,~~757~~868
Other		713,~~685~~126			~~156~~229,~~963~~044			1519,~~645~~380			~~152~~233,~~962~~079
Total revenue		~~666~~1,~~168~~003,318			12,~~814~~731,~~013~~616			~~365~~552,~~372~~278			13,~~984~~022,~~719~~947
Expenses:
Operating		~~455~~736,~~014~~362			~~956~~1,~~446~~467,598			~~289~~423,~~724~~652			~~960~~1,~~016~~506,370
Interest		2639,~~143~~215			~~409~~613,~~312~~967			(2437,~~781~~172	)		~~493~~739,~~087~~630
Depreciation and amortization		~~122~~184,~~728~~091			~~318~~477,~~006~~010			~~105~~158,~~431~~147			~~429~~644,~~477~~216
Total expenses		~~603~~959,~~885~~668			12,~~683~~558,~~764~~575			~~370~~544,~~374~~627			12,~~882~~890,~~580~~216
Net income (loss)	$	62,283		$	130,249		$	(5,002	)	$	102,139
Net income	$	43,650		$	173,041		$	7,651		$	132,731
Cash distributions	$	--11,535		$	--		$	--		$	--
Partnership’s share of Local
Partnership net income (loss)	$	61,036		$	--		$	(4,902	)	$	--
Advance to Local Partnership		--			--			--			(13,686	)
Share of income (loss) from
Partnerships		$61,036						$(18,588)

Partnership's share of Local Partnership net income (loss)	$	42,778	$	--	$	7,498	$	--
Advance to Local Partnership		--		--		--		(13,686	)

Share of income (loss) from partnerships		$42,778				$(6,188)

____________________

(a) Meadow Lanes; Village Mirage I (b) Monterey/Hillcrest; Villa Mirage II. For financial reporting purposes, share of Local Partnership net income has been reduced to zero due to impairment. (c) Meadow Lanes (d) Monterey/Hillcrest; Villa Mirage I; Villa Mirage II. For financial reporting purposes, share of Local Partnership net income has been reduced to zero due to impairment.

~~Cash distributions received from Local Partnerships which have investment basis~~ (~~equity method~~b) Monterey/Hillcrest; ~~are~~Villa ~~recorded~~Mirage ~~as a reduction of investments in partnerships and as cash receipts on the respective balance sheets~~II. Cash distributions received from Local Partnerships which have cumulative losses in excess of the amount of the Partnership’s investments in those Local Partnerships (equity method suspended) are recorded as share of income from partnerships on the respective statements of operations and as cash receipts on the respective balance sheets. As of both June 30, 2011 and 2010, the Partnership's share of cumulative losses to date for two of four Local Partnerships and three of four Local Partnerships, respectively, exceeded amount of the Partnership's investments in and advances to those Local Partnerships by $9,237,159 and $9,475,313, respectively. As the Partnership has no further obligation to advance funds or provide financing to these Local Partnerships, the excess losses have not been reflected in the accompanying financial statements.

(d) Monterey/Hillcrest; Villa Mirage I; Villa Mirage II.

Cash distributions received from Local Partnerships which have investment basis (equity method) are recorded as a reduction of investments in partnerships and as cash receipts on the respective balance sheets. Cash distributions received from Local Partnerships which have cumulative losses in excess of the amount of the Partnership’s investments in those Local Partnerships (equity method suspended) are recorded as share of income from partnerships on the respective statements of operations and as cash receipts on the respective balance sheets. As of both September 30, 2011 and 2010, the Partnership's share of cumulative losses to date for two of four Local Partnerships and three of four Local Partnerships, respectively, exceeded amount of the Partnership's investments in and advances to those Local Partnerships by $9,194,728 and $9,444,944, respectively. As the Partnership has no further obligation to advance funds or provide financing to these Local Partnerships, the excess losses have not been reflected in the accompanying financial statements.

- 7 -

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

~~June~~September 30, 2011 and 2010

(Unaudited)

4. INVESTMENTS IN PARTNERSHIPS - Continued

b. Due on investments in partnerships and accrued interest payable

Notes

Due on investment in partnership includes $119,544 due to a previous owner related to Meadow Lanes Apartments at both ~~June~~September 30, 2011 and December 31, 2010; accrued interest payable thereon was $33,976 at both ~~June~~September 30, 2011 and December 31, 2010. These amounts will be paid upon the occurrence of certain specific events, as outlined in the note agreement. The fair value of the note approximates its carrying value.

c. Advances to Local Partnerships

On April 14, 2010, the Partnership advanced $13,686 to Monterey/Hillcrest for non-resident withholding taxes. For financial statement purposes, the advances were charged off by the Partnership as a ~~nonrecoverable~~non-recoverable tax-related expense.

d. Asset held for sale

On September 29, 2011, Pebble Valley Housing Partners Limited Partnership. entered into a Purchase and Sale Agreement with Varin/Monterey, LLC, a Wisconsin limited liability company, to sell the Monterey/Hillcrest property. There is no assurance that sale will conclude by the extended contract closing date of January 30, 2011 or at the current price of eighteen million nine hundred twenty thousand dollars ($18,920,000).

5. RELATED PARTY TRANSACTIONS

In accordance with the terms of the Partnership Agreement, the Partnership is obligated to reimburse the Managing General Partner or its affiliates for certain direct expenses and payroll expenses in connection with managing the Partnership. Payroll expenses are reimbursed at a factor of 1.75 times base salary. For the three and ~~six~~nine month periods ended ~~June~~September 30, 2011, the Partnership paid $3835,~~498~~427 and $81116,~~087~~514, respectively, and $4942,~~112~~723 and $85128,~~955~~678 for the three and ~~six~~nine month periods ended ~~June~~September 30, 2010, respectively, to the Managing General Partner or its affiliates as direct reimbursement of expenses incurred on behalf of the Partnership. In addition, certain employees of the Managing General Partner provided legal and tax accounting services to the Partnership. These are reimbursed comparable to third party service charges. For the three and ~~six~~nine month periods ended ~~June~~September 30, 2011, the Partnership paid $2512,~~641~~563 and $4557,~~233~~795, respectively, and $3127,~~448~~180 and $4976,~~091~~271 for the three and ~~six~~nine month periods ended ~~June~~September 30, 2010, respectively, to the Managing General Partner or its affiliates for these services. Such reimbursed expenses are included in the accompanying statements of operations as general and administrative expenses.

In accordance with the terms of the Partnership Agreement, the Partnership is obligated to pay the Managing General Partner an annual incentive management fee (“Management Fee”) after all other expenses of the Partnership are paid. The Partnership paid the Managing General Partner a Management Fee of $75,000 for each of the three month periods ended June 30, 2011 and 2010, and $150,000 for each of the six month periods ended June 30, 2011 and 2010.

6. CASH DISTRIBUTIONS

On July 28, 2010, the Partnership paid a cash distribution of $898,230 ($15 per unit) to the Limited Partners who were holders of record as of July 1, 2010.

- 8 -

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

~~June~~September 30, 2011 and 2010

(Unaudited)

5. RELATED PARTY TRANSACTIONS - Continued

In accordance with the terms of the Partnership Agreement, the Partnership is obligated to pay the Managing General Partner an annual incentive management fee (“Management Fee”) after all other expenses of the Partnership are paid. The Partnership paid the Managing General Partner a Management Fee of $75,000 for each of the three month periods ended September 30, 2011 and 2010, and $225,000 for each of the nine month periods ended September 30, 2011 and 2010.

6. CASH DISTRIBUTIONS

On July 28, 2010, the Partnership paid a cash distribution of $898,230 ($15 per unit) to the Limited Partners who were holders of record as of July 1, 2010.

7. CASH CONCENTRATION RISK

Financial instruments that potentially subject the Partnership to concentrations of risk consist primarily of cash. The Partnership maintains one cash account at SunTrust Bank and three cash accounts at Eagle Bank. As of ~~June~~September 30, 2011, the uninsured portion of the cash balances was $21,~~116~~923,~~281~~116.

- 9 -

Part I.	FINANCIAL INFORMATION
Item 2.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations

The Management's Discussion and Analysis of Financial Condition and Results of Operations section is based on the financial statements, and contains information that may be considered forward looking, including statements regarding the effect of governmental regulations. Actual results may differ materially from those described in the forward looking statements and will be affected by a variety of factors including national and local economic conditions, the general level of interest rates, governmental regulations affecting the Partnership and interpretations of those regulations, the competitive environment in which the Partnership operates, and the availability of working capital.

Critical Accounting Policies

The Partnership has disclosed its selection and application of significant accounting policies in Note 1 of the notes to financial statements included in the Partnership’s annual report on Form 10-K at December 31, 2010. The Partnership accounts for its investments in partnerships (Local Partnerships) by the equity method because the Partnership is a limited partner in the Local Partnerships. As such the Partnership has no control over the selection and application of accounting policies, or the use of estimates, by the Local Partnerships. Environmental and operational trends, events and uncertainties that might affect the properties owned by the Local Partnerships would not necessarily have a significant impact on the Partnership’s application of the equity method of accounting, since the equity method has been suspended for ~~three~~two Local Partnerships which have cumulative losses in excess of the amount of the Partnership’s investments in those Local Partnerships. The Partnership reviews property assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the estimated future net cash flows expected to be generated by the asset. If an asset were determined to be impaired, its basis would be adjusted to fair value through the recognition of an impairment loss.

Financial Condition/Liquidity

The Partnership's liquidity, with unrestricted cash resources of $2,~~444~~286,~~066~~208 as of ~~June~~September 30, 2011, along with anticipated future cash distributions from Local Partnerships, is expected to be adequate to meet its current and anticipated operating cash needs. As of ~~August~~December 2516, 2011, there were no material commitments for capital expenditures.

The Partnership closely monitors its cash flow and liquidity position in an effort to ensure that sufficient cash is available for operating requirements. For the ~~six~~nine month period ended ~~June~~September 30, 2011, existing cash resources were adequate to support operating cash requirements. Cash and cash equivalents decreased $~~369~~526,~~087~~945 during the ~~six~~nine month period ended ~~June~~September 30, 2011, primarily due to cash used in operating activities.

- 10 -

Part I.	FINANCIAL INFORMATION
Item 2.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations - Continued

Results of Operations

The Partnership’s net loss for the three month period ended ~~June~~September 30, 2011 increased ~~slightly~~ compared to 2010, primarily due to an increase in ~~general~~professional ~~and~~fees ~~administrative expenses~~ and a decrease in share of income from Local Partnerships.

The Partnership’s net loss for the ~~six~~nine month period ended ~~June~~September 30, 2011 decreased compared to 2010, primarily due to decrease in professional fees, ~~and~~ an increase in share of income from Local Partnerships and an increase in interest income.

For financial reporting purposes, the Partnership, as a limited partner in the Local Partnerships, does not record losses from the Local Partnerships in excess of its investment to the extent that the Partnership has no further obligation to advance funds or provide financing to the Local Partnerships. As a result, the Partnership's share of income from partnerships for the three and ~~six~~nine month periods ended ~~June~~September 30, 2011, did not include losses of $8642,~~753~~431 and $~~128~~170,~~406~~837, respectively, compared to excluded losses of $713,~~275~~813 and $2034,~~961~~774 for the three and ~~six~~nine month periods ended ~~June~~September 30, 2010, respectively.

Certain taxing authorities may assert claims against the Partnership for failure to withhold and remit income tax on operating profit or where the sale(s) of property in which the Partnership was invested failed to produce sufficient cash proceeds with which to pay the tax and/or to pay statutory partnership filing fees. The Partnership is unable to quantify the amount of such potential claims at this time. The Partnership has consistently advised its Partners that they should consult with their tax advisors as to the necessity of filing non-resident returns in such states with respect to their proportional taxes due.

No other significant changes in the Partnership's operations have taken place during the three month period ended ~~June~~September 30, 2011.

Plan of Liquidation and Dissolution

On November 21, 2005, the General Partners recommended that the Limited Partners approve a plan of liquidation and dissolution for the Partnership. The plan of liquidation and dissolution was approved by the Limited Partners on January 20, 2006. Since the approval of the plan of liquidation and dissolution, we have continued to seek to sell the assets of the Partnership and use the sales proceeds and/or other Partnership funds to pay all expenses in connection with such sales, pay or make provision for payment of all Partnership obligations and liabilities, and distribute the remaining assets as set forth in the Partnership Agreement. Numerous variables, including adverse general economic conditions, as well as, partnership and regulatory restrictions, have impacted the timeframe required to accomplish the liquidation and dissolution of the Partnership. There can be no assurance as to when the liquidation and dissolution of the Partnership will be completed.

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Part I.	FINANCIAL INFORMATION
Item 4.	Controls and Procedures

a) Disclosure Controls and Procedures.

The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures ~~are~~were not effective atas a ~~reasonable~~result ~~assurance~~of ~~level~~insufficient accounting systems and processes in place to ensure timely reports. We are currently in the process of the remediation of the weakness in our internal control over financial reporting by the employment of a consultant with the requisite accounting expertise to resolve the above issue and expect to implement changes in the near term.

b) Changes in Internal Control over Financial Reporting.

There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings

The Partnership is unaware of any pending or outstanding litigation involving it or the underlying investment property of the Local Partnerships in which the Partnership invests that are not of a routine nature arising in the ordinary course of business or that would have a material adverse effect on the business of the Partnership.

Item 5.

Other Information

There has not been any information required to be disclosed in a report on Form 8-K during the quarter ended ~~June~~September 30, 2011, but not reported, whether or not otherwise required by this Form 10-Q at ~~June~~September 30, 2011.

There is no established market for the purchase and sale of units of limited partner interest (Units) in the Partnership, although various informal secondary market services may exist. Due to the limited markets, however, investors may be unable to sell or otherwise dispose of their Units.

On July 28, 2010, the Partnership paid a cash distribution of $898,230 ($15 per Unit) to the Limited Partners who were holders of record as of July 1, 2010.

On March 31, 2011, the Partnership issued a press release regarding a “mini-tender offer” commenced by MacKenzie Patterson Fuller, LP for up to 2.1% of the Units in the Partnership, including those already owned by the offeror and its affiliates.

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Part II.	OTHER INFORMATION
Item 6.	Exhibits

Exhibit No.		Description

31.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

All other Items are not applicable.

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SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CAPITAL REALTY INVESTORS-III LIMITED
		CAPITAL REALTY INVESTORS-III
	PARTNERSHIP
		LIMITED PARTNERSHIP
	~~(Registrant)~~	(Registrant)
	by: C.R.I., Inc.
		by:	C.R.I., Inc.
	~~Managing General Partner~~		Managing General Partner
August 25, 2011	by: /s/ H. William Willoughby
January 6, 2012			by:	/s/ H. William Willoughby
DATE	~~H. William Willoughby~~	H. William Willoughby
	Director, President, Secretary,
	Principal Financial Officer and
	Principal Account Officer

			Director, President, Secretary,
			Principal Financial Officer and
			Principal Accounting Officer

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