UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, ~~2011~~2012

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 if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes o No þ

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 þ No ¨

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ~~Aaccelerated~~Accelerated filer and large accelerated filer@ in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No þ

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

Yes ¨ No þ

The units of limited partner interest of the Registrant are not traded in any market. Therefore, the units of limited partner interest had neither a market selling price nor an average bid or asked price. As of April 3, 2013, the issuer had 59,882 outstanding units of limited partner interest.

Table of Contents

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

~~2011~~2012 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page Number
	PART I
Item 1.	Business	I-1
Item 2.	Properties	I-3
Item 1A.	Risk Factors	I-2
Item 3.	Legal Proceedings	I-3
Item 1B.	Unresolved Staff Comments	I-2
Item 4.	Submission of Matters to a Vote of Security Holders	I-3
Item 2.	Properties	I-2
Item 3.	Legal Proceedings	I-2
Item 4.	Mine Safety Disclosures	I-3
	PART II
Item 5.	Market for the Registrant’s Partnership Interests, Related Partnership Matters and Issuer Purchases of Partnership Interests	II-1
	and Related Partnership Matters	II-1
Item 6.	Selected Financial Data	II-2
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	II-2
	and Results or Operations	II-2
Item 7.A	Quantitative and Qualitative Disclosures About Market Risk	II-5
Item 8.	Financial Statements and Supplementary Data	II-75
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	II-5
	on Accounting and Financial Disclosure	II-7
Item 9A.	Controls and Procedures	II-6
Item 9A.	Controls and Procedures	II-8
Item 9B.	Other Information	II-7
Item 9B.	Other Information	II-9
	PART III
Item 10.	Directors, ~~and~~ Executive Officers ofand ~~the~~Corporate ~~Registrant~~Governance	III-1
Item 11.	Executive Compensation	III-21
Item 12.	Security Ownership of Certain Beneficial Owners and Management	III-21
Item 13.	Certain Relationships and Related Transactions, and Director Independence	III-32
Item 14.	Principal ~~Accountant~~Accounting Fees and Services	III-43
	PART IV
Item 15.	Exhibits and Financial Statements	IV-1

Table of Contents

PART I



ITEM 1.	BUSINESS

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. On November 7, 1983, the Partnership commenced offering 60,000 units of additional limited partner interest through a public offering managed by Merrill Lynch, Pierce, Fenner and Smith, Incorporated. The Partnership closed the offering in January 1984 when it became fully subscribed. As of December 31, ~~2011~~2012, 118 units of limited partner interest had been abandoned.

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.

The Partnership was formed to invest in real estate, which is the Partnership's principal business activity, by acquiring and holding limited partner interests in limited partnerships (“Local Partnerships”). The Partnership originally made investments in 37 Local Partnerships. As of December 31, ~~2011~~2012, the Partnership retained ~~investments~~an investment in ~~four~~one Local ~~Partnerships~~Partnership. Each of these Local Partnerships owns either a federal or state government-assisted apartment complex, which provides housing principally to the elderly and/or to individuals and families of low or moderate income, or a conventionally financed apartment complex. The original objectives of these investments, not necessarily in order of importance, were to:

(i) preserve and protect the Partnership's capital; (ii) provide, during the early years of the Partnership's operations, current tax benefits to the partners in the form of tax losses which the partners could use to offset income from other sources; (iii) provide capital appreciation through increases in the value of the Partnership's investments and increased equity through periodic payments on the indebtedness on the apartment complexes; and (iv) provide cash distributions from sale or refinancing of the Partnership's investments and, on a limited basis, from rental operations.


(ii)	provide, during the early years of the Partnership's operations, current tax benefits to the partners in the form of tax losses which the partners could use to offset income from other sources;


(iii)	provide capital appreciation through increases in the value of the Partnership's investments and increased equity through periodic payments on the indebtedness on the apartment complexes; and


(iv)	provide cash distributions from sale or refinancing of the Partnership's investments and, on a limited basis, from rental operations.

See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for a discussion of factors affecting the original investment objectives.

The Local Partnerships in which the Partnership invested were organized by private developers who acquired the sites, or options thereon, applied for mortgage financing and applicable mortgage insurance and/or subsidies and who generally remain as the local general partners in the Local Partnerships. In most cases, the local general partners of the Local Partnerships retain responsibility for maintaining, operating and managing the projects. However, under certain circumstances, the Local Partnerships' partnership agreements permit removal of the local general partner and replacement with another local general partner or with an affiliate of the Partnership's Managing General Partner.

As a result of its investment in the Local Partnerships, the Partnership became the principal limited partner in 31 (one remaining as of December 31, 2012) Local Partnerships. In another six (zero remaining as of December 31, 2012) Local Partnerships, the Partnership invested as a limited partner in intermediary partnerships which, in turn, invested as general partners in the Local Partnerships.

With respect to the remaining Local Partnership, the Partnership is the principal limited partner. As a limited partner, the Partnership's liability for obligations of the Local Limited Partnership is limited to its investment, and the Partnership does not exercise control over the activities of the Local Limited Partnership in accordance with the partnership agreement. See "Item7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for information relating to the Registrant's rights and obligations to make additional contributions or loans to the Local Partnership.

The following is a schedule of the Property owned directly by the Local Partnership in which the Partnership is a limited partner as of December 31, 2012:

I-1

Table of Contents

PART I

ITEM 1. BUSINESS - Continued

As a result of its investment in the Local Partnerships, the Partnership became the principal limited partner in 31 (four remaining as of December 31, 2011) Local Partnerships. As a limited partner, the Partnership's legal liability for obligations of the Local Partnerships is limited to its investment. In another six (zero remaining as of December 31, 2011) Local Partnerships, the Partnership invested as a limited partner in intermediary partnerships which, in turn, invested as general partners in the Local Partnerships. The local general partners and affiliates of the Managing General Partner may operate other apartment complexes which may be in competition for eligible tenants with the Local Partnerships' apartment complexes.

A schedule of the apartment complexes owned by Local Partnerships in which the Partnership has an investment as of December 31, 2011, follows.

SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS

IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

HAS AN INVESTMENT ~~(1)~~

Name and Location of Apartment Complex	Mortgage Payable at 12/31/11 (2)	Financed and/or Insured and/or Subsidized Under	Number of Rental Units	Units Authorized for Low Income Subsidies	Expiration of HAP Contract
Name and Locationof Apartment Complex		MortgagePayable at12/31/12 (1)		Financed and/or Insuredand/or Subsidized Under		Number ofRentalUnits	UnitsAuthorized forLow IncomeSubsidies	ExpirationofHAP Contract
Meadow Lanes Apts. Holland, MI	$ 408,096	Michigan State Housing Development Authority/ Section 236 of the National Housing Act (NHA)	118	0	--
Meadow Lanes Apts.Holland, MI		$251,830		Michigan State HousingDevelopment Authority/Section 236 of theNational Housing Act (NHA)		118	0	—
Monterey/Hillcrest Waukesha, WI	12,317,581	Section 221(d)(4) of the NHA/ Federal Housing Administration	300	60	04/23/24 (3)
Villa Mirage I Rancho Mirage, CA	835,396	California Housing Finance Agency (CHFA)/Section 8	50	50	12/19/12 (3)(4)
Villa Mirage II Rancho Mirage, CA	766,678	CHFA/Section 8	48	48	12/14/15
Totals (4 Properties)	$14,327,751		516	158

(continued)



Name and Location of Apartment Complex		Units Occupied As Percentage of Total Units As of December 31,						Average Effective Annual Rental Per Unit for the Years Ended December 31,


	2012	2011	2010	2009	2008	2007	2012	2011	2010	2009	2008	2007
Meadow Lanes Apts. Holland, MI	96%	96%	91%	86%	85%	89%	$6,907	$6,900	$6,475	$6,085	$5,995	$6,194

~~I-2~~(1) The amounts provided is the balance of the first mortgage loan payable by the Local Partnership as of December 31, 2012.

~~PART~~ITEM I1A. RISK FACTORS

~~ITEM 1~~None. ~~BUSINESS - Continued~~

~~SCHEDULE~~ITEM OF1B. UNRESOLVED ~~APARTMENT~~STAFF ~~COMPLEXES OWNED BY LOCAL PARTNERSHIPS~~COMMENTS

~~IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP~~None.

HAS AN INVESTMENT (1) - Continued

Name and Location of Apartment Complex	Units Occupied As Percentage of Total Units As of December 31,					Average Effective Annual Rental Per Unit for the Years Ended December 31,
	2011	2010	2009	2008	2007	2011	2010	2009	2008	2007
Meadow Lanes Apts. Holland, MI	96%	91%	86%	85%	89%	$ 6,900	$ 6,475	$ 6,085	$ 5,995	$ 6,194
Monterey/Hillcrest Waukesha, WI	95%	91%	85%	89%	91%	9,412	9,428	8,725	8,982	8,816
Villa Mirage I Rancho Mirage, CA	96%	97%	94%	100%	97%	11,175	11,291	10,051	10,413	10,157
Villa Mirage II Rancho Mirage, CA	98%	95%	98%	100%	95%	10,800	10,313	10,440	10,499	9,642
Totals (4 Properties) (5)	96%	92%	91%	94%	93%	$ 9,572	$ 9,377	$ 8,825	$ 8,972	$ 8,702

(1) All properties are multifamily housing complexes. No single tenant rents 10% or more of the rentable square footage. Residential leases are typically one year or less in length, with varying expiration dates, and substantially all rentable space is for residential purposes.

(2) The amounts provided are the balances of first mortgage loans payable by the Local Partnerships as of December 31, 2011.

(3) The Section 8 HAP contract expiration date reflects an extension from the original expiration date, in accordance with Federal legislation.

(4) It is anticipated that the Local Partnership will extend its Section 8 HAP contract for a one-year period at its expiration.

(5) The totals for the percentage of units occupied and the average effective annual rental per unit are based on a simple average.



ITEM 2.	PROPERTIES

Through its ownership of a limited partner ~~interests~~interest in a Local ~~Partnerships~~Partnership, the Partnership indirectly holds an interest in the real estate owned by the Local ~~Partnerships~~Partnership. See Part I, Item 1, for information concerning ~~these~~this ~~properties~~property.



ITEM 3.	LEGAL PROCEEDINGS

The Partnership is unaware of any pending outstanding litigation involving it or the underlying investment property of the Local Partnerships in which the property 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~I-2

Table of Contents



ITEM 4.	MINE SAFETY DISCLOSURES

None.

I-3

Table of Contents

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS, ~~AND~~ RELATED PARTNERSHIP MATTERS AND ISSUER PURCHASES OF PARTNERSHIP INTERESTS


(a)	There is no established market for the purchase and sale of units of additional 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.

(b) As of April 13, ~~2012~~2013, there were approximately 3,660 registered holders of Units in the Partnership.

(c) OnNo ~~July~~distributions ~~28,~~were ~~2010, the Partnership~~ paid ain ~~cash distribution of $898,230 ($15 per Unit) to~~ the ~~Limited~~year ~~Partners who were holders of record as of July 1, 2010~~2011.

No(d) ~~distributions~~On ~~were~~November 30, 2012, the Partnership paid ina cash distribution of $3,712,684 ($62 per Unit) to the ~~year~~Limited ~~2011~~Partners who were holders of record as of September 30, 2012.

II-21

~~PART~~Table IIof Contents

ITEM 76. SELECTED ~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF~~ FINANCIAL ~~CONDITION AND RESULTS OF OPERATIONS - Continued~~DATA

Not applicable.



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

The Partnership's 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 this annual report on Form 10-K at December 31, ~~2011~~2012. 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 Local Partnerships which have cumulative losses in excess of the amount of the Partnership’s investments in those Local Partnerships. For the years ended December 31, 2012 and December 31, 2011, the number of Local Partnerships with suspended losses were zero and three, respectively. 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 undiscounted 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.

GAAP provides guidance on when a company should include the assets, liabilities, and activities of a variable interest entity (VIE) in its financial statements and when it should disclose information about its relationship with a VIE. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that will receive a majority of the VIE’s expected losses, receive a majority of a VIE’s expected residual returns, or both.

The Partnership does not consolidate the Partnership's interests in these VIE’s under this guidance, as it is not considered to be the primary beneficiary. Accounting guidance requires continued reconsideration as to the consideration of the primary beneficiary. The Partnership currently records the amount of its investment in these partnerships as an asset on its balance sheet, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements.

The Partnership’s balance in investment in Local Partnerships represents its maximum exposure to loss. The Partnership’s exposure to loss on these partnerships is mitigated by the condition and financial performance of the underlying properties as well as the strength of the local general partners.

II-3

PART II

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

Recent Accounting Pronouncements

In May 2009, the FASB issued guidance addressing the accounting for and disclosure requirements of events or transactions that occur after the balance sheet date, but before the financial statements are issued. The Partnership adopted the guidance as of June 30, 2009 as it was effective for interim and annual periods ending after June 15, 2009. The adoption did not have a significant impact on the subsequent events that the Partnership reports, either through recognition or disclosure, in the consolidated financial statements. In February 2010, however, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance. This amendment was effective immediately and therefore the Partnership did not include the disclosure in this Form 10-K.

In June 2009, the Financial Accounting Standards Board (FASB) issued an amendment to the accounting and disclosure requirements for the consolidation of VIEs. The amended guidance modifies the consolidation model to one based on control and economics, and replaces the current quantitative primary beneficiary analysis with a qualitative analysis. The primary beneficiary of a VIE will be the entity that has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. If multiple unrelated parties share such power, as defined, no party will be required to consolidate the VIE. Further, the amended guidance requires continual reconsideration of the primary beneficiary of a VIE and adds an additional reconsideration event for determination of whether an entity is a VIE. Additionally, the amendment requires enhanced and expanded disclosures around VIEs. This amendment is effective for fiscal years beginning after November 15, 2009. The adoption of this guidance on January 1, 2010 did not have a material effect on the Partnership’s financial statements.

General

The Partnership ~~has~~originally invested, through Local Partnerships, primarily in federal or state government-assisted apartment complexes intended to provide housing to low and moderate income tenants. In conjunction with such governmental assistance, which includes federal and/or state financing at below-market interest rates and rental subsidies, certain of the Local Partnerships agreed to regulatory limitations on (i) cash distributions, (ii) use of the properties, and (iii) sale or refinancing. These limitations typically were designed to remain in place for the life of the mortgage.

The U. S. Department of Housing and Urban Development (HUD) subsidies are provided principally under Sections 8 and 236 of the National Housing Act. Under Section 8, the government pays to the applicable apartment partnership the difference between market rental rates (determined in accordance with government procedures) and the rate the government deems residents can afford. Under Section 236, the government provides interest subsidies directly to the applicable apartment partnership through a reduction in the property’s mortgage interest rate. In turn, the partnership provides a corresponding reduction in resident rental rates. In compliance with the requirements of Section 8, and Section 236, residents are screened for eligibility under HUD guidelines. Subsidies are provided under contracts between the federal government and the apartment partnerships.II-2

~~II-3~~Table of Contents

~~PART~~which IIincludes federal and/or state financing at below-market interest rates and rental subsidies, certain of the Local Partnerships agreed to regulatory limitations on (i) cash distributions, (ii) use of the properties, and (iii) sale or refinancing. These limitations typically were designed to remain in place for the life of the mortgage.

~~ITEM~~With 7respect to the remaining Local Partnership, the U. ~~MANAGEMENT'~~S. ~~DISCUSSION~~Department ~~AND~~of ~~ANALYSIS~~Housing OFand ~~FINANCIAL~~Urban ~~CONDITION~~Development ~~AND~~(HUD) ~~RESULTS~~subsidies OFare ~~OPERATIONS~~provided -principally ~~Continued~~under Sections 236 of the National Housing Act. Under Section 236, the government provides interest subsidies directly to the applicable apartment partnership through a reduction in the property’s mortgage interest rate. In turn, the partnership provides a corresponding reduction in resident rental rates. In compliance with the requirements of Section 236, residents are screened for eligibility under HUD guidelines. Subsidies are provided under contracts between the federal government and the apartment partnerships. The Section 236 mortgage interest rate subsidy is scheduled to expire in June 2014, coterminous with the maturity of the mortgage loan.

Subsidy contracts for the investment apartment properties are scheduled to expire through 2024. The Local Partnerships seek the renewal of expiring subsidy contracts, when appropriate, for their properties. HUD has in the past approved new subsidy contracts on an annual basis subject to annual appropriations by Congress. The initial HUD contract renewal process currently provides owners six options for renewing their Section 8 contract depending upon whether the owner can meet the eligibility criteria.

Historically, the Local Partnerships in which the Partnership is invested have met the criteria necessary to renew their Section 8 contracts.

Plan of Liquidation

On November 21, 2005, the ~~Managing~~ General ~~Partner~~Partners recommended that the ~~Unit~~limited ~~holders~~partners approve a plan of liquidation and dissolution for the Partnership, or the “Plan.” The Plan was approved by the ~~Unit~~limited ~~holders~~partners on January 20, 2006. Currently, ~~and~~the ~~was~~one ~~adopted~~remaining byProperty ~~the~~in ~~General~~which ~~Partner~~the onPartnership ~~January~~is ~~20,~~invested ~~2006. Pursuant~~through toits ~~the~~investments ~~Plan,~~in the ~~Managing~~Local ~~General~~Partnerships ~~Partner~~is ~~may,~~under ~~without~~contract ~~further~~for ~~action~~sale. ~~by the Unit holders:~~

·On ~~liquidate~~January 30, 2012, the ~~assets~~Local Partnership owning the Monterey/Hillcrest properties, sold its investment properties to a third party for $18,920,000. After paying closing costs, the net proceeds were used to repay the mortgage encumbering the property, and ~~wind~~other upliabilities of the ~~business~~property and the Local Limited Partnership. During 2012, the Partnership received distributions of cash and cash equivalents of approximately $3,611,288 from the Local Partnership;. The Local Partnership completed its liquidation during the fourth quarter of 2012.

·On ~~make~~September ~~liquidating~~27, 2012, the Local Partnership owning the Villa Mirage I property, sold its investment property to a third party for a purchase price of $3,315,000. After paying closing costs, the net proceeds were used to repay the mortgage encumbering the property, the deferred acquisition note and accrued interest thereon, which an affiliate of the Local General Partner held, and other liabilities of the property and the Local Limited Partnership. During 2012, the Partnership received distributions inof ~~cancellation~~cash and cash equivalents of approximately $1,021,918 from the ~~Unit;~~Local Partnership. The Local Partnership completed its liquidation during the fourth quarter of 2012.

·On ~~dissolve~~September 27, 2012, the Local Partnership ~~after~~owning the ~~sale~~Villa Mirage II property, sold its investment property to a third party for a purchase price of ~~all~~$3,185,000. After paying closing costs, the net proceeds were used to repay the mortgage encumbering the property, the deferred acquisition note and accrued interest thereon, which an affiliate of the Local General Partner held, and other liabilities of the property and the Local Limited Partnership’s. During ~~assets;~~2012, the Partnership received distributions of cash and cash equivalents of approximately $881,431 from the Local Partnership. The Local Partnership completed its liquidation during the fourth quarter of 2012.

·On ~~take~~June 18, or2012, ~~cause~~ the Local Partnership entered into a purchase and sale agreement to ~~take~~sell Meadow Lanes Apartments for $2,900,000. ~~such~~It ~~other~~is ~~acts~~expected ~~and~~that ~~deeds~~the ~~and~~sale ~~shall~~will ~~do,~~be orconsummated ~~cause~~during the ~~Partnership~~second quarter of 2013. It is anticipated that all sale proceeds will be used to ~~do,~~satisfy ~~such~~Local ~~other~~Partnership ~~things,~~obligations asand ~~are~~any ~~necessary~~remaining orfunds ~~appropriate~~available will be distributed to partners in ~~connection~~accordance with the ~~dissolution,~~Meadow ~~winding~~Lanes-II upAssociates ~~and~~Limited ~~liquidation~~Dividend ofHousing ~~the~~Association Limited Partnership, ~~the~~Agreement. There ~~termination~~can ofbe ~~the~~no ~~responsibilities~~assurance ~~and~~that ~~liabilities~~the ofsale ~~the~~transaction ~~Partnership~~contemplated ~~under~~will ~~applicable~~be ~~law,~~consummated ~~and~~upon the ~~termination~~terms ofand ~~the~~conditions ~~existence~~anticipated ofor ~~the~~at ~~Partnership~~all.

~~Since~~In the ~~approval~~event of the ~~Plan~~transaction bycontemplated ~~the~~above ~~Unit~~is ~~holders~~consummated, wethe ~~have~~Partnership ~~continued~~will tobe ~~seek~~liquidated. toIn ~~sell~~accordance with the ~~assets~~Partnership Agreement and the Plan of Liquidation, upon the ~~Partnership~~closing ~~and~~of ~~use~~the pending sale of the ~~sales~~Meadow ~~proceeds~~Lanes ~~and/or~~apartments ~~other~~by the Local Partnership ~~funds~~and tothe ~~pay~~winding ~~all~~up ~~expenses~~and intermination ~~connection~~of ~~with~~the ~~such~~Local ~~sales~~Partnership, ~~pay~~the orManaging ~~make~~General ~~provision~~Partner ~~for payment~~ of ~~all~~the Partnership ~~obligations~~shall ~~and~~cause ~~liabilities,~~to ~~including~~be ~~accrued~~executed ~~fees~~ and ~~unpaid~~timely ~~loans~~filed to(i) with the ~~General~~office ~~Partner,~~of the State Department of Assessments and ~~distribute~~Taxation ~~the~~of ~~remaining~~Maryland, ~~assets~~a asCertificate ~~set~~of ~~forth~~Cancellation incanceling the Partnership's ~~Agreement.~~Certificate ~~Numerous~~of ~~variables,~~Limited ~~including~~Partnership; ~~adverse~~(ii) ~~general~~with ~~economic~~the ~~conditions~~Internal Revenue Service, asall ~~well~~returns, asreports, ~~Local~~documents, ~~Partnership~~certificates ~~agreements~~ and ~~regulatory~~other ~~restrictions~~information ~~impact~~required under the ~~ability~~Internal ~~and~~Revenue ~~timing~~Code of ~~effectuating~~1986, ~~the~~as ~~sale~~amended, ofor ~~certain~~applicable ~~properties~~Treasury ~~owned~~Department byrules ~~the~~or ~~Local~~regulations; ~~Partnerships~~(iii) orwith the ~~Partnership’s~~appropriate ~~interests~~authorities in ~~the~~any ~~Local~~other ~~Partnerships. The~~tax ~~Managing~~jurisdiction, ~~General~~all ~~Partner~~returns, ~~continues~~reports, todocuments, ~~explore~~certificates ~~strategies~~and ~~that~~other ~~will~~information ~~result~~required inunder the ~~liquidation~~laws of such jurisdictions; (iv) with the ~~Partnership~~Securities atExchange ~~terms~~Commission, ~~advantageous~~any toreports required under the ~~Partnership.~~Exchange Act, including a Form 15 terminating the registration of the

On September 29, 2011, the general partners of Pebble Valley Housing Partners Limited Partnership, a Wisconsin limited partnership, entered into a contract with an unaffiliated third party to sell its property (Monterey/Hillcrest) and the transaction closed on January 31, 2012. The sales price was $18,920,000, which includes the outstanding mortgage balance of approximately $12,293,732 and cash proceeds to the Partnership of $4,800,000. Of the total proceeds received, $946,000 was paid to CRI as a fee for services in connection with the transaction.II-3

~~II-4~~Table of Contents

~~PART~~Partnership IIunder the Exchange Act; and (v) all reports required to be delivered to the Limited Partners in accordance with Article 9.04 of the Partnership Agreement.

~~ITEM~~The 7.Managing ~~MANAGEMENT'S~~General ~~DISCUSSION~~Partner ~~AND~~shall ~~ANALYSIS~~apply OFthe ~~FINANCIAL~~funds ~~CONDITION~~of ~~AND~~the ~~RESULTS~~Partnership OFto ~~OPERATIONS~~(i) -the ~~Continued~~payment of the liabilities of the Partnership, including the expenses of the sale of the assets of the Partnership, and the winding up, liquidation and termination of the Partnership, upon the terms and conditions set forth in Section 4.02 of the Partnership's Limited Partnership Agreement, as amended; (ii) the expenses

Onof ~~November 15~~preparation, ~~2011,~~filing ~~the~~and ~~general~~distribution ~~partners~~ of ~~Villa~~financial ~~Mirage I~~statements, atax ~~California limited partnership~~returns, ~~and~~reports ~~Villa~~required ~~Mirage~~under ~~II,~~the aSecurities ~~California~~Exchange ~~limited~~Act ~~partnership,~~of ~~entered~~1934 ~~into~~(the a"Exchange ~~contract~~Act") ~~with~~and anreports ~~unaffiliated third party~~ to ~~sell~~Limited ~~their~~Partners, ~~properties~~including ~~for~~fees anand ~~aggregate~~expenses ~~sale price~~ of ~~$6,500,000. It~~accountants isand ~~expected~~lawyers; ~~that~~(iii) the ~~sale~~payment ~~will be consummated during the third quarter~~ of ~~2012.~~all Itincome, issales, ~~anticipated~~use, ~~that~~franchise, ~~all~~gross ~~sale~~receipts, ~~proceeds~~ad ~~will~~valorem, bepersonal ~~used~~property toand ~~satisfy~~other ~~Local~~taxes, ~~Partnership~~imports, ~~obligations~~duties and ~~any~~governmental ~~remaining~~charges ~~funds~~payable ~~available~~by ~~will~~the bePartnership ~~distributed~~with respect to ~~partners~~its inincome ~~accordance~~or ~~with~~operations through the ~~Villa~~time ~~Mirage~~of Iits ~~and~~termination ~~Villa~~("Taxes"), ~~Mirage~~including IITaxes ~~partnership~~with ~~agreements. There~~respect ~~can~~to ~~be no assurance that~~ the sale ~~transaction~~of ~~contemplated~~the ~~will~~Partnership's beassets; ~~consummated~~and ~~upon~~(iv) the ~~terms~~creation ~~and conditions~~ of ~~the~~reserves ~~contract~~for orany atof ~~all~~the foregoing.

~~The~~All ~~Partnership~~assets ~~has~~and ~~been~~funds ~~notified~~of by the ~~general~~Partnership ~~partners~~remaining ofafter ~~Meadow~~the ~~Lanes–II~~payments ~~Associates~~provided ~~Limited~~for ~~Dividend Housing Association Limited Partnership~~above, aand ~~Michigan~~any ~~limited~~amounts ~~partnership,~~reserved ~~that~~by anthe ~~agreement~~Managing toGeneral ~~sell~~Partner ~~its~~pursuant ~~property~~ to anclause ~~unaffiliated~~(iv) ~~third~~of ~~party has been reached and that a contract to memorialize~~ the ~~agreement~~above isparagraph ~~currently~~determined ~~being~~by ~~negotiated between~~ the ~~parties. It~~Managing isGeneral ~~expected~~Partner ~~that~~to ~~the sale will~~ be ~~consummated~~in ~~during~~excess ~~the second quarter~~ of ~~2013.~~the Itamounts isrequired ~~anticipated~~therefore, ~~that~~shall ~~all sale proceeds will~~ be ~~used~~distributed toby ~~satisfy~~the ~~Local~~Managing ~~Partnership~~General ~~obligations~~Partner ~~and~~as ~~any~~set ~~remaining~~forth ~~funds available will be distributed to partners~~ in ~~accordance~~Section ~~with~~4.02 of the ~~Meadow Lanes–II Associates Limited Dividend Housing Association Limited~~ Partnership Agreement~~. There~~, ~~can~~as beamended. noLiquidating ~~assurance~~distributions ~~that~~shall ~~the~~be ~~sale~~made ~~transaction~~in ~~contemplated~~complete ~~will~~cancellation beof ~~consummated~~all ~~upon~~of the ~~terms~~Limited ~~and~~Partners' ~~conditions~~interests ~~anticipated~~in orthe ~~at all~~Partnership.

InThere ~~the~~can ~~event~~be no assurance as to when the ~~transactions~~liquidation ~~contemplated~~and ~~above~~dissolution ~~are~~of ~~consummated~~the Partnership will be completed, but it is anticipated that the ~~Partnership~~process will be ~~liquidated~~completed prior to December 31, 2013. Liquidation is not imminent, and as such, we have not prepared these financial statements under the liquidation basis of accounting.

Financial Condition/Liquidity

As of December 31, ~~2011~~2012, the Partnership had approximately 3,660 investors who held a total of 59,882 units of additional limited partner interest which were originally sold for the aggregate amount of $59,882,000. The Partnership originally made investments in 37 Local Partnerships, of which ~~four~~one ~~remain~~remains at December 31, ~~2011~~2012. The Partnership's liquidity, with unrestricted cash resources of $2,~~172~~079,~~240~~580 as of December 31, ~~2011~~2012, along with anticipated future cash distributions from the Local ~~Partnerships~~Partnership, is expected to be adequate to meet its current and anticipated operating cash needs. As of April 13, ~~2012~~2013, there were no material commitments for capital expenditures.

~~During~~Due ~~2010,~~on ~~the~~investments ~~Partnership~~in ~~received~~partnerships ~~cash~~includes ~~distributions~~$119,544 ~~from~~due ~~rental~~to ~~operations~~a ofprevious ~~the~~owner ~~Local~~related ~~Partnerships~~to ~~totaling~~Meadow ~~$11,535. Subsequent~~Lanes toat December 31, ~~2010,~~2012 ~~the~~and ~~Partnership~~2011; ~~received~~accrued ainterest ~~cash~~payable ~~distribution~~thereon ofwas $1133,~~535~~976 ~~from~~at ~~one~~December ~~local~~31, ~~partnership~~2012 ~~related~~and ~~to 2010~~2011. ~~During~~ These ~~2011,~~amounts ~~the~~are ~~Partnership~~scheduled ~~received~~to ~~total~~be ~~distributions~~paid upon the occurrence of ~~$70~~certain specific events,~~929~~ as outlined in the note agreement. Of At ~~this~~December ~~amount~~31, ~~$59~~2012,~~394~~ ~~was~~the ~~applied~~Partnership tois ain ~~Partnership~~dispute ~~tax~~with ~~liability,~~the ~~which~~previous ~~was~~owner ~~paid~~regarding atamounts owed under the ~~Partnership~~note ~~level~~agreement. ~~The~~ Management ~~remaining~~cannot ~~amount~~determine the outcome of ~~$11,535~~the ~~was~~dispute ~~received~~at inthis time. Accordingly, the ~~form~~financial ofstatements ado ~~cash~~not ~~distribution~~reflect any adjustment due to the uncertainty.

~~Due~~The onPartnership ~~investments~~closely inmonitors ~~partnerships~~its ~~includes~~cash ~~$119,544~~flow ~~due~~and toliquidity aposition ~~previous~~in ~~owner~~an ~~related~~effort to ~~Meadow~~ensure ~~Lanes~~that atsufficient ~~December~~cash ~~31,~~is ~~2011~~available ~~and~~for ~~2010;~~operating ~~accrued interest payable thereon was $33,976 at December 31, 2011 and 2010~~requirements. ~~These~~ For ~~amounts are scheduled to be paid upon~~ the ~~occurrence~~year ofended ~~certain specific events, as outlined in the note agreement. At~~ December 31, ~~2011~~2012, ~~the~~existing ~~Partnership~~cash isresources inwere ~~dispute~~adequate ~~with~~to ~~the~~support ~~previous~~net ~~owner~~cash ~~regarding~~used ~~amounts~~in ~~owed~~operating ~~under~~activities ~~the~~and ~~note~~investing ~~agreement~~activities. ~~Management~~ Cash ~~cannot~~and ~~determine~~cash ~~the~~equivalents ~~outcome~~decreased of$92,660 ~~the~~during ~~dispute at this time. Accordingly~~2012, ~~the~~primarily ~~financial~~due ~~statements~~to docash ~~not~~used ~~reflect~~in ~~any~~the ~~adjustment~~distribution ~~due~~paid to the ~~uncertainty~~Limited Partners.

~~II-5~~On November 30, 2012, the Partnership paid a cash distribution of $3,712,684 ($62 per Unit) to the Limited Partners who were holders of record as of September 30, 2012.

PART II

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

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 year ended December 31, 2011, existing cash resources were adequate to support net cash used in operating activities and investing activities. Cash and cash equivalents decreased $640,913 during 2011, primarily due to cash used in operating activities.

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.

Results of Operations

~~2011~~2012 Versus ~~2010~~2011

The Partnership’s net ~~loss~~income for the year ended December 31, ~~2011~~2012 was $~~448~~3,~~182~~161,744 versus a net loss of $~~273~~448,~~294~~182 for the year ended December 31, ~~2010~~2011. The increase in the Partnership’s net ~~loss~~income was primarily the result of the again ~~onetime~~on ~~accounting~~the ~~adjustment~~sale ~~in 2010~~ of ~~$255~~Monterey/Hillcrest,~~000~~ ~~which increased other income recorded in 2010 to reverse certain accrued broker fees associated with potential sales of the~~ Villa Mirage I and Villa Mirage II ~~properties as discussed further in this report~~. The Partnership’s share of income from its investments in the Local Partnerships increased by approximately ~~11% and total expenses increased by approximately 4% in 2011 compared to 2010~~$23,000.

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 years ended December 31, 2011 and 2010, did not include losses of $0~~

II-4

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provide financing to the Local Partnerships. As a result, the Partnership's share of income from partnerships for the years ended December 31, 2012 and 2011, did not include losses of $0.

Inflation

Inflation allows for increases in rental rates, usually offsetting any higher operating and replacement costs. Furthermore, inflation generally does not impact the fixed rate long-term financing under which the Partnership's real property investments were purchased. Future inflation could allow for appreciated values of the Local Partnerships' properties over an extended period of time as rental revenue and replacement values gradually increase.

The combined rental revenues for the Partnership’s remaining properties for the ~~two~~ years ended December 31, ~~2011~~2012 and ~~2010~~2011 follow. Combined rental revenue amounts have been adjusted to reflect property sales and interests transferred in prior years.

	~~For the years ended December 31,~~	For the years ended December 31,
	2011		2010
		2012					2011
Combined Rental Revenue	$4,822,904		$4,652,197
Combined RentalRevenue		$	1,876,425				$	4,822,904
Annual Percentage Increase		3.7%		7.2%
Annual Percentage(Decrease) Increase					(62	)%			3.7	%

~~II-6~~ITEM 7A. QUANTITAIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~PART~~Not IIapplicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is contained in Part IV.



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

OnThe ~~December~~Partnership 22was informed by Reznick Group, ~~2010~~P.C. ("Reznick Group"), the Partnership's ~~dismissed~~independent ~~Grant~~registered ~~Thornton~~public accounting firm, that it had entered into a business combination with J. H. Cohn LLP (~~“Grant~~"J.H. ~~Thornton”~~Cohn"). In asconnection with the ~~Partnership’s~~business ~~independent~~combination ~~registered~~J. ~~public~~H. ~~accounting~~Cohn ~~firm. The~~legally ~~decision~~changed its name to ~~change~~CohnReznick ~~accountants~~LLP ~~was~~("CohnReznick") ~~approved~~and bycontinues ~~the~~to ~~Audit~~be ~~Committee~~registered ofwith the ~~Board~~PCAOB. On ofNovember ~~Directors~~8, of2012, Reznick Group resigned as the ~~Partnership~~Company's independent registered public accounting firm.

Effective as of ~~December~~November 238, ~~2010~~2012, the Audit Committee of the Partnership's ~~engaged~~Board ~~Reznick~~of ~~Group,~~Directors ~~P.C.~~has ~~(“Reznick”)~~appointed CohnReznick as the Partnership’'s independent registered public accounting firm. ~~The decision to engage Reznick was approved by the Audit Committee of the Board of Directors of the Partnership as of such date.~~

~~During~~Reznick ~~the~~Group's ~~interim~~reports ~~period~~on ~~ended~~the ~~September~~Partnership's ~~30,~~financial ~~2010,~~statements ~~and~~for ~~through December 22, 2010, neither~~ the ~~Partnership~~fiscal ~~nor~~years ~~anyone~~ended onDecember ~~its~~31, ~~behalf~~2011 ~~has~~and ~~consulted~~2010 ~~with~~and ~~Reznick~~through ~~regarding either (i)~~ the ~~application~~subsequent ofinterim ~~accounting~~period ~~principles~~November to8, a2012 ~~specified~~did ~~transaction,~~not ~~either~~contain ~~completed~~any oradverse ~~proposed,~~opinion or ~~the~~disclaimer ~~type~~ of ~~audit~~ opinion, ~~that~~nor ~~might~~were bethey ~~rendered~~qualified ~~on the Partnership’s financial statements;~~ or ~~(ii) any~~modified ~~matter that was the subject of a disagreement (~~as ~~that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions~~ to ~~Item 304~~uncertainty, ofaudit ~~Regulation S-K)~~scope or aaccounting ~~reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K)~~principles.

During the ~~interim~~fiscal ~~period~~years ended ~~September~~December 3031, 2011 and 2010, and the subsequent interim period through ~~December~~November 228, ~~2010~~2012, there were (i) no disagreements ~~with~~(as ~~Grant~~that ~~Thornton~~term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Partnership and Reznick Group on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which ~~disagreements~~, if not resolved to the satisfaction of ~~Grant~~Reznick ~~Thornton,~~Group would have caused itReznick Group to make reference tothereto ~~the subject matter of the disagreements~~ in its reports on the Partnership's financial statements for such years~~. During the interim period ended September 30~~, ~~2010~~ and ~~through~~(ii) ~~December 22, 2010, there were~~ no “reportable events” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K). Grant Thornton has furnished a letter addressed to the Securities and Exchange Commission that was included as an exhibit to the Partnership’s Form 8-K, initially filed with the Securities and Exchange Commission on December 28, 2010, stating its agreement with the statements concerning Grant Thornton made in this Item 9.

~~II-7~~During the fiscal years ended December 31, 2011 and 2010 and the subsequent interim period through November 8, 2012, neither the Partnership, nor anyone on its behalf, consulted CohnReznick regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the financial statements of the Partnership, and no written report or oral advice was provided to the Partnership by CohnReznick that was an important factor considered by the Partnership in reaching a decision as to any accounting, auditing or financial reporting

~~PART~~ II-5

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issue; or (ii) any matter that was the subject of a disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).



ITEM 9A.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

AsThe ofPartnership's management, with the ~~end~~participation of the ~~periods~~principal ~~covered~~executive byofficer ~~this~~and ~~report,~~principal ~~representatives~~financial officer of the Managing General Partner, ~~under~~who ~~the~~are ~~supervision and with~~ the ~~participation~~equivalent of the ~~Chief~~Partnership's ~~Executive~~principal ~~Officer~~executive officer and ~~Chief~~principal ~~Financial~~financial ~~Officer~~officer, ~~carried~~respectively, ~~out~~has anevaluated ~~evaluation of~~ the effectiveness of the Partnership’'s “disclosure controls and procedures” (as defined in ~~Securities Exchange Act of 1934~~ Rules 13a-15(e) and 15d-15.(e) ~~Based~~under ~~on that evaluation,~~ the ~~Chief~~Securities ~~Executive~~Exchange ~~Officer~~Act ~~and~~of ~~Chief~~1934, ~~Financial~~as ~~Officer~~amended ~~have~~(the ~~concluded~~“Exchange ~~that,~~Act”)) as of the end of the period covered by this report,. ~~the~~A ~~Partnership’s~~control ~~disclosure~~system, ~~controls~~no ~~and~~matter ~~procedures~~how ~~were~~well ~~not~~conceived ~~effective~~and tooperated, ~~ensure~~can ~~that~~provide ~~material~~only ~~information~~reasonable ~~required~~assurance tothat bethe ~~disclosed~~objectives inof the ~~Partnership’s~~control ~~periodic~~system ~~report~~are ~~filings~~met. ~~with~~Based ~~SEC~~on issuch ~~recorded~~evaluation, ~~processed,~~the ~~summarized~~principal ~~and~~executive ~~reported~~officer ~~within~~and ~~the~~principal ~~time~~financial ~~period~~officer ~~specified~~of by the ~~SEC’s~~Managing ~~rules~~General ~~and forms~~Partner, ~~consistent~~who ~~with~~are the ~~definition~~equivalent of ~~“disclosure~~the ~~controls~~Partnership's ~~and~~principal ~~procedures”~~executive ~~under~~officer ~~the~~and ~~Securities~~principal ~~Exchange~~financial ~~Act of 1934.~~

~~The~~officer, ~~General~~respectively, ~~Partner~~have ~~must~~concluded ~~rely~~that, onas ~~the Local Limited Partnerships to provide the Partnership with certain information necessary to the timely filing~~ of the ~~Partnership’s~~end ~~periodic reports. Factors in the accounting at the Local Limited Partnerships have caused delays in the provision~~ of such ~~information during past reporting periods~~period, ~~and resulted in~~ the Partnership’'s ~~inability~~disclosure tocontrols ~~file~~and ~~its~~procedures ~~periodic~~were ~~reports~~not ~~in a timely manner~~effective.

~~Once~~The ~~the~~ Partnership ~~has~~must ~~received~~rely ~~the~~on ~~necessary information from~~ the Local Limited Partnerships, ~~the~~to ~~Chief~~provide ~~Executive Officer and~~ the ~~Chief~~Partnership ~~Financial~~with ~~Officer~~certain ~~believe~~necessary ~~that the material~~ information ~~required~~ to bethe ~~disclosed~~timely infiling of the Partnership’'s periodic ~~report~~reports. Factors ~~filings~~in ~~with~~the ~~SEC~~accounting isat ~~effectively~~the ~~recorded,~~Local ~~processed,~~Limited ~~summarized~~Partnerships ~~and~~have ~~reported,~~caused ~~albeit~~delays ~~not~~ in ~~a timely manner. Going forward,~~ the ~~Partnership~~provision ~~will~~of ~~use~~such ~~the~~information ~~means~~during ~~reasonably~~past ~~within~~reporting ~~its~~periods, ~~power~~and toresulted ~~impose~~in ~~procedures designed to obtain from~~ the ~~Local~~Partnership's ~~Limited~~inability ~~Partnerships the information necessary~~ to ~~the~~file ~~timely~~its ~~filing~~periodic ofreports ~~the~~in ~~Partnership’s~~a ~~periodic~~timely ~~reports~~manner.

Once the Partnership has received the necessary information from the Local Limited Partnerships, the principal executive officer and principal financial officer believe that the material information required to be disclosed in the Partnership's periodic report filing with the SEC is effectively recorded, processed, summarized and reported, albeit not in a timely manner. Going forward, the Partnership will use the means reasonable within its power to impose procedures designed to obtain from the Local Limited Partnerships the information necessary to the timely filing of the Partnership's periodic reports.

Management’s Annual Report on Internal Control over Financial Reporting

The General Partner is responsible for establishing and maintaining for the Partnership adequate internal control over financial reporting as that term is defined in Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f), and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, ~~2011~~2012. The internal control process, as it is applicable to the Partnership, was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements, and includes those policies and procedures that:


(1)	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;


(2)	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that the Partnership’s receipts and expenditures are being made only in accordance with authorization of the management of the Partnership; and


(3)	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements

II-8

PART II

ITEM 9A. CONTROLS AND PROCEDURES - Continued

All internal control processes, no matter how well designed, have inherent limitations. Therefore, even those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Representatives of the General Partner assessed the effectiveness of its internal control over financial reporting, as it is applicable to the Partnership, as of the end of the Partnership’s most recent fiscal year. In making this assessment, it used the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, the General Partner has concluded that, for the reasons set forth above under “Evaluation of Disclosure ~~controls~~Controls and ~~procedures~~Procedures,” the internal control over financial reporting, as it is applicable to the Partnership, was ~~not effective as of December 31, 2011.~~

For purposes of the Securities Exchange Act of 1934, the term “material weakness” is a deficiency, or a combination of deficiencies, in a reporting company’s internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. For the reasons discussed above in this Item 9A, subII-section (a) under the caption “Disclosure Controls and Procedures,” the Partnership’s internal control over financial reporting has not been effective in permitting timely reporting of the Partnership’s financial information. Accordingly, the management of the Partnership believes that this inability to generate timely reports constitutes a material weakness in its internal control over financial reporting.6

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ineffective as of December 31, 2012. This annual report does not include an attestation report of the Partnership's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to

attestation by the Partnership's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Partnership to provide only management's report in this annual report.

For purposes of the Securities Exchange Act of 1934, the term "material weakness: is a deficiency, or a combination of deficiencies, in a reporting company's internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Partnership's annual or interim financial statements will not be prevented or detected on a timely basis. For the reasons discussed above in this item 9a, sub-section (a) under the Caption, "Evaluation of Disclosures Controls and Procedures" , the Partnership's internal control over financial reporting has not been effective in permitting timely reporting of the Partnership's financial information. Accordingly, the management of the Partnership believes that this inability to generate timely reports constitutes a material weakness in its internal control over financial reporting.

Changes in internal controls

There were no changes in the Partnership’s internal control over financial reporting that occurred during the most recent fiscal quarter ended ~~March~~December 31, 2012 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.



ITEM 9B.	OTHER INFORMATION

Certain states may assert claims against the Partnership for failure to withhold and remit state 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 state 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~~advisers as to the necessity of filing non-resident returns in such states with respect to their proportional taxes due.

II-97

Table of Contents

PART III

ITEM 10. DIRECTORS, ~~AND~~ EXECUTIVE OFFICERS OFAND ~~THE~~CORPORATE ~~REGISTRANT~~GOVERNANCE

(a) and (b)

The Partnership has no directors, executive officers or employees of its own.

(a) and (b)

The names, ages and business experience of the directors and executive officers of C.R.I., Inc., the Managing General Partner of the Partnership, follow.

William B. Dockser, 7576, has been the Chairman of the Board and a Director of CRI since 1974. Prior to forming CRI, he served as President of Kaufman and Broad Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed publicly held limited partnerships created to invest in low and moderate income multifamily apartment properties. Prior to joining Kaufman and Broad, he served in various positions at HUD, culminating in the post of Deputy FHA Commissioner and Deputy Assistant Secretary for Housing Production and Mortgage Credit, where he was responsible for all federally insured housing production programs. Before coming to the Washington, D.C., area, Mr. Dockser was a practicing attorney in Boston and served as a special Assistant Attorney General for the Commonwealth of Massachusetts. He holds a Bachelor of Laws degree from Yale University Law School and a Bachelor of Arts degree, cum laude, from Harvard University.

H. William Willoughby, 66, has been President, Secretary and a Director of CRI since January 1990, and was Senior Executive Vice President, Secretary and a Director of CRI from 1974 to 1989. Effective May 7, 2005, he assumed the duties of Principal Financial Officer and Principal Accounting Officer of CRI. He is principally responsible for the financial management of CRI and its associated partnerships. Prior to joining CRI in 1974, he was Vice President of Shelter Corporation of America and a number of its subsidiaries dealing principally with real estate development and equity financing. Before joining Shelter Corporation, he was a senior tax accountant with Arthur Andersen & Co. He holds a Juris Doctor degree, a Master of Business Administration degree and a Bachelor of Science degree in Business Administration from the University of South Dakota.


(c)	There is no family relationship between any of the foregoing directors and executive officers.


(d)	Involvement in certain legal proceedings.

See Part I, Item 3, for information regarding legal proceedings.

III-1

PART III



ITEM 11.	EXECUTIVE COMPENSATION

(a), (b), (c), (d), (e), (f), (g), and (h)

The Partnership has no officers or directors. However, in accordance with the Partnership Agreement, and as disclosed in the public offering, various kinds of compensation and fees were paid or are payable to the General Partners and their affiliates. Additional information required by this Item 11 is incorporated herein by reference to Notes 3 and 4 of the notes to financial statements contained in Part IV.



ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
	AND MANAGEMENT

(a) Security ownership of certain beneficial owners.

The following table sets forth certain information concerning any person (including any "group") who is known by the Partnership to be the beneficial owner of more than five percent of the issued and outstanding units of additional limited partner interest (Units) at April 13, ~~2012~~2013.

		% of Total
Name and Address	Amount and Nature	Units Issued
of Beneficial Owner	of Beneficial Ownership	and Outstanding
Equity Resource	12,639 Units	21.06 %
Investments, LLC
& Affiliates
44 Brattle Street
Cambridge, MA 02138
Peachtree Partners	4,347 Units	7.24 %
& Affiliates
P. O. Box 47638
Phoenix, AZ 85068

III-1

Table of Contents



		% of Total
Name and Address	Amount and Nature	Units Issued
of Beneficial Owner	of Beneficial Ownership	and Outstanding

Equity Resource	13,210 Units	22.06	%
Investments, LLC
& Affiliates
1280 Massachusetts Avenue, 4th FL
Cambridge, MA 02138

Peachtree Partners	5,215 Units	8.71	%
& Affiliates
P. O. Box 47638
Phoenix, AZ 85068

(b) Security ownership of management.

The following table sets forth certain information concerning all Units beneficially owned, as of ~~April~~March 131, ~~2012,~~2013 by each director and by all directors and officers as a group of the Managing General Partner of the Partnership.

III-2



		% of Total
Name of	Amount and Nature	Units Issued
Beneficial Owner	of Beneficial Ownership	and Outstanding

William B. Dockser	None	—%
H. William Willoughby	None	—%
All Directors and Officers	None	—%
as a Group (2 persons)

PART III

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - Continued

		% of Total
Name of	Amount and Nature	Units Issued
Beneficial Owner	of Beneficial Ownership	and Outstanding
William B. Dockser	None	0.0%
H. William Willoughby	None	0.0%
All Directors and Officers	None	0.0%
as a Group (2 persons)

There exists no arrangement known to the Partnership, the operation of which may, at a subsequent date, result in a change in control of the Partnership. There is a provision in the Limited Partnership Agreement which allows, under certain circumstances, the ability to change control.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

(a) and (b)

Transactions with management and others.

The Partnership has no directors or officers. In addition, the Partnership has had no transactions with individual officers or directors of the Managing General Partner of the Partnership other than any indirect interest such officers and directors may have in the amounts paid to the Managing General Partner or its affiliates by virtue of their stock ownership in CRI. Item 11 of this report, which contains a discussion of the fees and other compensation paid or accrued by the Partnership to the General Partners or their affiliates, is incorporated herein by reference. Note 3 of the notes to financial statements contained in Part IV, which contains disclosure of related party transactions, is also incorporated herein by reference.

III-2

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(c)	Certain business relationships.

The Partnership's response to Item 13(a) is incorporated herein by reference. In addition, the Partnership has no business relationship with entities of which the officers and directors of the Managing General Partner of the Partnership are officers, directors or equity owners other than as set forth in the Partnership's response to Item 13(a).


(d)	Transactions with promoters.

Not applicable.

~~III-3~~ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

~~PART~~For ~~III~~the years ended December 31, 2012 and 2011, the Partnership incurred professional fees for the services of the Partnership’s independent registered public accounting firms Reznick Group, P.C. and CohnReznick as follows:

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



	2012		2011
Audit fees (1)	$	110,000	$	92,500
Tax fees (2)	13,000		13,000
Total billed	$	123,000	$	105,500

For the years ended December 31, 2011 and December 31, 2010, the Partnership incurred professional fees for the services of the Partnership’s independent registered public accounting firms Reznick Group P.C. and Grant Thornton as follows:

	2011		2010
Audit fees (1)	$	92,500	$	31,772
Tax fees (2)		13,000		16,800
Total billed	$	105,500	$	48,572

_______________________


(1)	Principally fees for the audit of the Partnership’s annual financial statements the independent registered public accounting firm’s review of the Partnership’s quarterly financial statements, and services provided in connection with the Partnership’s regulatory filings.


(2)	Fees for preparation of Partnership federal and state tax returns.

The Partnership has no directors or officers. The Board of Directors of the Managing General Partner of the Partnership, serving as the Audit Committee, has approved in advance 100% of the fees paid to, and services provided by the Partnership’s independent registered public accounting firm. Prior to approving the Partnership’s independent registered public accounting firm providing any non-audit services, the Board of Directors of the Managing General Partner of the Partnership would assess whether the provision of those services would compromise the Partnership’s independent registered public accounting firm independence.

~~Grant~~On ~~Thornton~~November ~~was~~8, ~~dismissed~~2012, Reznick Group resigned as the Partnership’'s independent registered public accounting firm after the filing of the Partnership’'s 10-Q for the third quarter of fiscal year ~~2010~~2012. CohnReznick ~~Reznick~~ was engaged as the Partnership’'s new independent registered public accounting firm and performed the fiscal ~~2010~~2012 year end audit. CohnReznick ~~Reznick~~also provided partnership tax return preparation services for the ~~years~~year ended December 31, ~~2011~~2012 and ~~December~~Reznick ~~31,~~Group ~~2010 and Grant Thornton~~ provided partnership tax return preparation services for the year ended December 31, ~~2010~~2011, which services it was determined did not compromise ~~Reznick’~~CohnReznick's or ~~Grant~~Reznick ~~Thornton’~~Group's independence.

III-43

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PART IV



ITEM 15.	EXHIBITS AND FINANCIAL STATEMENTS


1.	Financial Statements


a.	The following documents are included as part of this report:


(1)	Financial Statements

~~Report~~Reports of Independent Registered Public Accounting ~~Firm~~Firms

Balance Sheets

Statements of Operations

Statements of Changes in Partners’ ~~(Deficit)~~ Capital

Statements of Cash Flows

Notes to Financial Statements


(2)	Financial Statement Schedules

None.


(3)	Exhibits

Index of Exhibits (Listed according to the number assigned in the table in Item 601 of Regulation S-K.)

Exhibit No. 2 - Plan of acquisition, reorganization, arrangement, liquidation, or succession.

a. Definitive Proxy Statement. (Incorporated by reference to Registrant’s Definitive Proxy Statement dated November 21, 2005.)

Exhibit No. 3 - Articles of Incorporation and bylaws

a. Certificate of Limited Partnership of Capital Realty Investors-III Limited Partnership. (Incorporated by reference to Exhibit No. 4 to Registrant's Registration Statement on Form S-11, as amended, dated October 24, 1983.)

Exhibit No. 4 - Instruments defining the rights of security holders, including indentures.

a. Amended Certificate and Limited Partnership Agreement of Capital Realty Investors-III Limited Partnership. (Incorporated by reference to Exhibit No. 4 to Registrant's Registration Statement on Form S-11, as amended, dated October 24, 1983.)

IV-1

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS - Continued

Exhibit No. 10 - Material Contracts.

	a.	Management Services Agreement between CRI and Capital Realty Investors-III Limited Partnership. (Incorporated by reference to Exhibit No. 10(b) to Registrant's Registration Statement on Form S-11, as amended, dated October 24, 1983.)
	Exhibit No. 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.
	Exhibit No. 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.
	Exhibit No. 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.
	Exhibit No. 99 - Additional Exhibits.
	a.	Prospectus of the Partnership, dated November 7, 1983. (Incorporated by reference to Registrant's Registration Statement on Form S-11, as amended, dated October 24, 1983.)

a.Management Services Agreement between CRI and Capital Realty Investors-III Limited Partnership. (Incorporated by reference to Exhibit No. 10(b) to Registrant's Registration Statement on Form S-11, as amended, dated October 24, 1983.)

Exhibit No. 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.

Exhibit No. 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.

Exhibit No. 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.

Exhibit No. 99 - Additional Exhibits.

IV-1

Table of Contents

a.Prospectus of the Partnership, dated November 7, 1983. (Incorporated by reference to Registrant's Registration Statement on Form S-11, as amended, dated October 24, 1983.)

IV-2

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SIGNATURES

In accordance with Section 13 or 15(d) 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 PARTNERSHIP
	(Registrant)
July 23, 2012	by:		/s/ William B. Dockser
April 3, 2013	by:		/s/ William B. Dockser
DATE			William B. Dockser,
			Director, Chairman of the Board
				and Treasurer
			Principal Executive Officer)
			Principal Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

July 23, 2012	by:	/s/ H. William Willoughby
April 3, 2013	by:	/s/ H. William Willoughby
DATE		H. William Willoughby
		Director, President, Secretary,
		Principal Financial Officer and
			Principal Accounting Officer

IV-3

Table of Contents

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

INDEX TO FINANCIAL STATEMENTS

	Page
Financial Statements of Capital Realty Investors III, Limited Partnership
Financial Statements of Capital Realty Investors III Limited Partnership
Report of Independent Registered Public Accounting Firm	IV-5
Reports of Independent Registered Public Accounting Firms	IV-5
Balance Sheets as of December 31, 2011 and 2010	IV-6
Balance Sheets as of December 31, 2012 and 2011	IV-7
Statements of Operations for the Years Ended
Statements of Operations for the Years Ended December 31, 2012 and 2011	IV-8
December 31, 2011 and 2010	IV-7
Statements of Changes in Partners’ (Deficit) Capital for the Years Ended December 31, 2012 and 2011	IV-9
Statements of Changes in Partners’ (Deficit) Capital for the Years Ended
Statements of Cash Flows for the Years Ended December 31, 2012 and 2011	IV-10
December 31, 2011 and 2010	IV-8
Notes to Financial Statements	IV-11
Statements of Cash Flows for the Years Ended
December 31, 2011 and 2010	IV-9
Notes to Financial Statements	IV-10

IV-4

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~The~~To the Partners

Capital Realty Investors - III Limited Partnership

We have audited the accompanying balance ~~sheets~~sheet of Capital Realty Investors - III Limited Partnership (the Partnership) as of December 31, ~~2011~~2012 and ~~2010 and~~ the related statements of operations, changes in partners’' (deficit) capital, and cash flows for the ~~years~~year then ended. ~~These~~ The ~~financial~~Partnership's ~~statements~~management ~~are~~is ~~the~~responsible ~~responsibility~~for ofthese ~~the~~financial ~~Partnership’s management~~statements. Our responsibility is to express an opinion on these financial statements based on our ~~audits~~audit.

We conducted our ~~audits~~audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our ~~audits~~audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’'s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our ~~audits~~audit ~~provide~~provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Capital Realty Investors - III Limited Partnership as of December 31, ~~2011 and 2010~~2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As described in Note 1 to the financial statements, the Partnership has received limited partner approval of the Partnership’'s plan to sell all of the Partnership’'s assets and dissolve the Partnership pursuant to a Plan of Liquidation and Dissolution. There can be no assurance that the Liquidation will be completed pursuant to the Plan of Liquidation and Dissolution.

~~Reznick~~/s/CohnReznick ~~Group, P.C.~~LLP

Bethesda, Maryland

~~July~~April 233, ~~2012~~2013

IV-5

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

Capital Realty Investors-III Limited Partnership

We have audited the accompanying balance sheet of Capital Realty Investors-III Limited Partnership (the Partnership) as of December 31, 2011 and the related statements of operations, changes in partners' (deficit) capital, and cash flows for the year then ended. The Partnership's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Capital Realty Investors-III Limited Partnership as of December 31, 2011, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As described in Note 1 to the financial statements, the Partnership has received limited partner approval of the Partnership's plan to sell all of the Partnership's assets and dissolve the Partnership pursuant to a Plan of Liquidation and Dissolution. There can be no assurance that the Liquidation will be completed pursuant to the Plan of Liquidation and Dissolution.

/s/Reznick Group, P.C.

Bethesda, Maryland

July 23, 2012

IV-6

Table of Contents

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

BALANCE SHEETS

ASSETS

	December 31,	~~December 31,~~
		2011			2010
	2012			2011
Investments in partnerships	$	$2,582,473	~~3,063,461~~	$	$3,063,461	~~2,836,317~~
Cash and cash equivalents	2,079,580		~~2,172,240~~	2,172,240		~~2,813,153~~
Acquisition fees, principally paid to related parties,
net of accumulated amortization of $73,562 and $70,990, respectively			3,592			6,164
net of accumulated amortization of $20,922 and $73,562, respectively	608			3,592
Property purchase costs,
net of accumulated amortization of $44,380 and $42,764, respectively			4,102			5,718
net of accumulated amortization of $27,630 and $44,380, respectively	1,734			4,102
Other assets			-			14,446
Total assets	$	4,664,395		$	5,243,395
Total assets		$	5,243,395		$	5,675,798

LIABILITIES AND PARTNERS' CAPITAL

Due on investments in partnerships	$	$119,544	~~119,544~~		$	$119,544	~~119,544~~
Accrued interest payable	33,976		~~33,976~~		33,976		~~33,976~~
Accounts payable and accrued expenses	36,063		~~64,123~~		64,123		~~48,344~~
Total liabilities	189,583		~~217,643~~		217,643		~~201,864~~
Partners' deficit
Partners' capital
Capital paid-in:
General Partners	2,000		~~2,000~~		2,000		~~2,000~~
Limited Partners	60,001,500		~~60,001,500~~		60,001,500		~~60,001,500~~
	60,003,500		~~60,003,500~~		60,003,500		~~60,003,500~~
Less:
Accumulated distributions to partners	(31,184,819		~~(27,472,135~~)	)	(27,472,135		~~(27,472,135~~)	)
Offering costs	(6,156,933		~~(6,156,933~~)	)	(6,156,933		~~(6,156,933~~)	)
Accumulated losses	(18,186,936		~~(21,348,680~~)		(21,348,680		~~(20,900,498~~)	)
Total partners' (deficit) capital			5,025,752				5,473,934
Total partners' capital	4,474,812				5,025,752
Total liabilities and partners' (deficit) capital		$	5,243,395			$	5,675,798
Total liabilities and partners' capital	$	4,664,395			$	5,243,395

The accompanying notes are an integral part

of these financial statements.

IV-67

Table of Contents

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

~~STATEMENT~~ STATEMENTS OF OPERATIONS

		For the years ended
	For the years ended December 31,
		December 31,
	2012				2011
		2011				2010
Share of income from partnerships	$	321,497			$	298,073
Share of income (loss) from partnerships		$	298,073			$	214,155
Other revenue and expenses
Other revenue and expenses
Revenue:
Revenue:
Gain on disposition of properties	4,044,319				—
Interest and other	101,712		~~25,860~~		25,860		~~257,465~~
Expenses:
	4,146,031				25,860
General and administrative			337,304				292,762
Expenses:
Management fee			300,000				300,000
General and administrative	268,164				337,304
Professional fees			130,623				147,964
Management fee	300,000				300,000
Amortization of deferred costs			4,188				4,188
Professional fees	130,312				130,623
			772,115				744,914
Amortization of deferred costs	1,696				4,188
Total other revenue and expenses			(746,255	)			(487,449	)
Impairment loss	605,612				—
Net loss		$	(448,182	)		$	(273,294	)
	1,305,784				772,115
Net loss allocated to General Partners (1.5%)		$	(6,768	)		$	(4,127	)
Total other revenue and expenses	2,840,247				(746,255		)
Net loss allocated to Initial and
Net income (loss)	$	3,161,744			$	(448,182	)
Special Limited Partners (1.49%)		$	(6,677	)		$	(4,072	)
Net income (loss) allocated to General Partners (1.51%)	$	47,742			$	(6,768	)
Net loss allocated to Additional Limited Partners (97%)		$	(434,737	)		$	(265,095	)
Net income (loss) allocated to Initial and
Net loss per unit of Additional Limited Partner
Special Limited Partners (1.49%)	$	47,110			$	(6,677	)
Interest based on 59,882 units outstanding		$	(7.26	)		$	(4.43	)
Net income (loss) allocated to Additional Limited Partners (97%)	$	3,066,892			$	(434,737	)
Net income (loss) per unit of Additional Limited Partner
Interest based on 59,882 units outstanding	$	51.22			$	(7.26	)

The accompanying notes are an integral part

of these financial statements.

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CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL

				Initial and
				special			Additional
	General			Limited			Limited
	Partners			Partners			Partners			Total
Partners' (deficit) capital, January 1, 2010	$	(438,244	)	$	(433,045	)	$	7,516,747		$	6,645,458
Net loss		(4,127	)		(4,072	)		(265,095	)		(273,294	)
Distribution of $15 per Unit
of Limited Partner Interest		-			-			(898,230	)		(898,230	)
Partners' (deficit) capital, December 31, 2010		(442,371	)		(437,117	)		6,353,422			5,473,934
Net loss		(6,786	)		(6,677	)		(434,737	)		(448,182	)
Partners' (deficit) capital, December 31 2011	$	(449,139	)	$	(443,794	)	$	5,918,685		$	5,025,752,

For the years ended December 31, 2012 and 2011



	General Partners			Initial and Special Limited Partners			Additional Limited Partners			Total
Partners' (deficit) capital, January 1, 2011	$	(442,371	)	$	(437,117	)	$	6,353,422		$	5,473,934
Net loss	(6,768		)	(6,677		)	(434,737		)	(448,182		)
Partners' (deficit) capital, December 31, 2011	(449,139		)	(443,794		)	5,918,685			5,025,752
Net income	47,742			47,110			3,066,892			3,161,744
Distribution of $62 per Unit
of Limited Partner Interest	—			—			(3,712,684		)	(3,712,684		)
Partners' (deficit) capital, December 31, 2012	$	(401,397	)	$	(396,684	)	$	5,272,893		$	4,474,812

The accompanying notes are an integral part

of these financial statements.

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CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

		For the years ended
	For the years ended December 31,
		December 31,
	2012			2011
		2011				2010
Cash flows from operating activities:
Cash flows from operating activities:
Net income (loss)	$	3,161,744		$	(448,182	)
Net loss		$	(294,662	)		$	(273,294	)
Adjustments to reconcile net income (loss) to net cash
Adjustments to reconcile net loss to net cash
used in operating activities:
used in operating activities:
Share of income from partnerships	(321,497		)	(298,073		)
Share of income from partnerships			(298,073	)			(214,155	)
Amortization of deferred costs	1,696			4,188
Amortization of deferred costs			4,188				4,188
Gain on disposition of property	(4,044,319		)	—
Extinguishment of Debt			(153,520	)			-
Impairment loss	605,612			—
Changes in assets and liabilities:
Decrease (increase) in other assets			14,446				(14,446	)
Decrease in other assets	—			14,446
Increase(decrease) in accounts payable and accrued expenses			15,779				(230,967	)
(Decrease) increase in accounts payable and accrued expenses	(28,060		)	15,779
Net cash used in operating activities	(624,824		~~(711,842~~)	)(711,842		)	~~(728,674~~	)
Cash flows from investing activities:
Receipt of distributions from partnerships			70,929				11,535
Proceeds from disposition of investment in partnership	5,514,637			—
Advance to Local Partnership			-				(13,686	)
Disposition fee paid	(1,271,000		)	—
Net cash provided by (used in) investing activities			70,929				(2,151	)
Repayment of Advances to Local Partnership	10,000			—
Cash flows from financing activities:
Receipt of distributions from partnerships	11,211			70,929
Distributions to Additional Limited Partners			-				(898,230	)
Advance to Local Partnership	(20,000		)	—
Net cash used in financing activities			-				(898,230	)
Net cash provided by investing activities	4,244,848			70,929
Net decrease in cash and cash equivalents			(640,913	)			(1,629,055	)
Cash flows from financing activities:
Cash and cash equivalents, beginning of year			2,813,153				4,442,208
Distributions to Additional Limited Partners	(3,712,684		)	—
Cash and cash equivalents, end of year		$	2,172,240			$	2,813,153
Net cash used in financing activities	(3,712,684		)	—
Net decrease in cash and cash equivalents	(92,660		)	(640,913		)
Cash and cash equivalents, beginning of year	2,172,240			2,813,153
Cash and cash equivalents, end of year	$	2,079,580		$	2,172,240

The accompanying notes are an integral part

of these financial statements.

IV-910

~~CAPITAL~~Table ~~REALTY~~of ~~INVEDSTORS-III LIMITED PARTNERSHIP~~Contents

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

December 31, 2012 and 2011

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

Capital Realty Investors-III Limited Partnership (the Partnership) was formed under the Maryland Revised Uniform Limited Partnership Act on June 27, 1983, and shall continue until December 31, 2037, unless sooner dissolved in accordance with the terms of the Partnership Agreement. (See Note 1.lk., below, for discussion of the Partnership’s Plan of Liquidation and Dissolution.) The Partnership was formed to invest in real estate by acquiring and holding limited partner interests in limited partnerships (Local Partnerships) that own and operate federal or state government-assisted apartment properties, which provide housing principally to the elderly or to individuals and families of low or moderate income, or conventionally financed apartment properties, located throughout the United States.

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. The Initial Limited Partner was Rockville Pike Associates Limited Partnership-III, a limited partnership which includes certain current officers and former employees of CRI or its affiliates. The Special Limited Partner had been Two Broadway Associates II, a limited partnership comprised of an affiliate and employees of Merrill Lynch, Pierce, Fenner & Smith, Incorporated. Effective January 1, 2002, Two Broadway Associates II transferred its interest to MLH Merger Corporation and three individuals.

The Partnership sold 60,000 units at $1,000 per unit of additional limited partner interest through a public offering. The offering period was terminated in January 1984. As of December 31, ~~2011~~2012, ~~one~~118 ~~hundred and eighteen~~ units of limited partner interest had been abandoned.

b. Method of accounting

The financial statements of the Partnership are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America("GAAP").

c. Variable interest entities

~~IV-10~~The Partnership does not consolidate the Partnership's interests in these VIE’s under this guidance, as it is not considered to be the primary beneficiary. Accounting guidance requires continued reconsideration as to the consideration of the primary beneficiary. The Partnership currently records the amount of its investment in these partnerships as an asset on its balance sheet, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements.

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

The Partnership does not consolidate the Partnership's interests in these VIE’s under this guidance, as it is not considered to be the primary beneficiary. The Partnership currently records the amount of its investment in these partnerships as an asset on its balance sheet, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements.

IV-11

Table of Contents

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS- CONTINUED

December 31, 2012 and 2011

d. Investments in partnerships

The Partnership’s investment in Local Partnerships is considered to be variable interest entities (VIEs) because the owners of the equity at risk in these entities do not have the power to direct their operations. However, the Partnership is not considered the primary beneficiary of the Local Partnerships since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities. Therefore, and because the Partnership is a limited partner in the Local Partnerships, the Partnership accounts for the investment in its Local Partnerships using the equity method of accounting. Under the equity method, the initial investment is recorded at cost, increased or decreased by the Partnership’s share of income or losses, and decreased by distributions received and syndication costs. The investment balance cannot be reduced below zero. After the investment account is reduced to zero, receivables due from the Local Partnership are decreased by the Partnership’s share of losses. Distributions received after the investment account is reduced to zero are recorded as income.

As of December 31, ~~2011~~2012 and ~~2010~~2011, the Partnership's share of cumulative losses for ~~two~~zero and ~~three~~two of the Local Partnerships exceeded the amount of the Partnership's investments in those Local Partnerships by $~~9,096,274~~0 and $9,~~365~~096,~~565~~274, respectively. Since 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. The Partnership’s carrying value is zero and the equity method has been suspended for the following Local Partnerships: ~~Monterey/Hillcrest and Villa Mirage II~~ as of December 31, 2011: Monterey/Hillcrest and ~~2010~~Villa Mirage II.

Costs incurred in connection with acquiring these investments have been capitalized and are being amortized using the straight-line method over the estimated useful lives of the properties owned by the Local Partnerships.

IV-11

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

e. Deferred costs

Acquisition ~~Fees~~fees and ~~Property~~property ~~Purchase~~purchase ~~Costs~~costs incurred for services rendered to acquire the Local Partnerships are amortized over 30 years using the straight-line method, beginning upon commencement of operations of the Local Partnerships. The Partnership regularly assesses deferred costs for the existence of impairment in conjunction with the assessment of its investment in Local Partnerships. Amortization expense for the years ended December 31, ~~2011~~2012 and ~~2010~~2011 was $1,696 and $4,188, respectively. Estimated amortization expense for each of the ensuing years through December 31, 2014 is $~~5,353, $~~1,587, and $~~754~~755, respectively.

f. Cash ~~Investment~~and incash ~~partnerships held for sale or transfer~~equivalents

When investments are reclassified to investment in partnerships held for sale or transfer, amortization of the acquisition fees and property purchase costs are discontinued. Assets held for sale or transfer are recorded at the lower of the carrying amount or expected sales price less costs to sell.

g. Cash and cash equivalents

Cash and cash equivalents consist of money market funds, time and demand deposits, and repurchase agreements with original maturities of three months or less. Interest income is recognized as earned.

hg. Income taxes

The Partnership has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Partnership’s federal tax status as a pass-through entity is based on its legal status as a partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a pass-through entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnership has no other tax positions which must be considered for disclosure.

iAccounting guidance conveys how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. ~~Use~~ The guidance requires the evaluation of ~~estimates~~tax positions taken in the course of preparing the Partnership's tax returns to determine whether tax positions are more-likely-than-not of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-than-likely-not threshold would be recognized as a tax expense in the current year. For the year ended December 31, 2012, the Partnership did not recognize any interest or penalties related to the income taxes in its financial statements. Generally, the tax returns filed with the various taxing authorities

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, the Partnership is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

IV-12

~~CAPITAL~~Table ~~REALTY~~of ~~INVEDSTORS-III LIMITED PARTNERSHIP~~Contents

~~NOTES~~CAPITAL TOREALTY ~~FINANCIAL~~INVESTORS-III ~~STATEMENTS~~LIMITED PARTNERSHIP

1.NOTES ~~ORGANIZATION~~TO ~~AND~~FINANCIAL ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~ STATEMENTS- ~~Continued~~CONTINUED

~~j. Fair~~December ~~value~~31, of2012 ~~financial~~and ~~instruments~~2011

remain available for audit subject to statutes of limitation specific to those jurisdictions. Income tax returns filed by the Partnership are subject to examination by the Internal Revenue Service for a period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2009 remain open.

h. Use of estimates

i. Fair value of financial instruments

The Financial Accounting Standards Board Accounting Standards Codification establishes a hierarchy for inputs used in measuring fair value as follows:

1. Level 1 Inputs -- quoted prices in active markets for identical assets of liabilities.

2. Level 2 Inputs -- observable inputs other than quoted prices in active markets for identical assets and liabilities.

3. Level 3 Inputs -- unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The balance sheet carrying amount for cash and cash equivalents approximates their fair value.

kj. Impairment analysis

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. Impairment for investments in partnerships is determined by review of the performance of the underlying asset and expected proceeds from the sale of the investment. If an asset were determined to be impaired, its basis would be adjusted to fair value through the recognition of an impairment loss. During 2012, an impairment loss of $605,612 was recognized (see Note 2b).

lk. Definitive Proxy Statement

On November 21, 2005, the Partnership filed a Definitive Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, whereby the Managing General Partner recommended that the Unit holders approve a ~~plan~~Plan of ~~liquidation~~Liquidation and ~~dissolution~~Dissolution for the Partnership, or the “Plan.” The Plan was approved by the Unit holders on January 20, 2006, and was adopted by the General Partner on January 20, 2006. Pursuant to the Plan, the Managing General Partner may, without further action by the Unit holders:

·• liquidate the assets and wind up the business of the Partnership;

·• make liquidating distributions in cancellation of the Unit;

·• dissolve the Partnership after the sale of all of the Partnership’s assets; and

·• take, or cause the Partnership to take, such other acts and deeds and shall do, or cause the Partnership to do, such other things, as are necessary or appropriate in connection with the dissolution, winding up and liquidation of the Partnership, the termination of the responsibilities and liabilities of the Partnership under applicable law, and the termination of the existence of the Partnership.

Since the approval of the Plan by the Unit holders, the Partnership has 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, including accrued fees and unpaid loans to the General

IV-13

~~CAPITAL~~Table ~~REALTY~~of ~~INVEDSTORS-III LIMITED PARTNERSHIP~~Contents

~~NOTES~~CAPITAL TOREALTY ~~FINANCIAL~~INVESTORS-III ~~STATEMENTS~~LIMITED PARTNERSHIP

1.NOTES ~~ORGANIZATION~~TO ~~AND~~FINANCIAL ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~ STATEMENTS- ~~Continued~~CONTINUED

~~Since~~December ~~the approval of the Plan by the Unit holders~~31, ~~the~~2012 ~~Partnership has 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, including accrued fees and unpaid loans to the General Partner, and distribute the remaining assets as set forth in the Partnership Agreement. Numerous variables, including adverse general economic conditions, as well as, Local Partnership agreements and regulatory restrictions impact the ability and timing of effectuating the sale of certain properties owned by the Local Partnerships or the Partnership’s interests in the Local Partnerships. The Managing General Partner continues to explore strategies that will result in the liquidation of the Partnership at terms advantageous to the Partnership. There can be no assurance that the Liquidation will be completed pursuant to the Plan.2011

mPartner, and distribute the remaining assets as set forth in the Partnership Agreement. ~~Allocation~~ Numerous variables, including adverse general economic conditions, as well as, Local Partnership agreements and regulatory restrictions impact the ability and timing of ~~net~~effectuating ~~income~~the ~~(loss)~~sale of certain properties owned by the Local Partnerships or the Partnership’s interests in the Local Partnerships. The Managing General Partner continues to explore strategies that will result in the liquidation of the Partnership at terms advantageous to the Partnership. There can be no assurance that the Liquidation will be completed pursuant to the Plan. Because the liquidation of the Partnership was not imminent, as of December 31, 2012, the financial statements are presented assuming the Partnership will continue as a going concern.

l. Allocation of net income (loss)

Net income (loss) is allocated based on respective partnership interest or units outstanding. The Partnership has no dilutive interests.

nm. Subsequent ~~Events~~events

Events that occur after the balance sheet date but before the financial statements were available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the balance sheet date are recognized in the accompanying financial statements. Subsequent events which provide evidence about conditions that existed after the balance sheet date require disclosure in the accompanying notes. Management evaluated the activity of the Partnership and concluded that no subsequent events have occurred that would require recognition in the financial statements. Subsequent events which require disclosure in the notes to the financial statements are disclosed in Note 22b.

on. Recent accounting pronouncements

In ~~May~~September ~~2009~~2011, the FASB issued ~~guidance~~Accounting ~~addressing~~Standard ~~the~~Updated ~~accounting~~(ASU) ~~for~~No. ~~and~~2011-04, ~~disclosure~~"Fair ~~requirements~~Value ofMeasurement: ~~events~~Amendments orto ~~transactions~~Achieve ~~that~~Common ~~occur~~Fair ~~after~~Value ~~the~~Measurement ~~balance~~and ~~sheet~~Disclosure ~~date,~~Requirements ~~but~~in ~~before~~U.S. ~~the~~GAAP ~~financial~~and ~~statements are issued~~IFRS". ~~The~~This ~~Partnership~~update ~~adopted~~amends the guidance ason offair ~~June 30,~~value ~~2009~~measurements asto itdevelop ~~was~~common ~~effective~~requirements for ~~interim~~measuring ~~and~~fair ~~annual~~value ~~periods~~and ~~ending~~for ~~after~~disclosing ~~June 15,~~information ~~2009.~~about ~~The~~fair ~~adoption~~value ~~did~~measurements ~~not~~in ~~have~~accordance awith ~~significant~~US ~~impact~~GAAP onand ~~the~~International ~~subsequent~~Financial ~~events~~Reporting ~~that~~Standards ~~the~~("IFRS"). This ~~Partnership~~ASU ~~reports,~~does ~~either~~not ~~through~~require ~~recognition~~additional orfair ~~disclosure,~~value inmeasurements ~~the~~and ~~consolidated~~is ~~financial~~not ~~statements.~~intended Into ~~February~~establish ~~2010,~~valuation ~~however,~~standards ~~the~~or ~~FASB~~affect ~~amended~~valuation ~~its~~practices ~~guidance~~outside onof ~~subsequent~~financial ~~events~~reporting. The toPartnership ~~remove~~adopted ~~the~~this ~~requirement~~updated toas ~~disclose~~of ~~the~~January ~~date~~1, ~~through~~2012 ~~which~~and anthe ~~entity~~adoption ~~has~~did ~~evaluated~~not ~~subsequent~~have ~~events,~~a ~~alleviating~~material ~~conflicts~~impact ~~with~~on ~~current~~the ~~SEC~~Partnership's ~~guidance.~~results ~~This~~of ~~amendment~~operations, ~~was~~financial ~~effective~~position, ~~immediately~~or ~~and~~cash ~~therefore~~flows ~~the~~during ~~Partnership did not include~~ the ~~disclosure~~year inended ~~this~~December ~~Form~~31, ~~10-K~~2012.

IV-14

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

2. INVESTMENTS IN PARTNERSHIPS

a. Due on investments in partnerships and accrued interest payable

As of December 31, ~~2011~~2012 and ~~2010~~2011, the Partnership held limited partner interests in one and four Local Partnerships which were organized to develop, construct, own, maintain and operate rental apartment properties which provide housing principally to the elderly or to individuals and families of low or moderate income.

Due on investments in partnerships includes $119,544 due to a previous owner related to Meadow Lanes at December 31, ~~2011~~2012 and ~~2010~~2011; accrued interest payable thereon was $33,976 at December 31, ~~2011~~2012 and ~~2010~~2011. These amounts are schedule to be paid upon the occurrence of certain specific events, as outlined in the note agreement. At December 31, ~~2011~~2012, the Partnership is in dispute with the previous owner regarding amounts owed under the note agreement. Management cannot determine the outcome of the dispute at this time. Accordingly, the financial statements do not reflect any adjustment due to the uncertainty.

~~IV-15~~b. Sales and Pending Sale of Local Limited Partnerships

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN PARTNERSHIPS - Continued

Villa Mirage I and Villa Mirage II

On November 8, 2006, contracts for the sales of the Villa Mirage I and Villa Mirage II properties were signed. The contracts were extended through December 31, 2009 on each of the properties. On February 4, 2010, the purchaser changed the structure of the deal to a purchase of the partnership interests of the Partnership in each of Villa Mirage I and Villa Mirage II by executing a Partnership Interest Purchase Agreement. The purchaser ultimately defaulted under the terms of the agreement and the Partnership Interest Purchase Agreement was terminated. The Partnership’s basis in the Local Partnerships, along with the net unamortized amount of acquisition fees and property purchase costs, which were reduced to zero at December 31, 2007, were reclassified to asset held for sale or transfer at that time. However, the Partnership’s basis in the Local Partnership, along with the net unamortized amount of acquisition fees and property purchased costs, which totaled $88,250 and $51,523 at December 31, 2011 and December 31, 2010, respectively, has been returned to their respective accounts due to the termination of the contract and negotiations with the potential purchaser during the third quarter of 2010. The Partnership accrued for disposition fees at the time sales contracts were executed. Therefore, the Partnership accrued a $255,000 disposition fees payable to a related party when contracts for the sale of the Villa Mirage I and Villa Mirage II properties were signed. Upon termination of the sales contracts, the Partnership reversed the transaction fees payable, accordingly.IV-14

~~b. Sale~~Table of ~~Local Limited Partnership~~Contents

OnCAPITAL ~~September~~REALTY ~~29,~~INVESTORS-III ~~2011,~~LIMITED the general partners of Pebble Valley Housing Partners Limited Partnership, a Wisconsin limited partnership, entered into a contract with an unaffiliated third party to sell its property (Monterey/Hillcrest) and the transaction closed on January 31, 2012. The sales price was $18,920,000, which includes the outstanding mortgage balance of approximately $12,293,732 and cash proceeds to the Partnership of $4,800,000. Of the total proceeds received, $946,000 was paid to CRI as a fee for services in connection with the transaction.PARTNERSHIP

OnNOTES ~~November~~TO ~~15,~~FINANCIAL ~~2011,~~STATEMENTS- the general partners of Villa Mirage I, a California limited partnership, and Villa Mirage II, a California limited partnership, entered into a contract with an unaffiliated third party to sell their properties for an aggregate sale price of $6,500,000. It is expected that the sale will be consummated during the third quarter of 2012. It is anticipated that all sale proceeds will be used to satisfy Local Partnership obligations and any remaining funds available will be distributed to partners in accordance with the Villa Mirage I and Villa Mirage II partnership agreements. There can be no assurance that the sale transaction contemplated will be consummated upon the terms and conditions of the contract or at all.CONTINUED

~~IV-16~~December 31, 2012 and 2011

~~CAPITAL~~On ~~REALTY~~November ~~INVEDSTORS-III~~15, ~~LIMITED~~2011, ~~PARTNERSHIP~~the general partners of Villa Mirage I, a California limited partnership, and Villa Mirage II, a California limited partnership, entered into a contract with an unaffiliated third party to sell their properties for an aggregate sale price of $6,500,000. On September 27, 2012, the sale of the properties closed. The investment balance in the Local Partnerships at the time of sale was $195,662. Of the $1,903,349 of proceeds received as a result of the sale, a disposition fee was paid to the managing general partner in the amount of $325,000. The disposition fee was netted against the related gain on disposition of property.

~~NOTES~~A TOgain ~~FINANCIAL~~of ~~STATEMENTS~~$1,382,687 was recorded as a result of the sale of Villa Mirage I and Villa Mirage II.

~~2. INVESTMENTS IN PARTNERSHIPS - Continued~~Monterey/Hillcrest

~~The~~On ~~Partnership~~September ~~has~~29, ~~been~~2011, ~~notified by~~ the general partners of ~~Meadow~~Pebble ~~Lanes–II~~Valley ~~Associates Limited Dividend~~ Housing ~~Association~~Partners Limited Partnership, a ~~Michigan~~Wisconsin limited partnership, ~~that~~entered aninto ~~agreement~~a tocontract ~~sell~~with ~~its property to~~ an unaffiliated third party ~~has~~to ~~been~~sell ~~reached~~its ~~and~~property ~~that~~(Monterey/Hillcrest) aand ~~contract to memorialize~~ the ~~agreement~~transaction isclosed ~~currently~~on ~~being~~January ~~negotiated~~31, ~~between the parties~~2012. ItThe issales ~~expected~~price ~~that~~was ~~the~~$18,920,000 ~~sale~~and ~~will~~proceeds bereceived ~~consummated~~totaled ~~during the second quarter of 2013~~$3,611,288. ItThe isinvestment ~~anticipated~~balance ~~that~~in ~~all~~the ~~sale proceeds will be used to satisfy~~ Local Partnership ~~obligations~~was ~~and~~$0 ~~any~~at ~~remaining~~December ~~funds~~31, ~~available~~2011. Net ~~will~~unamortized beacquisition ~~distributed~~costs toand ~~partners~~property inpurchase ~~accordance~~costs ~~with~~of $3,656 ~~the~~were ~~Meadow~~written ~~Lanes–II~~off ~~Associates~~and ~~Limited~~netted ~~Dividend~~against ~~Housing~~the ~~Association~~gain ~~Limited~~on ~~Partnership~~sale ~~Agreement~~of property. ~~There~~ A ~~can~~disposition befee noof $946,000 ~~assurance~~was ~~that~~paid to the ~~sale~~managing ~~transaction~~general ~~contemplated~~partner. The ~~will~~disposition befee ~~consummated~~was ~~upon~~netted against the ~~terms~~related ~~and~~gain ~~conditions~~on ~~anticipated~~disposition orof ~~at all~~property.

InA ~~the~~gain ~~event~~of ~~the~~$2,661,632 ~~transactions~~was ~~contemplated~~recorded ~~above~~as ~~are~~a ~~consummated,~~result of the ~~Partnership~~sale ~~will~~of ~~be liquidated~~Monterey/Hillcrest.

Meadow Lanes

The Partnership has been notified by the general partners of Meadow Lanes–II Associates Limited Dividend Housing Association Limited Partnership, a Michigan limited partnership, that an agreement to sell its property to an unaffiliated third party has been reached and that a contract to memorialize the agreement has been signed. It is expected that the sale will be consummated during the second quarter of 2013. It is anticipated that all sale proceeds will be used to satisfy Local Partnership obligations and any remaining funds available will be distributed to partners in accordance with the Meadow Lanes–II Associates Limited Dividend Housing Association Limited Partnership Agreement. There can be no assurance that the sale transaction contemplated will be consummated upon the terms and conditions anticipated or at all.

On June 18, 2012, the Local Partnership entered into a purchase and sale agreement to sell Meadow Lanes Apartments for $2,900,000. The Partnership's investment basis in this Local Partnership (including deferred costs of $2,342) at December 31, 2012 was $3,190,427. The Partnership expects to receive $2,594,816 as a result of the sale. The difference between the investment basis at December 31, 2012 and expected proceeds is $605,612. This amount represents the impairment loss on the statements of operations.

In the event the transaction contemplated above is consummated, the Partnership will be liquidated.

c. Interests in profits, losses and cash distributions made by Local Partnerships

The Partnership has a 98.00% to 98.99% interest in profits, losses and cash distributions (as restricted by various federal and state housing agencies) (collectively, the “Agencies”) of each Local Partnership. An affiliate of the Managing General Partner of the Partnership is also a general partner of each Local Partnership. As stipulated by the Local Partnerships’ partnership agreements, the Local Partnerships are required to make annual cash distributions from surplus cash flow, if any. During ~~2010, the Partnership received cash distributions from rental operations of the Local Partnerships totaling $11,535. Subsequent to December 31, 2010, the Partnership received in January~~ 2011 ~~a cash distribution of $11~~,~~535~~ ~~from one Local Partnership regarding a dividend for~~ the ~~year 2010. During 2011, the~~ Partnership received total distributions of $70,929. Of this amount, $59,394 was applied to a Partnership tax liability, which was paid at the Local Partnership level. The remaining amount of $11,535 was received in the form of a cash distribution. During 2012, the Partnership received total distributions of $11,211. As of December 31, ~~2011~~2012 and ~~2010~~2011, ~~two~~one and ~~four~~two, respectively, of the Local Partnerships had aggregate surplus cash, as defined by their respective regulatory Agencies, in the amounts of $~~402~~137,~~802~~854 and $~~293~~402,~~138~~802, respectively, which may be available for distribution in accordance with their respective regulatory Agencies' regulations.

The cash distributions to the Partnership from the operations of the Local Partnerships may be limited by the Agencies’ regulations. Such regulations limit annual cash distributions to a percentage of the owner's equity investment in a rental property. Funds in excess of those which may be distributed to owners are generally required to be placed in a residual receipts account held by the governing state or federal agency for the benefit of the property. In addition, local general partners have the authority to withhold funds if needed for property repairs, improvements or other property needs.

IV-1715

~~CAPITAL~~Table ~~REALTY~~of ~~INVEDSTORS-III LIMITED PARTNERSHIP~~Contents

~~NOTES~~CAPITAL TOREALTY ~~FINANCIAL~~INVESTORS-III ~~STATEMENTS~~LIMITED PARTNERSHIP

~~2. INVESTMENTS~~NOTES INTO ~~PARTNERSHIPS~~FINANCIAL STATEMENTS- ~~Continued~~CONTINUED

December 31, 2012 and 2011

property. Funds in excess of those which may be distributed to owners are generally required to be placed in a residual receipts account held by the governing state or federal agency for the benefit of the property. In addition, local general partners have the authority to withhold funds if needed for property repairs, improvements or other property needs.

Upon sale or refinancing of a property owned by a Local Partnership, or upon the liquidation of a Local Partnership, the proceeds from such sale, refinancing or liquidation shall be distributed in accordance with the respective provisions of each Local Partnership's partnership agreement. In accordance with such provisions, the Partnership would receive from such proceeds its respective percentage interest of any remaining proceeds, after payment of (i) all debts and liabilities of the Local Partnership and certain other items, (ii) the Partnership's capital contributions plus certain specified amounts as outlined in each partnership agreement, and (iii) certain special distributions to general partners and related entities of the Local Partnership.

d. Advances to Local Partnerships

OnDuring ~~October~~the 23year ended December 31, 2009, the Partnership advanced a total of $5661,680 to Pebble Valley Housing Partners Ltd. Partnership (Monterey/Hillcrest) for non-resident withholding taxes paid on behalf of the Partnership. On ~~November~~April 514, ~~2009~~2010, the Partnership advanced $213,~~000~~686 to Monterey/Hillcrest for non-resident withholding taxes paid on behalf of the Partnership. For Onfinancial ~~September~~statement 15purposes, ~~2009,~~the advances were charged off by the Partnership ~~advanced~~as a result of losses at the Local Partnership level during prior years. In October 2009, $366,~~000~~300 was advanced to ~~Monterey/Hillcrest~~Villa ~~for~~Mirage ~~non-resident~~II, ~~withholding~~Limited ~~taxes~~Partnership ~~paid~~for onthe ~~behalf~~purpose of ~~the~~funding ~~Partnership~~operation deficits. On ~~April~~February 148, ~~2010~~2012, the Partnership advanced $1310,~~686~~000 to ~~Monterey/Hillcrest~~Villa ~~for~~Mirage ~~non-resident~~II ~~withholding~~Limited ~~taxes~~Partnership ~~paid~~for onthe ~~behalf~~issuance of ~~the~~a ~~Partnership.~~prepayment letter, as required by CalHFA. For financial statement purposes, the advances were charged off by the Partnership as a result of losses at the Local Partnership level during prior years. Both of these advances were repaid in full on September 27, 2012 and are included in other income on the statements of operations.

~~IV-18~~On February 8, 2012, the Partnership advanced $10,000 to Villa Mirage I Limited Partnership for the issuance of a prepayment letter, as required by CalHFA. On September 27, 2012, this advance was repaid in full.

~~CAPITAL REALTY INVEDSTORS~~IV-~~III LIMITED PARTNERSHIP~~16

~~NOTES~~Table TOof ~~FINANCIAL STATEMENTS~~Contents

~~2. INVESTMENTS~~CAPITAL INREALTY ~~PARTNERSHIPS~~ INVESTORS-III ~~Continued~~LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS- CONTINUED

December 31, 2012 and 2011

e. Summarized financial information

~~Combined~~The balance ~~sheets~~sheet for the Local Partnership in which the Partnership is invested as of December 31, 2012, and the combined statements of operations for the four Local Partnerships, in which the Partnership is invested asduring ofthe year ended December 31, ~~2011~~2012, follow. The balance sheet information is presented for one Local Partnership which has investment basis (equity method). The combined statements of operations is presented separately for two Local ~~Partnership~~Partnerships which has investment basis (equity method), and for two Local Partnerships for which the Partnership’'s carrying value iswas zero (equity method suspended).

BALANCE SHEET

December 31, 2012



	Equity Method
Number of Local Partnerships	1	(a)

Rental property, at cost, net of accumulated depreciation of $4,463,501	$1,144,413
Land	168,760
Other assets	2,198,576

Total assets	$3,511,749

Mortgage notes payable	$251,830
Other liabilities	41,890
Due to general partners	—
Total liabilities	293,720

Partners' capital	3,218,029

Total liabilities and partners' capital	$3,511,749

__________________________________

(a) Meadow Lanes

IV-17

Table of Contents

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS- CONTINUED

December 31, 2012 and 2011

COMBINED STATEMENTS OF OPERATIONS

For the year ended December 31, 2012



	Equity Method				Suspended				Total
Number of Local Partnerships	2			(a)	2			(b)	4

Revenue:
Rental	$	1,242,632			$	633,793			1,876,425
Other	214,957				27,295				242,252

Total revenue	1,457,589				661,088				2,118,677

Expenses:
Operating and other	869,862				445,427				1,315,289
Interest	(18,090		)		110,057				91,967
Depreciation and amortization	267,553				1,713				269,266

Total expenses	1,119,325				557,197				1,676,522

Net income	$	338,264			$	103,891			$	442,155

Cash distribution
Cash distribution recorded as reduction of investments in partnerships	$	11,211			$	—			$	11,211
Partnership’s share of Local Partnership net income	$	331,497			$	—			$	331,497
Advances to Local Partnerships	—				(10,000		)		(10,000		)
Share of income from partnerships	$	331,497			$	(10,000	)		$	321,497

(a) Meadow Lanes; Villa Mirage I (operations through dates of sales)

(b) Monterey/Hillcrest (operations through date of sale); Villa Mirage II (operations through date of sale)

IV-18

Table of Contents

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS- CONTINUED

December 31, 2012 and 2011

Combined balance sheets and combined statements of operations for the four Local Partnerships in which the Partnership is invested as of December 31, 2011, follow. The information is presented separately for two Local Partnerships which have investment basis (equity method), and for two Local Partnerships for which the Partnership's carrying value is zero (equity method suspended).

COMBINED BALANCE SHEETS

December 31, 2011

		Equity
	EquityMethod				Suspended				Total
		Method				Suspended				Total
Number of Local Partnerships	2			(a)	2			(b)	4
Number of Local Partnerships			2	(a)			2	(b)			4
Rental property, at cost, net of accumulated depreciation of $4,236,640 and $2,948,051, respectively	$	1,101,086			$	10,426			$	1,111,512
Rental property, at cost, net of accumulated
Land	432,415				237,909				670,324
depreciation of $4,236,640 and $2,948,051,
Other assets	2,422,446				5,466,901				7,889,347
respectively		$	1,101,086			$	10,426			$	1,111,512
Total assets	$	3,955,947			$	5,715,236			$	9,671,183
Land			432,415				237,909				670,324
Mortgage notes payable	$	1,243,492			$	13,084,259			$	14,327,751
Other assets			2,422,446				5,466,901				7,889,347
Other liabilities	476,752				1,482,250				1,959,002
Total assets		$	3,955,947			$	5,715,236			$	9,671,183
Due to general partners	1,183,533				1,470,716				2,654,249
Mortgage notes payable		$	1,243,492			$	13,084,259			$	14,327,751
Total liabilities	2,903,777				16,037,225				18,941,002
Other liabilities			476,752				1,482,250				1,959,002
Partners' capital (deficit)	1,052,170				(10,321,989		)		(9,269,819		)
Due to general partners			1,183,533				1,470,716				2,654,249
Total liabilities and partners' capital
Total liabilities			2,903,777				16,037,225				18,941,007
(deficit)	$	3,955,947			$	5,715,236			$	9,671,183
Partners' capital (deficit)			1,052,170				(10,321,989	)			(9,269,819	)
Total liabilities and partners' capital
(deficit)		$	3,955,947			$	5,715,236			$	9,671,183

________________________________

(a) Meadow Lanes; Villa Mirage I

(b) Monterey/Hillcrest; Villa Mirage II

IV-19

~~CAPITAL~~Table ~~REALTY~~of ~~INVEDSTORS-III LIMITED PARTNERSHIP~~Contents

~~NOTES~~CAPITAL TOREALTY ~~FINANCIAL~~INVESTORS-III ~~STATEMENTS~~LIMITED PARTNERSHIP

~~2. INVESTMENTS~~NOTES INTO ~~PARTNERSHIPS~~FINANCIAL STATEMENTS- ~~Continued~~CONTINUED

December 31, 2012 and 2011

COMBINED STATEMENTS OF OPERATIONS

For the year ended December 31, 2011

		Equity
	EquityMethod				Suspended				Total
		Method				Suspended				Total
Number of Local Partnerships	2			(a)	2			(b)	4
Number of Local Partnerships			2	(a)			2	(b)		4
Revenue:
Revenue:
Rental	$	1,372,972			$	3,449,932			$	4,822,904
Rental		$	1,372,972			$	3,449,932			$	4,822,904
Other	206,948				219,414				426,362
Other			206,948				219,414				426,362
Total revenue	1,579,920				3,669,346				5,249,266
Total revenue			1,579,920				3,669,346				5,249,266
Expenses:
Expenses:
Operating and other	1,062,690				2,123,914				3,186,604
Operating and other			1,062,690				2,123,914				3,186,604
Interest	33,968				789,475				823,443
Interest			33,968				789,475				823,443
Depreciation and amortization	239,712				483,435				723,147
Depreciation and amortization			239,712				483,435				723,147
Total expenses	1,336,370				3,396,824				4,733,194
Total expenses			1,336,370				3,396,824				4,733,194
Net income	$	243,550			$	272,522			$	516,072
Net income		$	243,550			$	272,522			$	516,072
Cash distributions	$	11,535			$	59,394			$	70,929
Cash distributions		$	11,535			$	59,394			$	70,929
Cash distribution recorded as reduction of investments in partnerships	$	11,535			$	—			$	11,535
Cash distribution recorded as reduction of
Cash distribution recorded as share of income from partnerships	$	—			$	59,394			$	59,394
investments in partnerships		$	11,535			$	--			$	11,535
Partnership’s share of Local Partnership net income	238,679				—				238,679
Cash distribution recorded as share of income
Share of income from partnerships	$	238,679			$	59,394			$	298,073
from partnerships		$	--			$	59,394			$	59,394
Partnership’s share of Local Partnership net
Income			238,679				--				238,679
Share of income from partnerships		$	238,679			$	59,394			$	298,073

IV-20

~~CAPITAL~~Table ~~REALTY~~of ~~INVEDSTORS-III LIMITED PARTNERSHIP~~Contents

~~NOTES~~CAPITAL TOREALTY ~~FINANCIAL~~INVESTORS-III ~~STATEMENTS~~LIMITED PARTNERSHIP

~~2. INVESTMENTS~~NOTES INTO ~~PARTNERSHIPS~~FINANCIAL STATEMENTS- ~~Continued~~CONTINUED

~~Combined balance sheets and combined statements of operations for the four Local Partnerships in which the Partnership is invested as of~~ December 31, ~~2010,~~2012 ~~follow. The information is presented separately for two Local Partnership which has investment basis (equity method),~~ and ~~for two Local Partnerships for which the Partnership’s carrying value is zero (equity method suspended).~~2011

~~COMBINED~~A ~~BALANCE~~reconciliation ~~SHEETS~~of the Local Partnerships' financial statement net income reflected above to taxable income follows:

December 31, 2010



	For the years ended December 31,
	2012		2011
Financial statement net income	$	442,155	$	516,072
Differences between financial statement and tax depreciation, amortization, and other items	21,664,034		221,901
Taxable income	$	22,106,189	$	737,973

	Equity
	Method			Suspended			Total
Number of Local Partnerships		2	(a)		2	(b)		4
Rental property, at cost, net of accumulated
depreciation of $6,987,185 and $17,673,702,
respectively	$	1,224,861		$	2,359,509		$	3,584,370
Land		432,415			1,848,318			2,280,733
Other assets		2,313,057			1,808,396			4,121,453
Total assets	$	3,970,333		$	6,016,223		$	9,986,556
Mortgage notes payable	$	1,540,296		$	13,500,953		$	15,041,249
Other liabilities		456,912			1,559,852			2,016,764
Due to general partners		1,152,735			1,425,266			2,578,001
Total liabilities		3,149,943			16,486,071			19,636,014
Partners' capital (deficit)		820,390			(10,469,848	)		(9,649,458	)
Total liabilities and partners' capital
(deficit)	$	3,970,333		$	6,016,223		$	9,986,556

____________________________________

(a) Meadow Lanes; Villa Mirage I

(b) Monterey/Hillcrest; Villa Mirage II

IV-21

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN PARTNERSHIPS - Continued

COMBINED STATEMENTS OF OPERATIONS

For the year ended December 31, 2010

	Equity
	Method			Suspended			Total
Number of Local Partnerships		2	(a)		2	(b)		4
Revenue:	$	1,328,622		$	3,323,575		$	4,652,197
Rental		178,450			246,002			424,452
Other
		1,507,072			3,569,577			5,076,649
Total revenue
Expenses:		931,680			1,946,245			2,877,925
Operating and other		52,286			818,623			870,909
Interest		245,455			636,013			881,468
Depreciation and amortization
		1,229,421			3,400,881			4,630,302
Total expenses
	$	277,651		$	168,696		$	446,347
Net income
	$	11,535		$	--		$	11,535
Cash distributions
Cash distribution recorded as reduction of	$	11,535		$	--		$	11,535
investments in partnerships
Partnership’s share of Local Partnership net
Income		227,841			--			227,841
Advances to Local Partnerships		--			(13,686	)		(13,686	)
Share of income from partnerships	$	227,841		$	(13,686	)	$	214,155

A reconciliation of the Local Partnerships' financial statement net income reflected above to taxable income follows.

	For the years ended
	December 31,
	2011		2010
Financial statement net income (loss)	$	516,072	$	446,347
Differences between financial statement
and tax depreciation, amortization,
and miscellaneous differences		221,901		410,602
Taxable income	$	737,973	$	856,949

IV-22

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN PARTNERSHIPS - Continued

f. Investment Reconciliation

The following is a reconciliation of investments in partnerships at December 31, ~~2011~~2012 and ~~2010~~2011:

Investments in partnerships at January 1, 2010:		$	2,620,011
Investments in partnerships at January 1, 2011:	$	2,836,317
Share of income from partnerships	298,073		~~214,155~~
Distribution from partnerships	(70,929		~~(11,535~~)	)
Advance to Local Partnership			13,686
Investments in partnerships at December 31, 2011:	3,063,461
Investments in partnerships at December 31, 2010:			2,836,317
Share of income from partnerships	321,497
Share of income from partnerships			298,073
Advance to Local Partnership	20,000
Distribution from partnerships			(70,929	)
Disposition of Villa Mirage	(195,662		)
Investments in partnerships at December 31, 2011:		$	3,063,461
Repayment of advance to Local Partnership	(10,000		)
Impairment loss	(605,612		)
Distribution from partnerships	(11,211		)
Investments in partnerships at December 31, 2012:	$	2,582,473

3. RELATED PARTY TRANSACTIONS

In accordance with the terms of the Partnership Agreement, the Partnership paid the Managing General Partner a fee for services in connection with the review, selection, evaluation, negotiation and acquisition of the original interests in the Local Partnerships. The fee amounted to $1,200,000, which is equal to two percent of the Additional Limited Partners' capital contributions to the Partnership. The acquisition fee was capitalized and is being amortized over a 30-year period using the straight-line method.

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 years ended December 31, 2011 and 2010, the Partnership paid $171,857 and $165,644, 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 years ended December 31, 2011 and 2010, the Partnership paid $94,712 and $92,895, 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.IV-21

InTable ~~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 amount of the Management Fee shall be equal to 0.25% of invested assets, as defined in the Partnership Agreement, and shall be payable from the Partnership's cash available for distribution, as defined in the Partnership Agreement, as of the end of each calendar year, as follows:Contents

IVCAPITAL REALTY INVESTORS-23III LIMITED PARTNERSHIP

~~CAPITAL~~NOTES ~~REALTY~~TO ~~INVEDSTORS~~FINANCIAL STATEMENTS-~~III~~ ~~LIMITED PARTNERSHIP~~CONTINUED

~~NOTES~~December TO31, ~~FINANCIAL~~2012 ~~STATEMENTS~~and 2011

3In 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. ~~RELATED~~ Payroll ~~PARTY~~expenses ~~TRANSACTIONS~~are reimbursed at a factor of 1.75 times base salary. For the years ended December 31, 2012 and 2011, the Partnership paid $119,207 and $171,857, 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 years ended December 31, 2012 and 2011, the Partnership paid $149,301 and $94,712, 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 amount of the Management Fee shall be equal to 0.25% of the original invested assets, as defined in the Partnership Agreement, and shall be payable from the Partnership's cash available for distribution, as defined in the Partnership Agreement, as of the end of each calendar year, as follows:


(i)	First, on a monthly basis as an operating expense before any distributions to limited partners in the amount computed as described in the Partnership Agreement, provided that such annual amount shall not be greater than $300,000; and


(ii)	Second, after distributions to the limited partners in the amount of one percent of the gross proceeds of the offering, the balance of such 0.25% of invested assets.

For each of the years ended December 31, ~~2011~~2012 and ~~2010~~2011, the Partnership paid the Managing General Partner a Management Fee of $300,000.

In accordance with the terms of the Partnership agreement, the managing general partner and/or its affiliates may receive a fee of not more than five percent of the sale price of an investment in Local Partnership or the property it owns, payable under certain conditions upon the sale of an investment in a Local Partnership or the property it owns. The payment of fee is subject to certain restrictions, including the achievement of a certain level of sales proceeds and making certain distributions to limited partners. During the year ended December 31, 2012, disposition fees totaling $1,271,000 were paid to the managing general partner.

IV-22

Table of Contents

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS- CONTINUED

December 31, 2012 and 2011

4. PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS

All profits and losses prior to the first date on which Additional Limited Partners were admitted were allocated 98.49% to the Initial Limited Partners and 1.51% to the General Partners. Upon admission of the Special Limited Partner and the Additional Limited Partners, the interest of the Initial Limited Partners was reduced to 0.49%. The net proceeds resulting from the liquidation of the Partnership or the Partnership's share of the net proceeds from any sale or refinancing of the Local Partnerships or their rental properties which are not reinvested shall be distributed and applied as follows:

(i) to the payment of debts and liabilities of the Partnership (including all expenses of the Partnership incident to the sale or refinancing) other than loans or other debts and liabilities of the Partnership to any partner or any affiliate; such debts and liabilities, in the case of a non-liquidating distribution, to be only those which are then required to be paid or, in the judgment of the Managing General Partner, required to be provided for; (ii) to the establishment of any reserves which the Managing General Partner deems reasonably necessary for contingent, unmatured or unforeseen liabilities or obligations of the Partnership; (iii) to each partner in an amount equal to the positive balance in his capital account as of the date of the sale or refinancing, adjusted for operations and distributions to that date, but before allocation of any profits for tax purposes realized from such sale or refinancing and allocated pursuant to the Partnership Agreement; (iv) to the limited partners (A) an aggregate amount of proceeds from sale or refinancing and all prior sales or refinancings equal to their capital contributions, without reduction for prior cash distributions other than prior distributions of sale and refinancing proceeds, plus (B) an additional amount equal to a cumulative non-compounded six percent return on each limited partners' capital contribution, reduced, but not below zero, by (1) an amount equal to 50% of the losses for tax purposes plus tax credits allocated to such limited partner and (2) distributions of net cash flow to each limited partner, such return, losses for tax purposes and net cash flow distributions commencing on the first day of the month in which the capital contribution was made; (v) to the repayment of any unrepaid loans theretofore made by any partner or any affiliate to the Partnership for Partnership obligations and to the payment of any unpaid amounts owing to the General Partners pursuant to the Partnership Agreement; (vi) to the General Partners in the amount of their capital contributions;

~~IV-24~~(ii) to the establishment of any reserves which the Managing General Partner deems reasonably necessary for contingent, unmatured or unforeseen liabilities or obligations of the Partnership;

~~CAPITAL~~(iii) ~~REALTY~~to ~~INVEDSTORS-III~~each ~~LIMITED~~partner ~~PARTNERSHIP~~in an amount equal to the positive balance in his capital account as of the date of the sale or refinancing, adjusted for operations and distributions to that date, but before allocation of any profits for tax purposes realized from such sale or refinancing and allocated pursuant to the Partnership Agreement;

~~NOTES~~(iv) TOto ~~FINANCIAL~~the ~~STATEMENTS~~limited partners (A) an aggregate amount of proceeds from sale or refinancing and all prior sales or refinancings equal to their capital contributions, without reduction for prior cash distributions other than prior distributions of sale and refinancing proceeds, plus (B) an additional amount equal to a cumulative non-compounded six percent return on each limited partners' capital contribution, reduced, but not below zero, by (1) an amount equal to 50% of the losses for tax purposes plus tax credits allocated to such limited partner and (2) distributions of net cash flow to each limited partner, such return, losses for tax purposes and net cash flow distributions commencing on the first day of the month in which the capital contribution was made;

~~4. PARTNERSHIP~~(v) ~~PROFITS~~to ~~AND~~the ~~LOSSES,~~repayment ~~AND~~of ~~DISTRIBUTIONS~~any -unrepaid ~~Continued~~loans theretofore made by any partner or any affiliate to the Partnership for Partnership obligations and to the payment of any unpaid amounts owing to the General Partners pursuant to the Partnership Agreement;

(vii)		thereafter, for their services to the Partnership, in equal shares to certain general partners (or their designees), whether or not any is then a general partner, an aggregate fee of one percent of the gross proceeds resulting from (A) such sale (if the proceeds are from a sale rather than a refinancing) and (B) any prior sales from which such one percent fee was not paid to the General Partners or their designees; and, [Messrs. Willoughby and Dockser waived their share of any such deferred fee in the Liquidation Proxy.]
(viii)		the remainder, 12% to the General Partners (or their assignees), 3% to the Special Limited Partner and 85% to the Initial and Additional Limited Partners (or their assignees).


(vi)	to the General Partners in the amount of their capital contributions;

(vii)

thereafter, for their services to the Partnership, in equal shares to certain general partners (or their designees), whether or not any is then a general partner, an aggregate fee of one percent of the gross proceeds resulting from (A) such sale (if the proceeds are from a sale rather than a refinancing) and (B) any prior sales from which such one percent fee was not paid to the General Partners or their designees; and, [Messrs. Willoughby and Dockser waived their share of any such deferred fee in the Liquidation Proxy.]

(viii)the remainder,12% to the General Partners (or their assignees), 3% to the Special Limited Partner and 85% to the Initial and Additional Limited Partners (or their assignees).

Fees payable to certain general partners (or their designees) under (vii) above, together with all other property disposition fees and any other commissions or fees payable upon the sale of apartment properties, shall not in the aggregate exceed the lesser of the competitive rate or six percent of the sale price of the apartment properties.

Pursuant to the Partnership Agreement, all cash available for distribution, as defined, shall be distributed, not less frequently than annually, 97% to the Additional Limited Partners, 1%one percent to the Special Limited Partner, 0.49% to the Initial Limited Partner and 1.51% to the General Partners, after payment of the Management Fee (see Note 3), as specified in the Partnership Agreement. On November ~~July 28~~30, ~~2010~~2012, the Partnership paid a cash distribution of $~~898~~3,~~230~~712,684 ($1562 per Unit) to the Limited Partners who were holders of record as of ~~July~~September 130, ~~2010~~2012.

As defined in the Partnership Agreement, after the payment of distributions described in the previous paragraph, after the establishment of any reserves deemed necessary by the Managing General Partner and after payment of the Management Fee, the Partnership had no remaining cash available for distribution for the ~~years~~year ended December 31, 2011 ~~and 2010~~. ~~The~~ ~~Managing General Partner currently intends to retain all of the Partnership’s remaining undistributed cash for operating cash reserves.~~

~~5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET~~IV-23

~~LOSS~~Table TOof ~~TAXABLE INCOME (LOSS)~~Contents

For federal income tax purposes, the Partnership reports on a basis whereby: (i) certain expenses are amortized rather than expensed when incurred; (ii) certain costs are amortized over a shorter period for tax purposes, as permitted by the Internal Revenue Code and underlying regulations, and (iii) certain costs are amortized over a longer period for tax purposes. The Partnership records its share of losses from its investments in limited partnerships for federal income tax purposes as reported on the Local Partnerships' federal income tax returns (see Note 2.e.), including losses in excess of related investment amounts. These returns are subject to examination and, therefore, possible adjustment by the IRS.

IV-25

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS- CONTINUED

~~5. RECONCILIATION~~December OF31, ~~THE~~2012 ~~PARTNERSHIP'S~~and ~~FINANCIAL STATEMENT NET~~2011

~~LOSS~~5. RECONCILIATION TOOF ~~TAXABLE~~THE ~~INCOME~~PARTNERSHIP'S ~~(LOSS)~~FINANCIAL -STATEMENT ~~Continued~~NET INCOME

A (LOSS) ~~reconciliation~~TO ofTAXABLE ~~the~~INCOME ~~Partnership's financial statement net loss to taxable income~~ (~~loss~~LOSS) ~~follows.~~

	For the years ended
	December 31,
	2011			2010
Financial statement net loss	$	(448,182	)	$	(273,294	)
Adjustments:
Differences between financial statement net income and
taxable income related to the Partnership’s equity in
the Local Partnerships' income or losses and
accrued expenses		431,051			642,793
Differences between financial statement
gain and taxable gain from the sale or
transfer of properties		--			(255,000	)
Costs amortized over a shorter period
for income tax purposes		4,188			4,188
Taxable(loss)income	$	(12,943	)	$	118,687

A reconciliation of the Partnership's financial statement net income (loss) to taxable income (loss) follows.



	For the years ended December 31,
	2012			2011
Financial statement net income (loss)	$	3,161,744		$	(448,182	)
Adjustments:
Differences between financial statement net income and
taxable income related to the Partnership’s equity in
the Local Partnerships' income or losses and
accrued expenses	(470,218		)	431,051
Differences between financial statement
gain and taxable gain from the sale or
transfer of properties	16,080,455			—
Impairment loss	605,612			—
Costs amortized over a shorter period
for income tax purposes	1,696			4,188
Taxable income (loss)	$	19,379,289		$	(12,943	)

6. CASH CONCENTRATION RISK

Financial instruments that potentially subject the Partnership to concentrations of risk consist primarily of cash. The Partnership maintains four cash accounts with two banks. As of December 31, ~~2011~~2012, the ~~uninsured~~ portion of the cash balances in excess of FDIC limits was $1,~~728~~595,~~320~~391.

~~IV-26~~7. SIGNIFICANT SUBSIDIARIES

The following Local Partnership invested in by the Partnership represents more than 20% of the Partnership's total assets or equity as of December 31, 2012 and 2011 or net income for the years then ended. The following financial information represents the performance of this Local Partnership for the years ended December 31, 2012 and 2011.

IV-24

Table of Contents



Meadow Lanes	2012		2011
Total Assets	$	3,511,749	$	3,449,214
Total Liabilities	293,720		458,609
Revenue	1,025,611		1,116,792
Net Income	238,864		206,073

IV-25

Filing Compare · CAPITAL REALTY INVESTORS III LTD PARTNERSHIP