UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, ~~2010~~2011

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

For the transition period from ____________ to ____________

Commission file number 0-11962

CAPITAL REALTY INVESTORS-III

LIMITED PARTNERSHIP

(Exact Name of Issuer as Specified in its Charter)

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

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

(301) 468-9200

(Issuer’s Telephone Number, Including Area Code)

_____________________

Indicate by check mark 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 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 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.

DOCUMENTS INCORPORATED BY REFERENCE

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

~~2010~~2011 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page Number
	PART I
Item 1.	Business	I-1
Item 2.	Properties	I-3
Item 3.	Legal Proceedings	I-3
Item 4.	Submission of Matters to a Vote of Security Holders	I-3
	PART II
Item 5.	Market for the Registrant’s Partnership Interests
	and Related Partnership Matters	II-1
Item 7.	Management’s Discussion and Analysis of Financial Condition
	and Results or Operations	II-2
Item 8.	Financial Statements	II-67
Item 9.	Changes In and Disagreements With Accountants
	on Accounting and Financial Disclosure	II-67
Item 9A.	Controls and Procedures	II-78
Item 9B.	Other Information	II-89
	PART III
Item 10.	Directors and Executive Officers of the Registrant	III-1
Item 11.	Executive Compensation	III-2
Item 12.	Security Ownership of Certain Beneficial Owners and Management	III-2
Item 13.	Certain Relationships and Related Transactions	III-3
Item 14.	Principal Accountant Fees and Services	III-4
	PART IV
Item 15.	Exhibits and Financial Statements	IV-1

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, ~~2010~~2011, 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, ~~2010~~2011, the Partnership retained investments in four Local Partnerships. 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) ~~(ii)~~ 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.

(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.

I-1

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, ~~2010~~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, ~~2010~~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, ~~2010~~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 12/31/1011 (2)	Financed and/or Insured and/or Subsidized Under	Number of Rental Units	Units Authorized for Low Income Subsidies	Expiration of HAP Contract
Meadow Lanes Apts. Holland, MI	$ ~~555~~408,~~031~~096	Michigan State Housing Development Authority/ Section 236 of the National Housing Act (NHA)	118	0	--
Monterey/Hillcrest Waukesha, WI	12,~~595~~317,~~238~~581	Section 221(d)(4) of the NHA/ Federal Housing Administration	300	60	04/23/24 (3)
Villa Mirage I Rancho Mirage, CA	~~985~~835,~~265~~396	California Housing Finance Agency (CHFA)/Section 8	50	50	12/19/1112 (3)(4)
Villa Mirage II Rancho Mirage, CA	~~905~~766,~~715~~678	CHFA/Section 8	48	48	12/14/15
Totals (4 Properties)	$1514,~~041~~327,~~249~~751		516	158

(continued)

I-2

PART I

ITEM 1.

BUSINESS - Continued

SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS

IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

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,
	2010	2009	2008	2007	2006	2010	2009	2008	2007	2006
	2011	2010	2009	2008	2007	2011	2010	2009	2008	2007
Meadow Lanes Apts. Holland, MI	9196%	8691%	8586%	8985%	8289%	$ 6,~~475~~900	$ 6,~~085~~475	$ 56,~~995~~085	$ 65,~~194~~995	$ 6,~~302~~194
Monterey/Hillcrest Waukesha, WI	9195%	8591%	8985%	9189%	91%	9,~~428~~412	89,~~725~~428	8,~~982~~725	8,~~816~~982	8,~~785~~816
Villa Mirage I Rancho Mirage, CA	9796%	9497%	~~100~~94%	97100%	~~100~~97%	11,~~291~~175	1011,~~051~~291	10,~~413~~051	10,~~157~~413	10,~~106~~157
Villa Mirage II Rancho Mirage, CA	9598%	9895%	~~100~~98%	95100%	9895%	10,~~313~~800	10,~~440~~313	10,~~499~~440	910,~~642~~499	109,~~083~~642
Totals (4 Properties) (5)	9296%	9192%	9491%	9394%	93%	$ 9,~~377~~572	$ 89,~~825~~377	$ 8,~~972~~825	$ 8,~~702~~972	$ 8,~~819~~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, ~~2010~~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 limited partner interests in Local Partnerships, the Partnership indirectly holds an interest in the real estate owned by the Local Partnerships. See Part I, Item 1, for information concerning these properties.

ITEM 3.

LEGAL PROCEEDINGS

The ~~Internal~~Partnership ~~Revenue~~is ~~Service~~unaware ~~has~~of ~~issued~~any apending ~~claim~~outstanding ~~against~~litigation ~~the~~involving ~~Partnership~~it inor the ~~amount~~underlying ofinvestment ~~$335,646. The~~property ~~claim~~of ~~relates~~the toLocal aPartnerships ~~penalty from an alleged late filing~~ in ~~2003,~~ which the ~~Partnership~~property ~~has~~invests ~~contested. The Partnership asserts~~ that ~~the~~are ~~filing~~not ~~was~~of ~~timely~~a asroutine annature ~~extension~~arising ~~for~~in the ~~late~~ordinary ~~filing~~course ~~was~~of ~~granted~~business byor ~~the~~that ~~Internal~~would ~~Revenue~~have ~~Service~~a ~~under~~material ~~IR-2003-112~~adverse ~~issued~~effect on ~~September 24, 2003. This matter was resolved with letter from~~ the ~~IRS~~business inof ~~December 2010 confirming that no amounts are owed by~~ the Partnership.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

I-3

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED PARTNERSHIP MATTERS

AND RELATED PARTNERSHIP MATTERS

(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.

~~On or about July 10, 2009, Peachtree Partners~~ (~~Peachtree~~b) ~~initiated~~As anof ~~unregistered~~April ~~tender~~1, ~~offer~~2012 tothere ~~purchase~~were upapproximately to3,660 ~~4.9%~~registered holders of ~~the outstanding~~ Units in the Partnership ~~at a price of $50 per Unit~~. The offer expired on or about August 10, 2009. Peachtree is not affiliated with the Partnership or the Managing General Partner. The price offered was determined solely at the discretion of Peachtree and did not necessarily represent the fair market value of each Unit.

In response to the Peachtree tender offer, on July 30, 2009, the Managing General Partner issued a press release. In the press release, the Managing General Partner recommended that Limited Partners reject the Peachtree offer because it viewed the offer price as inadequate.

(b) As of April 1, 2011 there were approximately 3,794 registered holders of Units in the Partnership.

(c)

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.

No distributions were paid in the ~~years~~year ~~2009 and 2008~~2011.

II-12

PART II

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

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, ~~2010~~2011. 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. 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.

~~Recent~~GAAP ~~Accounting~~provides ~~Pronouncements~~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.

OnThe ~~July~~Partnership 1,does ~~2009,~~not consolidate the Partnership's ~~adopted~~interests ~~Financial~~in ~~Accounting~~these ~~Standards~~VIE’s ~~Board~~under ~~Accounting~~this ~~Standards~~guidance, ~~Codification~~as ~~(“ASC”),~~it ~~which~~is ~~establishes~~not ~~the~~considered ~~ASC~~to asbe the ~~source~~primary ofbeneficiary. The ~~authoritative~~Partnership ~~accounting~~currently ~~principles~~records tothe beamount ~~applied~~of inits ~~preparation~~investment ofin ~~financial~~these ~~statements~~partnerships inas ~~conformity~~an ~~with~~asset USon ~~GAAP. The~~its ~~adoption~~balance ofsheet, ~~this~~recognizes ~~standard~~its ~~did~~share ~~not~~of ~~have~~partnership aincome ~~material~~or ~~impact~~losses onin the ~~financial~~statements ~~position~~of operations, ~~results~~and discloses how it accounts for material types of ~~operations~~these orinvestments ~~cash~~in ~~flows~~its financial statements.

OnThe ~~January~~Partnership’s 1,balance ~~2009,~~in ~~the~~investment ~~Partnership~~in ~~adopted~~Local ~~the~~Partnerships ~~new~~represents ~~accounting~~its ~~standard~~maximum ~~which~~exposure ~~requires~~to ~~adoption~~loss. The ofPartnership’s ~~the~~exposure ~~fair~~to ~~value~~loss ~~standards~~on inthese ~~the~~partnerships ~~ASC~~is ~~for~~mitigated ~~nonfinancial~~by ~~assets~~the condition and ~~nonfinancial~~financial ~~liabilities. The~~performance ~~adoption~~of ~~did~~the ~~not~~underlying ~~have~~properties aas ~~material~~well ~~impact~~as on the ~~financial~~strength ~~position, results~~ of ~~operations~~the orlocal ~~cash~~general ~~flows~~partners.

During the quarter ended June 30, 2009, the Partnership adopted the new accounting standard which requires disclosure regarding the fair value of financial instruments for interim reporting periods as well as in annual financial statements.II-3

II-2

PART II

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

~~CONDITION~~ Recent ~~AND~~Accounting ~~RESULTS OF OPERATIONS - Continued~~Pronouncements

~~The~~In ~~ASC~~May ~~establishes~~2009, ~~general~~the ~~standards~~FASB ofissued guidance addressing the accounting for and disclosure requirements of events or transactions that occur after the balance sheet date, but before the ~~Partnership issues~~ financial statements orare ~~has them available to issue~~issued. The ~~ASC~~Partnership ~~defines~~adopted ~~(i)~~ the ~~period~~guidance ~~after~~as ~~the~~of ~~balance~~June 30, ~~sheet~~2009 ~~date~~as ~~during~~it ~~which~~was aeffective ~~reporting~~for ~~entity’s~~interim ~~management~~and ~~should~~annual ~~evaluate~~periods ~~events~~ending orafter ~~transactions~~June 15, ~~that~~2009. ~~may~~The ~~occur~~adoption ~~for~~did ~~potential~~not ~~recognition~~have ora ~~disclosure~~significant inimpact on the ~~financial~~subsequent ~~statements,~~events ~~(ii)~~that the ~~circumstances~~Partnership ~~under~~reports, ~~which~~either anthrough ~~entity~~recognition ~~should recognize events~~ or ~~transactions~~disclosure, ~~occurring~~in ~~after~~ the ~~balance~~consolidated ~~sheet~~financial ~~date~~statements. inIn ~~its~~February ~~financial~~2010, ~~statements~~however, ~~and (iii)~~ the ~~disclosures~~FASB anamended ~~entity~~its ~~should~~guidance ~~make~~on ~~about~~subsequent events orto ~~transactions~~remove ~~that~~the ~~occurred~~requirement ~~after~~to disclose the ~~balance sheet~~ date. ~~The~~through ~~guidance~~which ~~became~~an ~~effective~~entity ~~for~~has ~~periods~~evaluated ~~ending~~subsequent ~~after June 15~~events, ~~2009.~~alleviating ~~The~~conflicts ~~adoption~~with ofcurrent ~~the~~SEC guidance. ~~did~~This ~~not~~amendment ~~have~~was aeffective ~~material~~immediately ~~impact~~and ontherefore the ~~financial~~Partnership ~~position,~~did ~~results~~not ofinclude ~~operations~~the ordisclosure ~~cash~~in ~~flows~~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 ~~variable interest entities (~~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 ~~Partnership has determined that~~ adoption of this guidance ~~has~~on noJanuary 1, 2010 did not have a material ~~impact~~effect on the Partnership’s financial statements.

General

The Partnership has 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.

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.

II-3

PART II

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

~~CONDITION~~ Subsidy ~~AND~~contracts ~~RESULTS~~for OFthe ~~OPERATIONS~~investment -apartment ~~Continued~~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.

Villa Mirage I has a Section 8 HAP contract which expires December 19, 2011. The Section 8 HAP contract covers all of the apartment units in Villa Mirage. It is anticipated that the Local Partnership will extend its Section 8 HAP contract for a one-year period at expiration.

As of December 31, 2010, the carrying amount of the Partnership’s investment in the Local Partnership with a Section 8 HAP contract expiring in 2011 was $51,523.

Plan of Liquidation

On November 21, 2005, the Managing General Partner recommended that the Unit holders approve a plan of liquidation and 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, we have continued to seek to sell the assets of the Partnership and use the sales proceeds and/or other Partnership funds to pay all expenses in connection with such sales, pay or make provision for payment of all Partnership obligations and liabilities, 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.

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-4

PART II

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

~~CONDITION~~ On ~~AND~~November ~~RESULTS~~15, OF2011, ~~OPERATIONS~~the -general ~~Continued~~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.

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 is currently being negotiated between the parties. 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.

In the event the transactions contemplated above are consummated, the Partnership will be liquidated.

Financial Condition/Liquidity

As of December 31, ~~2010~~2011, the Partnership had approximately 3,~~794~~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 remain at December 31, ~~2010~~2011. The Partnership's liquidity, with unrestricted cash resources of $2,~~813~~172,~~153~~240 as of December 31, ~~2010~~2011, along with anticipated future cash distributions from the Local Partnerships, is expected to be adequate to meet its current and anticipated operating cash needs. As of April 1, ~~2011~~2012, there were no material commitments for capital expenditures.

During 2010 ~~and 2009~~, the Partnership received cash distributions offrom $0rental ~~and~~operations ~~$11,534,~~of ~~respectively, from~~ 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~~local partnership related to 2010. During 2011, the Partnership ~~regarding~~received total distributions of $70,929. Of this amount, $59,394 was applied to a ~~dividend~~Partnership ~~for~~tax liability, which was paid at the ~~year~~Partnership ~~2010~~level. The remaining amount of $11,535 was received in the form of a cash distribution.

Due on investments in partnerships includes $119,544 due to a previous owner related to Meadow Lanes ~~II Associates Ltd. Dividend Associates (Meadow Lanes Apartments)~~ at December 31, ~~2010~~2011 and ~~2009~~2010; accrued interest payable thereon was $33,976 at December 31, ~~2010~~2011 and ~~2009~~2010. These amounts ~~will~~are scheduled to be paid upon the occurrence of certain specific events, as outlined in the note agreement. At December 31, 2011, 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.

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, 2010, existing cash resources were adequate to support net cash used in operating activities and investing activities. Cash and cash equivalents decreased $1,629,055 during 2010, primarily due to the distribution paid and 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

2010 Versus 2009

The Partnership’s net loss for the year ended December 31, 2010, decreased compared to 2009, primarily due to increases in other revenue and reduced share of loss from partnerships, partially offset by increases in general and administrative expenses and professional fees. Share of loss from partnerships was recognized in 2010 and 2009 as a result of advances made to Local Partnerships which were reduced to zero by the Partnership due to losses at the Local Partnership level. Other revenue increased due to the reversal of accrued broker fees related to the termination of the contract and negotiations with the potential purchaser of Villa Mirage I and Villa Mirage II. General and administrative expenses increased primarily due to higher reimbursed payroll costs. Professional fees increased due to higher incurred audit costs.

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, 2010 and 2009, did not include losses of $0 and $395,418, respectively.

II-5

PART II

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

~~CONDITION~~ The ~~AND~~Partnership ~~RESULTS~~closely OFmonitors ~~OPERATIONS~~its -cash ~~Continued~~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 Versus 2010

The Partnership’s net loss for the year ended December 31, 2011 was $448,182 versus $273,294 for the year ended December 31, 2010. The increase in the Partnership’s net loss was primarily the result of a onetime accounting adjustment in 2010 of $255,000 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.

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 ~~three~~two years ended December 31, ~~2010,~~2011 ~~2009~~ and ~~2008~~2010 follow. Combined rental revenue amounts have been adjusted to reflect property sales and interests transferred in prior years.

	For the years ended December 31,
	2010		2009		2008
	2011		2010
Combined Rental Revenue	$4,~~652~~822,~~197~~904		$4,~~339~~652,~~145~~197		~~$4,426,527~~
Annual Percentage Increase		73.27%		(27.0)2%		~~1.8%~~

II-6

PART II

ITEM 8.

FINANCIAL STATEMENTS

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

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

ON ACCOUNTING AND FINANCIAL DISCLOSURE

On December 22, 2010, the Partnership dismissed Grant Thornton LLP (“Grant Thornton”) as the Partnership’s independent registered public accounting firm. The decision to change accountants was approved by the Audit Committee of the Board of Directors of the Partnership.

Effective as of December 23, 2010, the Audit Committee of the Partnership engaged Reznick Group, P.C. (“Reznick”) 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 the ~~years ended December 31, 2009 and 2008, and the subsequent~~ interim period ended September 30, 2010, and through December 22, 2010, neither the Partnership nor anyone on its behalf has consulted with Reznick regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Partnership’s financial statements; 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 to Item 304 of Regulation S-K) or a reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).

IIDuring the interim period ended September 30, 2010 and through December 22, 2010, there were no disagreements with Grant Thornton 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 Thornton, would have caused it to make reference to the subject matter of the disagreements in its reports on the financial statements for such years. During the interim period ended September 30, 2010 and through December 22, 2010, there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-6K. 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

PART II

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE– Continued

Grant Thornton’s reports on the financial statements for each of the two fiscal years ended December 31, 2009 and 2008 and through December 22, 2010, contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal years ended December 31, 2009 and 2008 and through December 22, 2010, there were no disagreements with Grant Thornton 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 Thornton, would have caused it to make reference to the subject matter of the disagreements in its reports on the financial statements for such years. During the fiscal years ended December 31, 2009 and 2008 and through December 22, 2010, there were no reportable events as 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.

ITEM 9A.

CONTROLS AND PROCEDURES

InEvaluation ~~February, 2011, representatives~~ of ~~the~~Disclosure ~~Managing~~Controls ~~General Partner of the Partnership carried out an evaluation of the effectiveness of the design~~ and operation of the Partnership’s disclosure controls and procedures, pursuant to Exchange Act Rules 13a-15 and 15d-15. The Managing General Partner does not expect that the Partnership’s disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of December 31, 2010, our disclosure controls and procedures were effective to ensure that (i) the information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, as amended, was recorded, processed, summarized or reported within the time periods specified in the SEC’s rules and forms and (ii) such information was accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.Procedures

As of the end of the periods covered by this report, representatives of the General Partner, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the Partnership’s “disclosure controls and procedures” as defined in Securities Exchange Act of 1934 Rules 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Partnership’s disclosure controls and procedures were not effective to ensure that material information required to be disclosed in the Partnership’s periodic report filings with SEC is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms, consistent with the definition of “disclosure controls and procedures” under the Securities Exchange Act of 1934.

The General Partner must rely on the Local Limited Partnerships to provide the Partnership with certain information necessary to the timely filing of the Partnership’s periodic reports. Factors in the accounting at the Local Limited Partnerships have caused delays in the provision of such information during past reporting periods, and resulted in the Partnership’s inability to file its periodic reports in a timely manner.

Once the Partnership has received the necessary information from the Local Limited Partnerships, the Chief Executive Officer and the Chief Financial Officer believe that the material information required to be disclosed in the Partnership’s periodic report filings with SEC is effectively recorded, processed, summarized and reported, albeit not in a timely manner. Going forward, the Partnership will use the means reasonably 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

~~Our~~The ~~management~~General Partner is responsible for establishing and maintaining for the Partnership adequate internal control over financial reporting, as ~~such~~that term is defined in Securities Exchange Act ~~Rule~~ of 1934 Rules 13a-15(f)~~. Under~~ ~~the~~and ~~supervision~~15d-15(f), and ~~with~~for ~~the~~performing ~~participation~~an assessment of ~~our~~the ~~management,~~effectiveness ~~including~~of ~~our~~internal ~~principal~~control ~~executive~~over ~~officer and principal~~ financial ~~officer,~~reporting weas ~~conducted an evaluation~~ of ~~the~~December ~~effectiveness~~31, of2011. ~~our~~The internal control ~~over~~process, ~~financial~~as ~~reporting~~it ~~based~~is onapplicable to the ~~framework~~Partnership, ~~set~~was ~~forth~~designed into ~~Internal~~provide ~~Control—Integrated~~reasonable ~~Framework~~assurance ~~issued~~regarding by the ~~Committee~~preparation ofand ~~Sponsoring~~fair ~~Organizations~~presentation of ~~the~~published ~~Treadway~~financial ~~Commission~~statements, ~~(COSO).~~ and includes those policies and procedures that:

~~II-7~~(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

~~Based~~All oninternal ~~our~~control ~~evaluation~~processes, ~~management~~no ~~has~~matter ~~concluded~~how ~~that~~well ~~its~~designed, ~~internal~~have ~~control~~inherent ~~over~~limitations. ~~financial~~Therefore, ~~reporting~~even ~~was~~those processes determined to be effective ascan provide only reasonable assurance with respect to the reliability of ~~December~~financial 31statement preparation and presentation. Further, ~~2010~~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.

~~This~~Representatives ~~Annual~~of ~~Report~~the ~~does~~General ~~not~~Partner ~~include~~assessed anthe ~~attestation~~effectiveness ~~report~~of its internal control over financial reporting, as it is applicable to the Partnership, as of the end of the Partnership’s ~~registered~~most ~~public~~recent ~~accounting~~fiscal ~~firm~~year. ~~regarding~~In ~~internal~~making ~~control~~this ~~over~~assessment, ~~financial~~it ~~reporting.~~used ~~Management’s~~the ~~report~~criteria ~~was~~set ~~not~~forth ~~subject~~in toInternal ~~attestation~~Control – Integrated Framework issued by the ~~Partnership’s~~Committee ~~registered~~of ~~public~~Sponsoring ~~accounting~~Organizations ~~firm~~of ~~pursuant~~the toTreadway ~~rules of~~Commission (COSO). Based on its assessment, the ~~Securities~~General ~~and~~Partner ~~Exchange~~has ~~Commission~~concluded that, ~~permit~~for the ~~Partnership~~reasons toset ~~provide~~forth ~~only~~above ~~management’s~~under ~~report~~“Disclosure incontrols ~~this~~and ~~Annual~~procedures,” ~~Report~~the oninternal ~~Form~~control over financial reporting, as it is applicable to the Partnership, was not effective as of December ~~10-K~~31, 2011.

InFor ~~addition~~purposes of the Securities Exchange Act of 1934, ~~there~~the ~~have~~term ~~been~~“material noweakness” ~~significant~~is ~~changes~~a deficiency, or a combination of deficiencies, in ~~the~~a ~~Partnership~~reporting company’s internal control over financial reporting such that ~~occurred~~there ~~during~~is a reasonable possibility that a material misstatement of the ~~Partnership’~~company's ~~most~~annual ~~recent~~or ~~fiscal~~interim ~~quarter~~financial ~~that~~statements ~~has~~will ~~materially~~not ~~affected,~~be prevented or isdetected ~~reasonably~~on ~~likely~~a totimely ~~materially~~basis. For ~~affect~~the reasons discussed above in this Item 9A, sub-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.

Changes in internal controls

There were no changes in the Partnership’s internal control over financial reporting that occurred during the quarter ended March 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 as to the necessity of filing non-resident returns in such states with respect to their proportional taxes due.

II-89

PART III

ITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(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, 7475, 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, 6466, 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 1, ~~2011~~2012.

		% of Total	~~% of Total~~
Name and Address	~~Name~~Amount and ~~Address~~Nature	~~Amount~~Units ~~and Nature~~Issued	~~Units Issued~~
of Beneficial Owner	of Beneficial ~~Owner~~Ownership	ofand ~~Beneficial Ownership~~Outstanding	~~and Outstanding~~
Equity Resource	~~Equity~~12,639 ~~Resource~~Units	~~12,623~~21.06 ~~Units~~%	~~21.08 %~~
Investments, LLC	~~Investments, LLC~~
& Affiliates	~~& Affiliates~~
44 Brattle Street	~~44 Brattle Street~~
Cambridge, MA 02138	~~Cambridge, MA 02138~~
Peachtree Partners	~~Peachtree~~4,347 ~~Partners~~Units	~~3,912~~7.24 ~~Units~~%	~~6.53 %~~
& Affiliates	~~& Affiliates~~
P. O. Box 47638	~~P. O. Box 47638~~
Phoenix, AZ 85068	~~Phoenix, AZ 85068~~

(b) Security ownership of management.

The following table sets forth certain information concerning all Units beneficially owned, as of April 1, ~~2011~~2012, by each director and by all directors and officers as a group of the Managing General Partner of the Partnership.

III-2

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

(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.

(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

PART III

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

For the years ended December 31, ~~2010~~2011 and December 31, ~~2009~~2010, the Partnership incurred professional fees for the services of the Partnership’s independent registered public accounting ~~firm~~firms Reznick Group P.C. and Grant Thornton as follows:

	2010		2009
	2011		2010
Audit fees (1)	$	3192,~~772~~500	$	~~112~~31,~~500~~772
Audit-related fees (2)		--		--
Tax fees (2)		13,000		16,800
Tax fees (3)		16,800		16,000
Total billed	$	105,500	$	48,572
All other fees		--		--
Total billed	$	48,572	$	128,500

_______________________

(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) ~~Principally~~Fees ~~fees~~ for ~~assurance~~preparation ~~and~~of ~~related services performed by the~~ Partnership’s ~~independent~~federal ~~registered~~and ~~public~~state ~~accounting~~tax ~~firm that are reasonably related to the performance of the audit or review of the Partnership’s financial statements~~returns.

(3) 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 Thornton was dismissed 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. Reznick was engaged as the Partnership’s new independent registered public accounting firm and performed the fiscal 2010 year end audit. Reznick provided partnership tax return preparation services for the ~~year~~years ended December 31, 2011 and December 31, 2010 and Grant Thornton provided partnership tax return preparation services ~~during~~for the ~~years~~year ended December 31, 2010 ~~and December 31~~, ~~2009,~~ which services it was determined did not compromise Reznick’s or Grant Thornton’s independence.

III-4

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 of Independent Registered Public Accounting Firm

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.

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

Exhibit No. 3 - Articles of Incorporation and bylaws

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.

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.)

	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.)

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 - Exhibit No. 99 - 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. 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.)

IV-2

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~~	CAPITAL REALTY INVESTORS-III
	LIMITED PARTNERSHIPS
			LIMITED PARTNERSHIP
	~~(Registrant)~~	(Registrant)
April 1, 2011	By: /s/ William B. Dockser
July 23, 2012		by:		/s/ William B. Dockser
DATE	~~William B. Dockser~~			William B. Dockser,
	Director, Chairman of the Board,
				Director, Chairman of the Board
	~~and Treasurer~~				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.

April 1, 2011	By: /s/ H. William Willoughby
July 23, 2012		by:	/s/ H. William Willoughby
DATE	~~H. William Willoughby~~		H. William Willoughby
	~~Director, President, Secretary,~~		Director, President, Secretary,
	~~Principal Financial Officer and~~		Principal Financial Officer and
	~~Principal Accounting Officer~~			Principal Accounting Officer

IV-3

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

INDEX TO FINANCIAL STATEMENTS

	Page
Financial Statements of Capital Realty Investors, Ltd.
Financial Statements of Capital Realty Investors III, Limited Partnership
Report of Independent Registered Public Accounting Firm	IV-5-6
Balance Sheets as of December 31, 2010 and 2009	IV-7
Balance Sheets as of December 31, 2011 and 2010	IV-6
Statements of Operations for the Years Ended
December 31, 2010, 2009 and 2008	IV-8
December 31, 2011 and 2010	IV-7
Statements of Changes in Partners’ (Deficit) Capital for the Years Ended
December 31, 2010, 2009 and 2008	IV-9
December 31, 2011 and 2010	IV-8
Statements of Cash Flows for the Years Ended
December 31, 2010, 2009 and 2008	IV-10
December 31, 2011 and 2010	IV-9
Notes to Financial Statements	IV-1110

IV-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Partners

Capital Realty Investors - III Limited Partnership

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

We conducted our ~~audit~~audits 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~~audits 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~~audits provide 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, and the results of its operations and its cash flows for the ~~year~~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

~~March~~July 3123, ~~2011~~2012

IV-5

Report of Independent Registered Public Accounting Firm

The Partners

Capital Realty Investors – III Limited Partnership

We have audited the accompanying balance sheets of Capital Realty Investors – III Limited Partnership (a Maryland limited partnership) (the Partnership) as of December 31, 2009, and the related statements of operations, changes in partners’ (deficit) capital, and cash flows for each of the two years in the period ended December 31, 2009. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits 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 audits provide 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, 2009, and the results of its operations, changes in partners’ (deficit) capital and its cash flows for each of the two years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

McLean, Virginia

March 25, 2010

IV-6

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

BALANCE SHEETS

ASSETS

	December 31,
	2010		2009
	2011		2010
Investments in partnerships	$	23,~~836~~063,~~317~~461	$	2,~~620~~836,~~011~~317
Cash and cash equivalents		2,~~813~~172,~~153~~240		42,~~442~~813,~~208~~153
Acquisition fees, principally paid to related parties,
net of accumulated amortization of $70,990 and $68,419, respectively		6,164		8,736
net of accumulated amortization of $73,562 and $70,990, respectively		3,592		6,164
Property purchase costs,
net of accumulated amortization of $42,764 and $41,148, respectively		5,718		7,334
net of accumulated amortization of $44,380 and $42,764, respectively		4,102		5,718
Other assets		~~14,446~~-		--14,446
Total assets	$	5,~~675~~243,~~798~~395	$	75,~~078~~675,~~289~~798

LIABILITIES ~~AND PARTNERS' CAPITAL~~

Due on investments in partnerships	$	119,544		$	119,544
Accrued interest payable		33,976			33,976
Accounts payable and accrued expenses		4864,~~344~~123			~~279~~48,~~311~~344
Total liabilities		~~201~~217,~~864~~643			~~432~~201,~~831~~864
Commitments and contingencies
Partners' deficit
Partners' deficit:
Capital paid-in:
General Partners		2,000			2,000
Limited Partners		60,001,500			60,001,500
		60,003,500			60,003,500
Less:
Accumulated distributions to partners		(27,472,135	)		(2627,~~573~~472,~~905~~135	)
Offering costs		(6,156,933	)		(6,156,933	)
Accumulated losses		(2021,~~900~~348,~~498~~680	)		(20,~~627~~900,~~204~~498	)
Total partners' capital		5,473,934			6,645,458
Total partners' (deficit) capital		5,025,752			5,473,934
Total liabilities and partners' capital	$	5,675,798		$	7,078,289
Total liabilities and partners' (deficit) capital	$	5,243,395		$	5,675,798

The accompanying notes are ~~the~~an integral part

of these financial statements.

IV-76

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

~~STATEMENTS~~STATEMENT OF OPERATIONS

	For the years ended
	December 31,
	2010 2009						2008
	2011			2010
Share of income (loss) from partnerships	$	~~214~~298,~~155~~073		$	~~(40~~214,~~353~~155	)	$	~~59,468~~
Other revenue and expenses:
Other revenue and expenses
Revenue:
Interest and other		~~257~~25,~~465~~860			15257,~~369~~465			~~156,074~~
Expenses:
General and administrative		~~292~~337,~~762~~304			~~246~~292,~~195~~762			~~267,577~~
Management fee		300,000			300,000			~~300,000~~
Professional fees		~~147~~130,~~964~~623			85147,~~544~~964			~~112,330~~
Amortization of deferred costs		4,188			4,188			~~4,188~~
		744,914			635,927			684,095
		772,115			744,914
Total other revenue and expenses		(~~487~~746,~~449~~255	)		(~~620~~487,~~558~~449	)		~~(528,021~~	)
Loss before impairment loss		(273,294	)		(660,911	)		(468,553	)
Net loss	$	(448,182	)	$	(273,294	)
Impairment loss		--			--			(9,296	)
Net loss allocated to General Partners (1.5%)	$	(6,768	)	$	(4,127	)
Net loss	$	(273,294	)	$	(660,911	)	$	(477,849	)
Net loss allocated to Initial and
Net loss allocated to General Partners (1.51%)	$	(4,127	)	$	(9,980	)	$	(7,216	)
Special Limited Partners (1.49%)	$	(6,677	)	$	(4,072	)
Net loss allocated to Initial and
Net loss allocated to Additional Limited Partners (97%)	$	(434,737	)	$	(265,095	)
Special Limited Partners (1.49%)	$	(4,072	)	$	(9,848	)	$	(7,120	)
Net loss per unit of Additional Limited Partner
Net loss allocated to Additional Limited Partners (97%)	$	(265,095	)	$	(641,083	)	$	(463,513	)
Interest based on 59,882 units outstanding	$	(7.26	)	$	(4.43	)
Net loss per unit of Additional Limited Partner
Interest based on 59,882 units outstanding	$	(4.43	)	$	(10.71	)	$	(7.74	)

The accompanying notes are ~~the~~an integral part

of these financial statements.

IV-87

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL

				Initial and
				Special			Additional
				special			Additional
	General			Limited			Limited
	Partners			Partners			Partners			Total
Partners’ (deficit) capital, January 1, 2008	$	(421,048	)	$	(416,077	)	$	8,621,343		$	7,784,218
Partners' (deficit) capital, January 1, 2010	$	(438,244	)	$	(433,045	)	$	7,516,747		$	6,645,458
Net loss		(7,216	)		(7,120	)		(463,513	)		(477,849	)
Partners’ (deficit) capital, December 31, 2008		(428,264	)		(423,197	)		8,157,830			7,306,369
Net loss		(9,980	)		(9,848	)		(641,083	)		(660,911	)
Partners’ (deficit) capital, December 31, 2009		(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	)
Partner’s (deficit) capital, December 31, 2010	$	(442,371	)	$	(437,117	)	$	6,353,422		$	5,473,934
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,

The accompanying notes are ~~the~~an integral part

of these financial statements.

IV-98

CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

	For the years ended
	December 31,
	2010			2009			2008
	2011			2010
Cash flows from operating activities:
Net loss	$	(~~273,~~294,662	)	$	(~~660~~273,~~911~~294	)	$	~~(477,849~~	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Share of (income) loss from partnerships		(214,155	)		40,353			(59,468	)
Share of income from partnerships		(298,073	)		(214,155	)
Amortization of deferred costs		4,188			4,188			~~4,188~~
Impairment loss		--			--			9,296
Extinguishment of Debt		(153,520	)		-
Changes in assets and liabilities:
(Increase) Decrease in other assets		(14,446	)		5,645			18,390
Decrease (increase) in other assets		14,446			(14,446	)
Decrease in accounts payable and accrued expenses		(230,967	)		(59,888	)		(101,533	)
Increase(decrease) in accounts payable and accrued expenses		15,779			(230,967	)
Net cash used in operating activities		(~~728~~711,~~674~~842	)		(~~670~~728,~~613~~674	)		~~(606,976~~	)
Cash flows from investing activities:
Receipt of distributions from partnerships		1170,~~535~~929			11,~~534~~535			~~8,660~~
Advance to Local Partnership		~~(13,686~~-	)		(~~127~~13,~~980~~686	)		--
Net cash (used in) provided by investing activities		(2,151	)		(116,446	)		8,660
Net cash provided by (used in) investing activities		70,929			(2,151	)
Cash flows from financing activities:
Distributions to Additional Limited Partners		~~(898,230~~-	)		--(898,230	)		--
Net cash used in financing activities		~~(898,230~~-	)		(--898,230	)		~~(--~~	)
Net decrease in cash and cash equivalents		(1640,~~629,055~~913	)		(~~787~~1,~~059~~629,055	)		~~(598,316~~	)
Cash and cash equivalents, beginning of year		42,~~442~~813,~~208~~153			54,~~229~~442,~~267~~208			~~5,827,583~~
Cash and cash equivalents, end of year	$	2,~~813~~172,~~153~~240		$	42,~~442~~813,~~208~~153		$	~~5,229,267~~

The accompanying notes are ~~the~~an integral part

of these financial statements.

IV-109

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.kl., 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, ~~2010~~2011, ~~118~~one 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.

c. Variable interest entities

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.

IV-1110

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.

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.

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, ~~2010~~2011 and ~~2009~~2010, the Partnership's share of cumulative losses for two and three of the Local Partnerships exceeded the amount of the Partnership's investments in those Local Partnerships by $9,~~365~~096,~~565~~274 and $9,~~576~~365,~~433~~565, 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, ~~2010,~~2011 and ~~Monterey/Hillcrest, Villa Mirage I, and Villa Mirage II as of December 31, 2009, respectively~~2010.

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.

~~e. Investment in partnerships held for sale or transfer~~IV-11

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.

IV-12

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1.	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

fe. ~~Cash~~Deferred ~~and cash equivalents~~costs

Acquisition Fees and Property Purchase 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 and 2010 was $4,188. Estimated amortization expense for each of the ensuing years through December 31, 2014 is $5,353, $1,587, and $754, respectively.

Investment in partnerships held for sale or transfer

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.

gh. Income taxes

~~For~~The ~~federal~~Partnership ~~and~~has ~~state~~elected to be treated as a pass-through entity for income tax purposes and, ~~each~~as ~~partner~~such, ~~reports~~is onnot ~~his~~subject orto ~~her~~income ~~personal~~taxes. Rather, all items of taxable income, deductions and tax ~~return~~credits ~~his~~are orpassed ~~her~~through ~~share~~to ofand ~~the~~are reported by its owners on their respective income tax returns. The Partnership'’s ~~income~~federal ortax ~~loss~~status as ~~determined~~a ~~for~~pass-through ~~tax~~entity ~~purposes~~is based on its legal status as a partnership. Accordingly, nothe ~~provision~~Partnership ~~has~~is ~~been~~not ~~made~~required ~~for~~to ~~income~~take ~~taxes~~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.

hi. Use of estimates

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.

~~i. Fair value of financial instruments~~IV-12

OnCAPITAL ~~January~~REALTY 1,INVEDSTORS-III ~~2009,~~LIMITED the Partnership adopted the new accounting standard which requires adoption of the fair value standards in the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) for nonfinancial assets and nonfinancial liabilities. The adoption did not have a material impact on the financial position, results of operations or cash flows.PARTNERSHIP

~~During~~NOTES ~~the~~TO ~~quarter~~FINANCIAL ended June 30, 2009, the Partnership adopted the new accounting standard which requires disclosure regarding the fair value of financial instruments for interim reporting periods as well as in annual financial statements.STATEMENTS

~~The~~1. ~~ASC~~ORGANIZATION ~~establishes~~AND aSUMMARY ~~hierarchy~~OF ~~for~~SIGNIFICANT ~~inputs~~ACCOUNTING ~~used~~POLICIES in- ~~measuring fair value as follows:~~Continued

j. 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:

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

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

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.

~~IV-13~~k. Impairment analysis

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

j. 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.

kl. 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 of liquidation and 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

IV-14

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1.	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

lSince 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 Partner, 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.

m. Allocation of net income (loss)

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

mn. Subsequent 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. orSubsequent events which require disclosure in the notes to the financial statements are disclosed in Note 2.

no. Recent accounting pronouncements

On July 1, 2009, the Partnership adopted Financial Accounting Standards Board Accounting Standards Codification, which establishes the ASC as the source of authoritative accounting principles to be applied in preparation of financial statements in conformity with US GAAP. The adoption of this standard did not have a material impact on the financial position, results of operations or cash flows.

On January 1, 2009, the Partnership adopted the new accounting standard which requires adoption of the fair value standards in the ASC for nonfinancial assets and nonfinancial liabilities. The adoption did not have a material impact on the financial position, results of operations or cash flows.

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.

IV-15

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1.	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

~~The~~In ~~ASC~~June ~~establishes~~2009, ~~general~~the ~~standards~~Financial ofAccounting Standards Board (FASB) issued an amendment to the accounting and disclosure requirements for the consolidation of ~~events~~VIEs. ~~that~~The ~~occur~~amended ~~after~~guidance modifies the ~~balance~~consolidation ~~sheet~~model ~~date~~to ~~but~~one ~~before~~based ~~the~~on ~~Partnership~~control ~~issues~~and ~~financial~~economics, ~~statements~~and orreplaces ~~has~~the ~~them~~current ~~available~~quantitative toprimary ~~issue~~beneficiary analysis with a qualitative analysis. The ~~ASC~~primary ~~defines~~beneficiary of a VIE will be the entity that has (i1) the ~~period~~power ~~after~~to direct the ~~balance~~activities ~~sheet~~of ~~date~~the ~~during~~VIE ~~which~~that amost ~~reporting~~significantly ~~entity~~impact the VIE’s ~~management~~economic ~~should~~performance ~~evaluate~~and ~~events~~(2) the obligation to absorb losses or ~~transactions~~receive benefits that ~~may~~could ~~occur~~potentially ~~for~~be ~~potential~~significant ~~recognition~~to orthe ~~disclosure~~VIE. inIf ~~the~~multiple ~~financial~~unrelated ~~statements,~~parties ~~(ii)~~share ~~the~~such ~~circumstances~~power, ~~under~~as ~~which~~defined, anno ~~entity~~party ~~should~~will ~~recognize~~be ~~events~~required orto ~~transactions~~consolidate ~~occurring~~the ~~after~~VIE. Further, the ~~balance~~amended ~~sheet~~guidance ~~date~~requires incontinual ~~its~~reconsideration ~~financial~~of ~~statements,~~the primary beneficiary of a VIE and ~~(iii)~~adds ~~the~~an ~~disclosures~~additional reconsideration event for determination of whether an entity ~~should~~is ~~make~~a ~~about~~VIE. ~~events~~Additionally, orthe ~~transactions~~amendment ~~that~~requires ~~occurred~~enhanced ~~after~~and ~~the~~expanded ~~balance~~disclosures ~~sheet~~around ~~date~~VIEs. ~~The~~This ~~guidance~~amendment ~~became~~is effective for ~~periods~~fiscal ~~ending~~years beginning after ~~June~~November 15, 2009. The adoption of ~~the~~this guidance on January 1, 2010 did not have a material ~~impact~~effect on the Partnership’s financial ~~position, results of operations or cash flows~~statements.

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities (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 Partnership has determined that adoption of this guidance has no material impact on the Partnership’s financial statements.

2. INVESTMENTS IN PARTNERSHIPS

a. Due on investments in partnerships and accrued interest payable

As of December 31, ~~2010~~2011 and ~~2009~~2010, the Partnership held limited partner interests in 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, ~~2010~~2011 and ~~2009~~2010; accrued interest payable thereon was $33,976 at December 31, ~~2010~~2011 and ~~2009~~2010. These amounts ~~will~~are schedule to be paid upon the occurrence of certain specific events, as outlined in the note agreement. At December 31, 2011, 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-1615

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 $5188,~~523~~250 and $051,523 at December 31, ~~2010~~2011 and December 31, ~~2009~~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. ~~During 2010, the Partnership recognized it’s share of income of $51,523 for Villa Mirage I.~~

~~The~~b. Sale ~~General Partner is currently exploring alternative options for the future sale~~ of ~~the~~Local ~~Villa~~Limited ~~Mirage I and Villa Mirage II properties or the sale of the~~ Partnership~~’s interest in the respective Local Partnerships.~~

bOn 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. ~~Interests~~ The insales ~~profits~~price was $18,920,000, ~~losses~~which includes the outstanding mortgage balance of approximately $12,293,732 and cash ~~distributions~~proceeds ~~made~~to bythe ~~Local~~Partnership ~~Partnerships~~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.

~~The~~On ~~Partnership~~November ~~has a 98.00% to 98.99% interest in profits~~15, ~~losses and cash distributions (as restricted by various federal and state housing agencies) (collectively~~2011, the ~~“Agencies”)~~general ofpartners ~~each Local Partnership. An affiliate~~ of ~~the~~Villa ~~Managing~~Mirage ~~General~~I, ~~Partner of the Partnership is also~~ a ~~general~~California ~~partner~~limited ofpartnership, ~~each~~and ~~Local~~Villa ~~Partnership. As~~Mirage ~~stipulated~~II, bya ~~the~~California ~~Local~~limited ~~Partnerships’~~ partnership ~~agreements~~, ~~the~~entered ~~Local~~into ~~Partnerships~~a ~~are~~contract ~~required~~with toan ~~make~~unaffiliated ~~annual~~third ~~cash~~party ~~distributions~~to ~~from~~sell ~~surplus~~their ~~cash~~properties ~~flow,~~for ifan ~~any. During~~aggregate ~~2010,~~sale ~~2009~~price ~~and 2008, the Partnership received cash distributions from rental operations~~ of ~~the Local Partnerships totaling~~ $06, ~~$11~~500,~~534 and $8,660, respectively~~000. ~~Subsequent~~It tois ~~December~~expected ~~31,~~that ~~2010,~~ the ~~Partnership~~sale ~~received~~will inbe ~~January~~consummated ~~2011~~during athe ~~cash~~third ~~distribution~~quarter of ~~$11,535~~2012. ~~from~~It ~~one~~is ~~Local~~anticipated ~~Partnership~~that ~~regarding~~all asale ~~dividend~~proceeds ~~for~~will ~~the~~be ~~year~~used ~~2010. As~~to ofsatisfy ~~December~~Local ~~31,~~Partnership ~~2010,~~obligations ~~2009~~ and ~~2008,~~any ~~four,~~remaining ~~two~~funds ~~and~~available ~~three,~~will ~~respectively,~~be ofdistributed ~~the~~to ~~Local~~partners ~~Partnerships~~in ~~had~~accordance ~~aggregate~~with ~~surplus~~the ~~cash,~~Villa asMirage ~~defined~~I byand ~~their~~Villa ~~respective~~Mirage ~~regulatory~~II ~~Agencies,~~partnership inagreements. There ~~the~~can ~~amounts~~be ofno ~~$293,138,~~assurance ~~$78,431~~that ~~and~~the ~~$103,976,~~sale ~~respectively,~~transaction ~~which~~contemplated ~~may~~will be ~~available~~consummated ~~for~~upon ~~distribution~~the interms ~~accordance~~and ~~with~~conditions ~~their~~of ~~respective~~the ~~regulatory~~contract ~~Agencies'~~or ~~regulations~~at all.

IV-1716

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN PARTNERSHIPS - Continued

In the event the transactions contemplated above are 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. As of December 31, 2011 and 2010, two and four, respectively, of the Local Partnerships had aggregate surplus cash, as defined by their respective regulatory Agencies, in the amounts of $402,802 and $293,138, 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-17

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN PARTNERSHIPS - Continued

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.

cd. Advances to Local Partnerships

On October 23, 2009, the Partnership advanced $66,300 to Villa Mirage II for operating expenses. For financial statement purposes, the loan was charged off by the Partnership as a result of losses at the Local Partnership level during prior years.

On October 23, 2009, the Partnership advanced $56,680 to Pebble Valley Housing Partners Ltd. Partnership (Monterey/Hillcrest) for non-resident withholding taxes paid on behalf of the Partnership. On November 5, 2009, the Partnership advanced $2,000 to Monterey/Hillcrest for non-resident withholding taxes paid on behalf of the Partnership. On September 15, 2009, the Partnership advanced $3,000 to Monterey/Hillcrest for non-resident withholding taxes paid on behalf of the Partnership. On April 14, 2010, the Partnership advanced $13,686 to Monterey/Hillcrest for non-resident withholding taxes paid on behalf of the Partnership. 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.

IV-18

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN PARTNERSHIPS - Continued

de. Summarized financial information

Combined balance sheets and combined statements of operations for the four Local Partnerships in which the Partnership is invested as of December 31, ~~2010~~2011, 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).

COMBINED BALANCE SHEETS

December 31, ~~2010~~2011

	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, $17,673,702,
depreciation of $4,236,640 and $2,948,051,
and $24,660,887, respectively	$	1,224,861		$	2,359,509		$	3,584,370
respectively	$	1,101,086		$	10,426		$	1,111,512
Land		432,415			1237,~~848,318~~909			2670,~~280,733~~324
Other assets		2,~~313~~422,~~057~~446			15,~~808~~466,~~396~~901			47,~~121~~889,~~453~~347
Total assets	$	3,~~970~~955,~~333~~947		$	65,~~016~~715,~~223~~236		$	9,~~986~~671,~~556~~183
Mortgage notes payable	$	1,~~540~~243,~~296~~492		$	13,~~500~~084,~~953~~259		$	1514,~~041~~327,~~249~~751
Other liabilities		~~456~~476,~~912~~752			1,~~559~~482,~~852~~250			21,~~016~~959,~~764~~002
Due to general partners		1,~~152~~183,~~735~~533			1,~~425~~470,~~266~~716			2,~~578~~654,~~001~~249
Total liabilities		32,~~149~~903,~~943~~777			16,~~486~~037,~~071~~225			1918,~~636~~941,~~014~~007
Partners' capital (deficit)		~~820~~1,~~390~~052,170			(10,~~469~~321,~~848~~989	)		(9,~~649~~269,~~458~~819	)
Total liabilities and partners' capital	$	~~3,970,333~~		$	~~6,016,223~~		$	~~9,986,556~~
(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 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~~2011

	Equity
	Method			Suspended			Total
Number of Local Partnerships		2	(a)		2	(b)	4	4
Revenue:	$	~~1,328,622~~		$	~~3,323,575~~		$	~~4,652,197~~
Rental	$	~~178~~1,~~450~~372,972		$	~~246~~3,~~002~~449,932		$	~~424~~4,~~452~~822,904
Other		206,948			219,414			426,362
		1,507,072			3,569,577			5,076,649
Total revenue		1,579,920			3,669,346			5,249,266
Total revenue
Expenses:
Expenses:		931,680			1,946,245			2,877,925
Operating and other		1,062,690			2,123,914			3,186,604
Operating and other		52,286			818,623			870,909
Interest		33,968			789,475			823,443
Interest		245,455			636,013			881,468
Depreciation and amortization		239,712			483,435			723,147
Depreciation and amortization
Total expenses		1,336,370			3,396,824			4,733,194
		1,229,421			3,400,881			4,630,302
Net income	$	243,550		$	272,522		$	516,072
Total expenses
Cash distributions	$	11,535		$	59,394		$	70,929
	$	277,651		$	168,696		$	446,347
Cash distribution recorded as reduction of
Net income
investments in partnerships	$	11,535		$	--		$	11,535
	$	11,535		$	--		$	11,535
Cash distribution recorded as share of income
Cash Distributions
from partnerships	$	--		$	59,394		$	59,394
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
Income		238,679			--			238,679
Advances to Local Partnerships		--			(13,686	)		(13,686	)
Share of income from partnerships	$	238,679		$	59,394		$	298,073
Share of income from partnerships	$	227,841		$	(13,686	)	$	214,155

IV-20

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN PARTNERSHIPS - Continued

Combined balance sheets and combined statements of operations for the four Local Partnerships in which the Partnership is invested as of December 31, ~~2009~~2010, follow. The information is presented separately for ~~one~~two Local Partnership which has investment basis (equity method), and for ~~three~~two Local Partnerships for which the Partnership’s carrying value is zero (equity method suspended).

COMBINED BALANCE SHEETS

December 31, ~~2009~~2010

Equity

Method

Suspended

Total

Number of Local Partnerships

(a)

(b)

Rental property, at cost, net of accumulated depreciation of $3,858,076,

Rental property, at cost, net of accumulated

$19,998,718, and $23,856,794,

depreciation of $6,987,185 and $17,673,702,

respectively

1,~~360~~224,~~934~~861

2,~~841~~359,~~215~~509

43,~~202~~584,~~149~~370

Land

~~168~~432,~~760~~415

21,~~108~~848,~~943~~318

2,~~277~~280,~~703~~733

Other assets

12,~~834~~313,~~673~~057

1,~~878~~808,~~352~~396

34,~~713~~121,~~025~~453

Total assets

3,~~364~~970,~~367~~333

6,~~828~~016,~~510~~223

109,~~192~~986,~~877~~556

Mortgage notes payable

~~693~~1,~~193~~540,296

1513,~~529~~500,~~584~~953

1615,~~222~~041,~~777~~249

Other liabilities

43456,~~018~~912

1,~~510~~559,~~240~~852

12,~~553~~016,~~258~~764

Due to general partners

--1,152,735

21,~~500~~425,~~877~~266

2,~~500~~578,~~877~~001

Total liabilities

~~736~~3,~~211~~149,943

1916,~~540~~486,~~701~~071

2019,~~276~~636,~~912~~014

Partners' capital (deficit)

2820,~~628,156~~390

(1210,~~712~~469,~~191~~848

)

(109,~~084~~649,~~035~~458

)

Total liabilities and partners' capital

~~3,364,367~~

~~6,828,510~~

~~10,192,877~~

(deficit)

3,970,333

6,016,223

9,986,556

~~(a) Meadow Lanes~~ ____________________________________

(ba) ~~Monterey/Hillcrest;~~Meadow ~~Villa Mirage I~~Lanes; Villa Mirage III

(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, ~~2009~~2010

	Equity
	Method			Suspended			Total
Number of Local Partnerships		12	(a)		32	(b)		4
Revenue:	$	1,328,622		$	3,323,575		$	4,652,197
Rental	$	~~718~~178,~~064~~450		$	3246,~~621,081~~002		$	4424,~~339,145~~452
Other		~~131,747~~			~~218,378~~			~~350,125~~
Total revenue		849,811			3,839,459			4,689,270
		1,507,072			3,569,577			5,076,649
Expenses:
Total revenue
Operating and other		599,096			2,394,794			2,993,890
Expenses:		931,680			1,946,245			2,877,925
Interest		(49,562	)		986,173			936,611
Operating and other		52,286			818,623			870,909
Depreciation and amortization		210,862			858,954			1,069,816
Interest		245,455			636,013			881,468
Total expenses		760,396			4,239,921			5,000,317
Depreciation and amortization
Net income (loss)	$	89.415		$	(400,462	)	$	(311,047	)
		1,229,421			3,400,881			4,630,302
Cash Distributions	$	11,535		$	--		$	11,535
Total expenses
Cash distribution recorded as reduction of
	$	277,651		$	168,696		$	446,347
investments in partnerships	$	11,535		$	--		$	11,535
Net income
Partnership’s share of Local Partnership net income		87,627			--			87,627
	$	11,535		$	--		$	11,535
Advances to Local Partnerships		--			(127,980	)		(127,980	)
Cash distributions
Share of income (loss) from partnerships	$	87,627		$	(127,980	)	$	(40,353	)
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

Combined balance sheets and combined statements of operations for the four Local Partnerships in which the Partnership was invested as of December 31, 2008, follow. The information is presented separately for one Local Partnerships which has investment basis (equity method), and for three Local Partnerships for which the Partnership’s carrying value is zero (equity method suspended).

COMBINED BALANCE SHEETS

December 31, 2008

	Equity
	Method			Suspended			Total
Number of Local Partnerships		1	(a)		3	(b)		4
Rental property, at cost, net of accumulated depreciation of $3,691,830, $19,142,608, and $22,834,438,
respectively	$	1,423,564		$	3,633,812		$	5,057,376
Land		168,760			2,108,943			2,277,703
Other assets		1,858,873			1,795,775			3,654,648
Total assets	$	3,451,197		$	7,538,530		$	10,989,727
Mortgage notes payable	$	822,686		$	16,022,288		$	16,844,974
Other liabilities		78,000			1,398,701			1,476,701
Due to general partners		--			2,429,270			2,429,270
Total liabilities		900,686			19,850,259			20,750,945
Partners’ capital (deficit)		2,550,511			(12,311,729	)		(9,761,218	)
Total liabilities and partners’ capital (deficit)	$	3,451,197		$	7,538,530		$	10,989,727

IV-23

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN PARTNERSHIPS - Continued

~~COMBINED~~f. Investment ~~STATEMENTS OF OPERATIONS~~Reconciliation

~~For~~The ~~the~~following ~~year~~is ~~ended~~a reconciliation of investments in partnerships at December 31, ~~2008~~2011 and 2010:

	Equity
Investments in partnerships at January 1, 2010:	$	2,620,011
	Method			Suspended			Total
Share of income from partnerships		214,155
Number of Local Partnerships		1	(a)		3	(b)		4
Distribution from partnerships		(11,535	)
Revenue:
Advance to Local Partnership		13,686
Rental	$	707,396		$	3,719,131		$	4,426,527
Investments in partnerships at December 31, 2010:		2,836,317
Other		129,588			215,564			345,152
Share of income from partnerships		298,073
Total revenue		836,984			3,934,695			4,771,679
Distribution from partnerships		(70,929	)
Expenses:
Investments in partnerships at December 31, 2011:	$	3,063,461
Operating and other		636,645			2,415,147			3,051,792
Interest		(42,225	)		1,014,252			972,027
Depreciation and amortization		191,368			848,625			1,039,993
Total expenses		785,788			4,278,024			5,063,812
Net income (loss)	$	51,196		$	(343,329	)	$	(292,133	)
Cash distributions	$	8,660		$	--		$	8,660
Share of income from partnerships	$	50,172		$	9,296		$	59,468

All of the cash distributions recorded as income are included in share of income from partnerships on the statements of operations for the respective years, and are recorded as cash receipts on the respective balance sheets. Cash distributions recorded as a reduction of the related investment are recorded as cash receipts on the respective balance sheets, and are recorded as a reduction of investments in partnerships, also on the respective balance sheets.

e. Reconciliation of the Local Partnerships' financial statement income (loss)

to taxable income

For federal income tax purposes, the Local Partnerships report on a basis whereby: (i) certain revenue and the related assets are recorded when received rather than when earned; (ii) certain costs are expensed when paid or incurred rather than capitalized and amortized over the period of benefit; and (iii) a shorter life is used to compute depreciation on the property as permitted by the Internal Revenue Code and the underlying regulations. These returns are subject to examination and, therefore, possible adjustment by the IRS.

IV-24

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

2. INVESTMENTS IN PARTNERSHIPS - Continued

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

	For the years ended
	December 31,
	2010		2009			2008
Financial statement net income (loss)	$	446,347	$	(311,047	)	$	(292,133	)
Differences between financial statement
and tax depreciation, amortization,
and miscellaneous differences		410,602		756,313			814,671
Taxable income	$	856,949	$	445,266		$	522,538

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, ~~2010,~~2011 ~~2009~~ and ~~2008~~2010, the Partnership paid $~~165~~171,~~644,~~857 ~~$170,006~~ and $~~186~~165,~~833~~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, ~~2010,~~2011 ~~2009~~ and ~~2008~~2010, the Partnership paid $9294,~~895,~~712 ~~$37,412~~ and $4692,~~125~~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.

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 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; andIV-23

(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.

IV-25

CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

3. RELATED PARTY TRANSACTIONS ~~- Continued~~

~~For~~(i) ~~each~~First, ofon ~~the~~a ~~years~~monthly ~~ended~~basis ~~December~~as ~~31,~~an ~~2010,~~operating ~~2009~~expense ~~and~~before ~~2008,~~any distributions to limited partners in the ~~Partnership~~amount ~~paid~~computed as described in the ~~Managing~~Partnership ~~General~~Agreement, ~~Partner~~provided athat ~~Management~~such ~~Fee~~annual ofamount 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 and 2010, the Partnership paid the Managing General Partner a Management Fee of $300,000.

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;

~~(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;~~IV-24

(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;

(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.]

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CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

4. PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS - Continued

(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).

(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% 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 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.

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 ended December 31, ~~2010,~~2011 ~~2009~~ and ~~2008~~2010. The Managing General Partner currently intends to retain all of the Partnership’s remaining undistributed cash for operating cash reserves.

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CAPITAL REALTY INVEDSTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET

LOSS TO TAXABLE INCOME (LOSS)

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.

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CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET

LOSS TO TAXABLE INCOME (LOSS) - Continued

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

	For the years ended
	December 31,
	2010			2009			2008
	2011			2010
Financial statement net loss	$	(~~273~~448,~~294~~182	)	$	(~~660~~273,~~911~~294	)	$	~~(477,849~~	)
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		~~642~~431,~~793~~051			~~485~~642,~~621~~793			~~472,365~~
Differences between financial statement
gain and taxable gain from the sale or
transfer of properties		~~(255,000~~--	)		--(255,000	)		--
Costs amortized over a shorter period
for income tax purposes		4,188			4,188			~~4,188~~
Taxable income (loss)	$	118,687		$	(171,102	)	$	(1,296	)
Taxable(loss)income	$	(12,943	)	$	118,687

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, ~~2010~~2011, the uninsured portion of the cash balances was $01,728,320.

~~# # #~~IV-26

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Filing Compare · CAPITAL REALTY INVESTORS III LTD PARTNERSHIP