<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K


                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                   For the Fiscal Year Ended DECEMBER 31, 1999

                             Commission File Number
                                     0-10673


                       REAL ESTATE ASSOCIATES LIMITED III
                        A CALIFORNIA LIMITED PARTNERSHIP


                  I.R.S. Employer Identification No. 95-3547611

         9090 Wilshire Blvd., Suite 201, Beverly Hills, California 90211

        Registrant's Telephone Number, Including Area Code (310) 278-2191

      Securities Registered Pursuant to Section 12(b) or 12(g) of the Act:

                                      NONE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed with the Commission by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

                                 Yes  [X]           No  [ ]

Indicate by check mark 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-K. [X]


<PAGE>   2


PART I.

ITEM 1.          BUSINESS:

Real Estate Associates Limited III ("REAL III" or the "Partnership") is a
limited partnership which was formed under the laws of the State of California
on July 25, 1980. On January 5, 1981, Real Estate Associates Limited III offered
3,000 units consisting of 6,000 Limited Partnership Interests and Warrants to
purchase a maximum of 6,000 Additional Limited Partnership Interests through a
public offering managed by E.F. Hutton Inc.

The general partners of Real Estate Associates Limited III are National
Partnership Investments Corp. ("NAPICO"), a California Corporation (the
"Corporate General Partner"), and Coast Housing Investments Associates, a
Limited Partnership formed under the California Limited Partnership Act and
consisting of Messrs. Nicholas G. Ciriello, an unrelated individual, as general
partner, and Charles H. Boxenbaum as limited partner. The business of REAL III
is conducted primarily by NAPICO.

Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating
Partnership"), a majority owned subsidiary of Casden Properties Inc., a real
estate investment trust organized by Alan I. Casden, purchased a 95.25% economic
interest in NAPICO. The current members of NAPICO's Board of Directors are
Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden

REAL III holds limited partnership interests in 11 local limited partnerships as
of December 31, 1999, and a general partner interest in Real Estate Associates
("REA") which in turn holds limited partnership interests in an additional
partnership; therefore, REAL III holds directly or indirectly through REA,
investments in 12 local limited partnerships. The general partners of REA are
REAL III and NAPICO. In December 1998, the Partnership sold its interest in 20
local limited partnerships to the Operating Partnership. Each of the limited
partnerships owns a low income housing project which is subsidized and/or has a
mortgage note payable to or insured by agencies of the federal or local
government.

In order to stimulate private investment in low income housing, the federal
government and certain state and local agencies have provided significant
ownership incentives, including among others, interest subsidies, rent
supplements, and mortgage insurance, with the intent of reducing certain market
risks and providing investors with certain tax benefits, plus limited cash
distributions and the possibility of long-term capital gains. There remain,
however, significant risks. The long-term nature of investments in government
assisted housing limits the ability of REAL III to vary its portfolio in
response to changing economic, financial and investment conditions; such
investments are also subject to changes in local economic circumstances and
housing patterns, as well as rising operating costs, vacancies, rent collection
difficulties, energy shortages and other factors which have an impact on real
estate values. These projects also require greater management expertise and may
have higher operating expenses than conventional housing projects.

Under recently adopted law and policy, the United States Department of Housing
and Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts are not
expected to be in an amount that would provide sufficient cash flow to permit
owners of properties subject to HAP Contracts to meet the debt service
requirements of existing loans insured by the Federal Housing Administration of
HUD ("FHA") unless such mortgage loans are restructured. In order to address the
reduction in payments under HAP Contracts as a result of this new policy, the
Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"),
which was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject to the Section 8
program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a
first mortgage loan which will be amortized on a current basis and a low
interest second



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<PAGE>   3

mortgage loan payable to FHA which will only be payable on maturity of the first
mortgage loan. This restructuring results in a reduction in annual debt service
payable by the owner of the FHA-insured mortgage loan and is expected to result
in an insurance payment from FHA to the holder of the FHA-insured loan due to
the reduction in the principal amount. MAHRAA also phases out project-based
subsidies on selected properties serving families not located in rental markets
with limited supply, converting such subsidies to a tenant-based subsidy.

On September 11, 1998, HUD issued interim regulations implementing MAHRAA and
final regulations are expected to be issued in 2000.

When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.

The partnerships in which REAL III has invested were, at least initially,
organized by private developers who acquired the sites, or options thereon, and
applied for applicable mortgage insurance and subsidies. REAL III became the
principal limited partner in these local limited partnerships pursuant to
arm's-length negotiations with these developers, or others, who act as general
partners. As a limited partner, REAL III's liability for obligations of the
local limited partnership is limited to its investment. The local general
partner of the local limited partnership retains responsibility for developing,
constructing, maintaining, operating and managing the Project. Under certain
circumstances of default, REAL III has the right to replace the general partner
of the local limited partnerships, but otherwise does not have control of sale
or refinancing, etc.

Although each of the partnerships in which REAL III has invested generally owns
a project which must compete in the market place for tenants, interest subsidies
and rent supplements from governmental agencies make it possible to offer these
dwelling units to eligible "low income" tenants at a cost significantly below
the market rate for comparable conventionally financed dwelling units in the
area.




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<PAGE>   4

During 1999, the projects in which REAL III had invested were substantially
rented. The following is a schedule of the status as of December 31, 1999, of
the projects owned by local limited partnerships in which REAL III is a limited
partner.


            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL III HAS AN INVESTMENT
                                DECEMBER 31, 1999
<TABLE>
<CAPTION>
                                            Units Authorized
                                               For Rental
                                            Assistance Under
                                              Section 8 or
                                               Other Rent               Percentage of
                                    No. of     Supplement      Units     Total Units
Name and Location                   Units       Program       Occupied    Occupied
-----------------                   ------  ----------------  --------  -------------
<S>                                 <C>     <C>               <C>       <C>
Charlotte Lakeview, Riverview        553         0/0            517         93%
 Residential Project
 Rochester, NY

Hidden Pines Apts                     40        40/0             38         95%
 Greenville, MI

Jenks School Apts                     83        83/0             83        100%
 Pawtucket, RI

Lakeside Apts                         32        0/21             31         97%
 Stuart, FL

Ramblewood Apts                       64        0/13             62         97%
 Fort Payne, AL

Santa Maria Apts                      86        86/0             86        100%
 San German, Puerto Rico

Sunset Grove Apts                     22        22/0             22        100%
 Carson City, MI

Sunshine Canyon                       26        26/0             23         88%
 Stanton, MI

Village Apts                          50        50/0             50        100%
 La Follette, TN
</TABLE>



                                       3
<PAGE>   5
            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL III HAS AN INVESTMENT
                          DECEMBER 31, 1999 (CONTINUED)

<TABLE>
<CAPTION>

                                      Units Authorized
                                         For Rental
                                      Assistance Under
                                        Section 8 or
                                         Other Rent                      Percentage of
                             No. of      Supplement        Units          Total Units
Name and Location            Units        Program         Occupied         Occupied
-----------------            ------    ---------------    --------        ------------
<S>                          <C>       <C>                <C>             <C>
Vincente Geigel                 80          80/0             80              100%
 Polanco Apts
 Isabela, Puerto Rico

Vista De Jagueyes               73          73/0             73              100%
 Aguas Buenas, PR

Westgate Apts                   72          0/16             66               92%
 Albertville, AL
                             -----        ------          -----             ----
TOTALS                       1,181        460/50          1,131               96%
                             =====        ======          =====
</TABLE>



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<PAGE>   6

ITEM 2.          PROPERTIES:

The local limited partnerships in which REAL III holds interests own various
multi-family rental properties. See Item 1 for information pertaining to these
properties.


ITEM 3.          LEGAL PROCEEDINGS:

On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in the Partnership and two investors holding an aggregate
of five units of limited partnership interest in Real Estate Associates Limited
VI (another affiliated partnership in which NAPICO is the managing general
partner) commenced an action in the United States District Court for the Central
District of California against the Partnership, NAPICO and certain other
affiliated entities. The complaint alleges that the defendants breached their
fiduciary duty to the limited partners of certain NAPICO managed partnerships
and made materially false and misleading statements in the consent solicitation
statements sent to the limited partners of such partnerships relating to
approval of the transfer of partnership interests in limited partnerships,
owning certain of the properties, to the Operating Partnership organized by an
affiliate of NAPICO. The plaintiffs seek equitable relief, as well as
compensatory damages and litigation related costs. On August 4, 1999, one
investor holding one unit of limited partnership interest in Housing Programs
Limited (another affiliated partnership in which NAPICO is the managing general
partner) commenced a virtually identical action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The managing general partner of such NAPICO
managed partnerships and the other defendants believe that the plaintiffs'
claims are without merit and intend to contest the actions vigorously.

As of December 31, 1999, REAL III's Corporate General Partner was plaintiff or
defendant in several other lawsuits. None of these suits were related to REAL
III.


ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

In August 1998, a consent solicitation statement was sent to the limited
partners setting forth the terms and conditions of the purchase of the limited
partners' interests, held for investment by the Partnership, by the Operating
Partnership, together with certain amendments to the Partnership Agreement and
other disclosures of various conflicts of interest in connection with the
proposed transaction. Prior to the sale of the partnership interests in 1998,
the consents of the limited partners to the sale and amendments to the
Partnership Agreement were obtained.

PART II.

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

The Limited Partnership Interests are not traded on a public exchange but were
sold through a public offering managed by E.F. Hutton Inc. It is not anticipated
that any public market will develop for the purchase and sale of any Partnership
interest. Limited Partnership Interests may be transferred only if certain
requirements are satisfied. At December 31, 1999 there were 1,950 registered
holders of units in REAL III. One distribution in the aggregate amount of
$3,345,000 (or $584 per unit) was made in 1989. This represented the proceeds
from the sale of one of the Partnership's real estate investments. The
Partnership has invested in certain government assisted projects under programs
which in many instances restrict the cash return available to Project owners.
The Partnership was not designed to provide cash distributions to investors in
circumstances other than refinancing or disposition of its investment in the
limited partnerships. In March 1999, the Partnership made distributions of
$6,881,025 to the limited partners and $69,506 to the general partners, which
included using proceeds from the sale of the partnership interests.



                                       5
<PAGE>   7


ITEM 6.     SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                ---------------------------------------------------------------------------------
                                     1999             1998             1997             1996              1995
                                 ------------     ------------     ------------     ------------     ------------
<S>                              <C>              <C>              <C>              <C>              <C>
Loss From Operations             $   (515,047)    $   (928,096)    $   (443,767)    $   (518,472)    $   (567,421)

Gain on Sale of  Limited
   Partnership Interests                   --        2,647,716               --               --               --

Distributions From
   Limited Partnerships
   Recognized as Income                18,112        1,508,602        1,072,912          858,869          765,514

Equity in Income of
   Limited Partnerships
   and Amortization of
   Acquisition Costs                  190,985          564,059          255,652          383,682          887,919
                                 ------------     ------------     ------------     ------------     ------------

Net (Loss) Income                $   (305,950)    $  3,792,281     $    884,797     $    724,079     $  1,086,012
                                 ============     ============     ============     ============     ============

Net (Loss) Income per Limited
   Partnership Interest          $        (26)    $        328     $         76     $         63     $         94
                                 ============     ============     ============     ============     ============



Total assets                     $  6,467,723     $ 14,026,790     $ 11,960,231     $ 10,933,018     $ 10,185,039
                                 ============     ============     ============     ============     ============

Investments in Limited
   Partnerships                  $    894,213     $    744,457     $  1,249,421     $  1,063,487     $    930,576
                                 ============     ============     ============     ============     ============

Notes Payable                    $         --     $         --     $  1,510,000     $  1,510,000     $  1,510,000
                                 ============     ============     ============     ============     ============

</TABLE>





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<PAGE>   8

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

LIQUIDITY

The Partnership's primary sources of funds include interest income on money
market investments and certificates of deposit and distributions from local
partnerships in which the Partnership has invested. It is not expected that any
of the local limited partnerships in which the Partnership has invested will
generate cash flow sufficient to provide for distributions to the Partnership's
limited partners in any material amount. The Partnership made a cash
distribution to investors in March 1999, primarily using proceeds from the
disposition of its investments in certain limited partnerships.

CAPITAL RESOURCES

REAL III received $14,320,000 in subscriptions for units of Limited Partnership
Interests (at $5,000 per unit) during the period March 31, l981 to October 30,
1981, pursuant to a registration statement on Form S-11. As of March 10, 1982,
REAL III received an additional $14,320,000 in subscriptions pursuant to the
exercise of warrants and the sale of Additional Limited Partnership Interests.

RESULTS OF OPERATIONS

The Partnership was formed to provide various benefits to its partners as
discussed in Item 1. It is anticipated that the local limited partnerships in
which REAL III has invested could produce tax losses for as long as 20 years.
Tax benefits will decline over time as the advantages of accelerated
depreciation are greatest in the earlier years, as deductions for interest
expense will decrease as mortgage principal is amortized and as the Tax Reform
Act of 1986 limits the deductions available.

At December 31, 1999, the Partnership has investments in 12 limited
partnerships, all of which own housing projects that were substantially all
rented. The Partnership sold its interests in 20 local partnerships in December
1998. The Partnership, as a limited partner, is entitled to 75% to 99% of the
profits and losses of the local limited partnerships. The Partnership accounts
for its investments in the local limited partnerships on the equity method,
thereby adjusting its investment balance by its proportionate share of the
income or loss of the local limited partnerships. Equity in losses of limited
partnerships are recognized in the financial statements until the limited
partnership investment account is reduced to a zero balance. Losses incurred
after the limited partnership investment account is reduced to zero are not
recognized. Limited partners are not liable for losses beyond their contributed
capital. At December 31, 1999, the Partnership has a positive investment balance
in only one local limited partnerships.

Distributions received from limited partnerships are recognized as return of
capital until the investment balance has been reduced to zero or to a negative
amount equal to future capital contributions required. Subsequent distributions
received are recognized as income.

The total net (loss) income from the local limited partnerships that was
allocated to the Partnership was $(310,000), $99,000 and $55,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. However, because losses
incurred after the investment account is reduced to a zero balance are not
recognized and subsequent income is not recognized until the investment account
becomes positive again, the Partnership recognized equity in income of limited
partnerships of $190,985, $564,059 and $255,652 for the years ended December 31,
1999, 1998 and 1997, respectively. The income recognized decreased in 1999 as a
result of the sale of certain partnership interests on December 30, 1998. The
cumulative amount of the unrecognized equity in losses of certain limited
partnerships was approximately $16,745,000 and $16,224,000 as of December 31,
1999 and 1998, respectively.


Distributions from the local limited partnerships in which the Partnership did
not have a positive investment balance were $18,112, $1,508,602 and $1,072,912
for the years ended December 31, 1999, 1998 and 1997, respectively. These





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<PAGE>   9

amounts were recognized as income on the accompanying statements of operations,
in accordance with the equity method of accounting. Distributions decreased in
1999 as a result of the sale of certain partnership interests in 1998.

As of December 31, 1999, 1998 and 1997, the Partnership has cash and cash
equivalents of $5,571,366, $11,331,803 and $10,575,810, respectively.
Substantially all of these amounts are on deposit with two high credit quality
financial institutions, earning interest. Interest income has been decreasing as
a result of decreasing cash and cash equivalent balances. This resulted in the
Partnership earning $215,072, $493,522 and $477,624 in interest income for the
years ended December 31, 1999, 1998 and 1997, respectively. The amount of
interest income varies with market rates available on deposits and with the
amount of funds available for investment. Cash equivalents can be converted to
cash to meet obligations of the Partnership as they arise. The Partnership
intends to continue investing available funds in this manner.

A recurring partnership expense is the annual management fee. The fee is payable
to the Corporate General Partner of the Partnership and is calculated at .4
percent of the Partnership's original remaining invested assets. The management
fee is paid to the Corporate General Partner for its continuing management of
partnership affairs. The fee is payable beginning with the month following the
Partnership's initial investment in a local limited partnership. Because of the
decrease in invested assets at the end of 1998 as a result of the sale of
partnership interests, management fees decreased from $454,800 for 1998 and 1997
to $129,292 for 1999.

Until the sale of the partnership interests on December 30, 1998, the
Partnership was obligated on non-recourse notes payable of $1,510,000 which bore
interest at 10 percent per annum and had principal maturities ranging from June
2020 to March 2024. The notes and related interest were payable from cash flow
generated from operations of the related rental properties as defined in the
notes. These obligations were collateralized by the Partnership's investments in
the limited partnerships. Unpaid interest was due at maturity of the notes.
Because no payments were made on these notes through the sale of the limited
partnership interests, interest expense remained constant at $151,000 for each
of the two years in the period ended December 31, 1998 and 1997. The Partnership
was relieved of these notes and related accrued interest in connection with the
sale of the partnership interests.

Under recently adopted law and policy, the United States Department of Housing
and Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts are not
expected to be in an amount that would provide sufficient cash flow to permit
owners of properties subject to HAP Contracts to meet the debt service
requirements of existing loans insured by the Federal Housing Administration of
HUD ("FHA") unless such mortgage loans are restructured. In order to address the
reduction in payments under HAP Contracts as a result of this new policy, the
Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"),
which was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject to the Section 8
program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a
first mortgage loan which will be amortized on a current basis and a low
interest second mortgage loan payable to FHA which will only be payable on
maturity of the first mortgage loan. This restructuring results in a reduction
in annual debt service payable to the owner of the FHA-insured mortgage loan and
is expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due to the reduction in the principal amount. MAHRAA also
phases out project-based subsidies on selected properties serving families not
located in rental markets with limited supply, converting such subsidies to a
tenant-based subsidy.

On September 11, 1998, HUD issued interim regulations implementing MAHRAA and
final regulations are expected to be issued in 2000.

When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In



                                       8
<PAGE>   10

addition, the economic impact on the Partnership of the combination of the
reduced payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.

As a result of the foregoing, the Partnership in 1997 undertook an extensive
review of disposition, refinancing or re-engineering alternatives for the
properties in which the limited partnerships have invested and are subject to
HUD mortgage and rental subsidy programs. The Partnership has incurred expenses
in connection with this review by various third party professionals, including
accounting, legal, valuation, structural and engineering costs, which amounted
to $434,940, $627,059 and $140,915 for the years ended December 31, 1999, 1998
and 1997, respectively, and are included in administrative expenses.

On December 30, 1998, the Partnership sold its limited partnership interests in
20 local limited partnerships, with a total carrying value of $988,570, to the
Operating Partnership. The sale resulted in proceeds to the Partnership of
$1,950,530 and a net gain of $2,647,716, after being relieved of notes and
interest payable of $1,947,962 and incurring selling costs of $262,206. The cash
proceeds were held in escrow at December 31, 1998 and received subsequent to
year-end. In March 1999, the Partnership made cash distributions of $6,881,025
to the limited partners and $69,506 to the general partners, which included
using proceeds from the sale of the partnership interests.

The Operating Partnership purchased such limited partner interests for cash,
which it raised in connection with a private placement of its equity securities.
The purchase was subject to, among other things, (i) the purchase of the general
partner interests in the local limited partnerships by the Operating
Partnership; (iii) the approval of HUD and certain state housing finance
agencies; and (iii) the consent of the limited partners to the sale of the local
limited partnership interests held for investment by the Partnership.

In August 1998, a consent solicitation statement was sent to the limited
partners setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together with
certain amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the proposed transaction. Prior to the
sale of the partnership interests, the consents of the limited partners to the
sale and amendments to the Partnership Agreement were obtained.

Operating expenses, other than management fees and interest expense, consist of
legal and accounting fees for services rendered to the Partnership and
administrative expenses. Legal and accounting fees were generally consistent and
were $94,550, $83,573 and $76,993 for the years ended December 31, 1999, 1998
and 1997, respectively. Administrative expenses were $506,277, $732,245 and
$238,598 for the years ended December 31, 1999, 1998 and 1997, respectively.
Included in administrative expenses are reimbursements to NAPICO for certain
expenses, which totaled $16,488, $35,231 and $35,227 for the years ended
December 31, 1999, 1998 and 1997, respectively. Also included in administrative
expenses for 1999, 1998 and 1997 is $434,940, $627,059 and $140,915,
respectively, related to the aforementioned third party review of the properties
owned by the local partnerships. Accounts payable at December 31, 1998 includes
$283,861 of such costs.

Revenues and expenses of the local limited partnerships decreased during the
year ended December 31, 1999 as compared to prior years, as a result of the sale
of 20 partnership interests on December 30, 1998.

Total revenue for the local partnerships has decreased from $22,480,000 and
$23,173,000 for the years ended December 31, 1998 and 1997, respectively, to
$6,525,000 for the year ended December 31, 1999. Revenues were higher in 1997 as
compared to 1998 primarily as a result of retroactive Housing Assistance
Payments of $669,000 received in 1998 by five local partnerships pursuant to the
terms of a settlement agreement with HUD.

Total expenses for the local partnerships decreased from $22,380,000 and
$22,652,000 for the years ended December 31, 1998 and 1997, respectively, to
$6,835,000 for the year ended December 31, 1999.



                                       9
<PAGE>   11

The total net (loss) income for the local partnerships for 1999, 1998 and 1997
aggregated $(310,000), $101,000 and $59,000, respectively. The income allocated
to the Partnership was $(310,000), $99,000 and $55,000 for 1999, 1998 and 1997,
respectively.

The Partnership, as a Limited Partner in the local limited partnerships in which
it has invested, is subject to the risks incident to the construction,
management, and ownership of improved real estate. The Partnership investments
are also subject to adverse general economic conditions, and, accordingly, the
status of the national economy, including substantial unemployment, concurrent
inflation and changing legislation which could increase vacancy levels, rental
payment defaults, and operating expenses, which in turn, could substantially
increase the risk of operating losses for the projects.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.



ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

The Financial Statements and Supplementary Data are listed under Item 14.



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

Not applicable.




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<PAGE>   12

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                              FINANCIAL STATEMENTS,
                          FINANCIAL STATEMENT SCHEDULES
                   AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
                                DECEMBER 31, 1999



                                       11
<PAGE>   13


                        REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Real Estate Associates Limited III
(A California limited partnership)

We have audited the accompanying balance sheets of Real Estate Associates
Limited III (a California limited partnership) as of December 31, 1999 and 1998,
and the related statements of operations, partners' equity (deficiency) and cash
flows for each of the three years in period ended December 31, 1999. Our audits
also included the financial statement schedules listed in the index in item 14.
These financial statements and financial statement schedules are the
responsibility of the management of the Partnership. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits. We did not audit the financial statements of
certain limited partnerships, the investments in which are reflected in the
accompanying financial statements using the equity method of accounting. The
investments in these limited partnerships represent 13 percent and 5 percent of
total assets as of December 31, 1999 and 1998, respectively, and the equity in
income of these limited partnerships represents 17 percent, 11 percent and 19
percent of the total net income of the Partnership for the years ended December
31, 1999, 1998 and 1997, respectively, and represent a substantial portion of
the investee information in Note 2 and the financial statement schedules. The
financial statements of these limited partnerships were audited by other
auditors. Their reports have been furnished to us and our opinion, insofar as it
relates to the amounts included for these limited partnerships, is based solely
on the reports of the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits and the reports of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Real Estate Associates Limited III as of December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles. Also, in our opinion, based on our
audits and the reports of other auditors, such financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.


DELOITTE & TOUCHE LLP

Los Angeles, California
March 31, 2000



                                       12
<PAGE>   14

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998

                                     ASSETS
<TABLE>
<CAPTION>
                                                                    1999              1998
                                                                -----------        ----------
<S>                                                             <C>                <C>
        INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)            $   894,213        $   744,457

        CASH AND CASH EQUIVALENTS (Note 1)                        5,571,366         11,331,803

        CASH DUE FROM ESCROW (Note 2)                                     -          1,950,530

        DUE FROM NAPICO (Note 4)                                      2,144                  -
                                                                -----------        -----------

                  TOTAL ASSETS                                  $ 6,467,723        $14,026,790
                                                                ===========        ===========


                           LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)

        LIABILITIES:
             Accounts payable (Note 2)                          $     6,161        $   308,747
                                                                -----------        -----------

        COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)


        PARTNERS' EQUITY (DEFICIENCY):
            General partners                                       (134,361)           (61,795)
            Limited partners                                      6,595,923         13,779,838
                                                                -----------        -----------
                                                                  6,461,562         13,718,043
                                                                -----------        -----------
                   TOTAL LIABILITIES AND PARTNERS'
                        EQUITY                                  $ 6,467,723        $14,026,790
                                                                ===========        ===========
</TABLE>

     The accompanying notes are integral part of these financial statements.


                                       13
<PAGE>   15

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


<TABLE>
<CAPTION>
                                                                    1999              1998              1997
                                                                 -----------       -----------       ------------
<S>                                                             <C>               <C>               <C>
        INTEREST AND OTHER INCOME                                $  215,072        $  493,522        $   477,624

        OPERATING EXPENSES:
            Legal and accounting                                     94,550            83,573             76,993
            Management fees - general partner (Note 4)              129,292           454,800            454,800
            Interest (Note 3)                                             -           151,000            151,000
            Administrative  (Note 4)                                506,277           732,245            238,598
                                                                 ----------        ----------        -----------

                      Total operating expenses                      730,119         1,421,618            921,391
                                                                 ----------        ----------        -----------

        LOSS FROM OPERATIONS                                       (515,047)         (928,096)          (443,767)

        GAIN ON SALE OF LIMITED PARTNERSHIP
              INTERESTS (Note 2)                                          -         2,647,716                  -

        DISTRIBUTIONS FROM LIMITED
              PARTNERSHIPS RECOGNIZED AS
              INCOME (Note 2)                                        18,112         1,508,602          1,072,912

        EQUITY IN INCOME OF LIMITED
              PARTNERSHIPS AND AMORTI-
               ZATION OF ACQUISITION
               COSTS (Note 2)                                       190,985           564,059            255,652
                                                                 ----------        ----------        -----------

        NET (LOSS) INCOME                                        $ (305,950)       $3,792,281        $   884,797
                                                                 ==========        ==========        ===========

        NET (LOSS) INCOME PER LIMITED
             PARTNERSHIP INTEREST (Note 1)                       $      (26)       $      328        $        76
                                                                 ==========        ==========        ===========

</TABLE>
    The accompanying notes are integral part of these financial statements.






                                       14
<PAGE>   16

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                   STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                        General        Limited
                                        Partners       Partners          Total
                                      ----------     ------------     ------------
<S>                                   <C>            <C>              <C>
       EQUITY (DEFICIENCY),
          January 1, 1997             $(108,566)     $ 9,149,531       $ 9,040,965

          Net income for 1997             8,848          875,949           884,797
                                      ---------      -----------       -----------

       EQUITY (DEFICIENCY),
          December 31, 1997             (99,718)      10,025,480         9,925,762

          Net income for 1998            37,923        3,754,358         3,792,281
                                      ---------      -----------       -----------

       EQUITY (DEFICIENCY),
          December 31, 1998             (61,795)      13,779,838        13,718,043

          Distributions                 (69,506)      (6,881,025)       (6,950,531)

          Net loss for 1999              (3,060)        (302,890)         (305,950)
                                      ---------      -----------       -----------

       EQUITY (DEFICIENCY),
          December 31, 1999           $(134,361)     $ 6,595,923       $ 6,461,562
                                      =========      ===========       ===========
</TABLE>

    The accompanying notes are integral part of these financial statements.



                                       15
<PAGE>   17

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
                                                                         1999                1998               1997
                                                                     ------------        ------------        -----------
<S>                                                                  <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net (loss) income                                               $  (305,950)        $ 3,792,281        $   884,797
      Adjustments to reconcile net (loss) income to net cash
        (used in) provided by operating activities:
          Gain on sale of limited partnership interests                         -          (2,647,716)
          Equity in income of limited partnerships and
              amortization of acquisition costs                          (190,985)           (564,059)          (255,652)
          (Increase) decrease in other assets                              (2,144)            135,000                  -
          Increase accrued interest payable                                     -              23,685                  -
          (Decrease) increase in accounts payables                       (302,586)            198,555            142,416
                                                                      -----------         -----------        -----------

               Net cash (used in) provided by operating activities       (801,665)            937,746            771,561
                                                                      -----------         -----------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Costs related to sale of partnership interests                            -            (262,206)
      Distribution from limited partnerships
           recognized as return of capital                                 41,229             305,634             69,718
      Capital contributions and advances
           to limited partnerships                                              -            (225,181)                 -
      Proceeds from the sale of limited partnership interests           1,950,530                   -
                                                                      -----------         -----------        -----------

                Net cash provided by (used in) investing activities     1,991,759            (181,753)            69,718
                                                                      -----------         -----------        -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Distributions to partners                                        (6,950,531)                  -                  -
                                                                      -----------         -----------        -----------


NET (DECREASE) INCREASE IN CASH AND
     CASH EQUIVALENTS                                                  (5,760,437)            755,993            841,279

CASH AND CASH EQUIVALENTS,
      BEGINNING OF YEAR                                                11,331,803          10,575,810          9,734,531
                                                                      -----------         -----------        -----------

CASH AND CASH EQUIVALENTS,
      END OF YEAR                                                     $ 5,571,366         $11,331,803        $10,575,810
                                                                      ===========         ===========        ===========

SUPPLEMENTAL DISCLOSURE OF
      CASH FLOW INFORMATION:
         Cash paid during the year for interest                       $         -         $   127,315        $   111,326
                                                                      ===========         ===========        ===========

SUPPLEMENTAL SCHEDULE OF
      NON-CASH FINANCING ACTIVITIES
         See Note 2 to financial statements regarding
         notes and interest payable
</TABLE>

    The accompanying notes are integral part of these financial statements.


                                       16
<PAGE>   18

                           REAL ESTATE ASSOCIATES LIMITED III
                           (A California limited partnership)

                              NOTES TO FINANCIAL STATEMENTS
                                    DECEMBER 31, 1999


1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Organization

        Real Estate Associates Limited III (the "Partnership") was formed under
        the California Limited Partnership Act on July 25, 1980. The Partnership
        was formed to invest either directly or indirectly in other partnerships
        which own and operate primarily federal, state and local
        government-assisted housing projects. The general partners are National
        Partnership Investments Corp. (NAPICO), the corporate general partner,
        and Coast Housing Investment Associates (CHIA), a limited partnership.

        Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of
        Casden Investment Corporation ("CIC"), which is wholly owned by Alan
        I. Casden. On December 30, 1998, Casden Properties Operating
        Partnership, L.P. (the "Operating Partnership"), a majority owned
        subsidiary of Casden Properties Inc., a real estate investment trust
        organized by Alan I. Casden, purchased a 95.25% economic interest in
        NAPICO. The business of REAL III is conducted primarily by NAPICO.

        These financial statements include the accounts of Real Estate
        Associates Limited III and Real Estate Associates ("REA"), a California
        general partnership in which the Partnership holds a 99.9 percent
        general partner interest. Losses in excess of the minority interest in
        equity that would otherwise be attributed to the minority interest are
        being allocated to the Partnership.

        The Partnership offered 3,000 units and issued 2,864 units of limited
        partner interests through a public offering. Each unit was comprised of
        two limited partner interests and a warrant granting the investor the
        right to purchase two additional limited partner interests. An
        additional 5,728 interests were issued from the exercise of the warrants
        and the sale of interests associated with warrants not exercised. The
        general partners have a 1 percent interest in profits and losses of the
        Partnership. The limited partners have the remaining 99 percent interest
        in proportion to their respective investments.

        The Partnership shall be dissolved only upon the expiration of 52
        complete calendar years (December 31, 2032) from the date of the
        formation of the Partnership or the occurrence of other events as
        specified in the terms of the Partnership agreement.

        Upon total or partial liquidation of the Partnership or the disposition
        or partial disposition of a project or project interest and distribution
        of the proceeds, the general partners will be entitled to a liquidation
        fee as stipulated in the Partnership agreement. The limited partners


                                       17
<PAGE>   19


                           REAL ESTATE ASSOCIATES LIMITED III
                           (A California limited partnership)

                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                    DECEMBER 31, 1999


1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        will have a priority return equal to their invested capital attributable
        to the project(s) or project interest(s) sold and shall receive from the
        sale of the project(s) or project interest(s) an amount sufficient to
        pay state and federal income taxes, if any, calculated at the maximum
        rate then in effect. The general partners' liquidation fee may accrue
        but shall not be paid until the limited partners have received
        distributions equal to 100 percent of their capital contributions.

        On December 30, 1998, the Partnership sold its interests in 20 local
        limited partnerships for $1,950,530 to the Operating Partnership.

        Use of Estimates

        The preparation of financial statements in conformity with generally
        accepted accounting principles requires management to make estimates and
        assumptions that affect the reported amounts of assets and liabilities
        and disclosure of contingent assets and liabilities at the date of the
        financial statements and reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.

        Method of Accounting for Investments in Limited Partnerships

        The investments in limited partnerships are accounted for on the equity
        method. Acquisition, selection and other costs related to the
        acquisition of the projects are capitalized as part of the investment
        account and are being amortized on a straight line basis over the
        estimated lives of the underlying assets, which is generally 30 years.

        Net Income (Loss) Per Limited Partnership Interest

        Net income per limited partnership interest was computed by dividing the
        limited partners' share of net income (loss) by the number of limited
        partnership interests outstanding during the year. The number of limited
        partnership interests was 11,456 for all years presented.

        Cash and Cash Equivalents

        Cash and cash equivalents consist of cash and bank certificates of
        deposit with an original maturity of three months or less. The
        Partnership has its cash and cash equivalents on deposit primarily with
        two high credit quality financial institutions. Such cash and cash
        equivalents are in excess of the FDIC insurance limit.




                                       18
<PAGE>   20



                           REAL ESTATE ASSOCIATES LIMITED III
                           (A California limited partnership)

                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                    DECEMBER 31, 1999

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        Impairment of Long-Lived Assets

        The Partnership reviews long-lived assets to determine if there has been
        any permanent impairment whenever events or changes in circumstances
        indicate that the carrying amount of the asset may not be recoverable.
        If the sum of the expected future cash flows is less than the carrying
        amount of the assets, the Partnership recognizes an impairment loss.

2.      INVESTMENTS IN LIMITED PARTNERSHIPS

        The Partnership holds limited partnership interests in 12 limited
        partnerships as of December 31, 1999 and 1998, after selling its
        interest in 20 limited partnerships in 1998. The limited partnerships
        own residential low income rental projects consisting of 1,181 apartment
        units. The mortgage loans of these projects are payable to or insured by
        various governmental agencies.

        The Partnership, as a limited partner, is entitled to between 75 percent
        and 99 percent of the profits and losses of the limited partnerships it
        has invested in directly. The Partnership is also entitled to 99.9
        percent of the profits and losses of REA. REA holds a 99 percent
        interest in the limited partnerships in which it has invested.

        Equity in losses of limited partnerships is recognized in the financial
        statements until the limited partnership investment account is reduced
        to a zero balance. Losses incurred after the limited partnership
        investment account is reduced to zero are not recognized. The cumulative
        amount of the unrecognized equity in losses of certain limited
        partnerships was approximately $16,745,000 and $16,224,000 as of
        December 31, 1999 and 1998, respectively.

        Distributions from limited partnerships are recognized as a reduction of
        capital until the investment balance has been reduced to zero.
        Subsequent distributions received are recognized as income.



                                       19
<PAGE>   21



                           REAL ESTATE ASSOCIATES LIMITED III
                           (A California limited partnership)

                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                    DECEMBER 31, 1999

2.      INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

        The following is a summary of the investments in limited partnerships
        and reconciliation to the limited partnership accounts:
<TABLE>
<CAPTION>
                                                                  1999          1998
                                                               -----------   ---------
<S>                                                            <C>           <C>
        Investment balance, beginning of year                  $   744,457   $1,249,421
        Capital contributions                                                   225,181
        Equity in income of limited partnerships                   193,206      570,032
        Investment in limited partnerships sold                                (988,570)
        Amortization of capitalized acquisition costs and fees      (2,221)      (5,973)
        Cash distributions recognized as return of capital         (41,229)    (305,634)
                                                               -----------  -----------
        Investment balance, end of year                        $   894,213  $   744,457
                                                               ===========  ===========
</TABLE>

        The difference between the investment in the accompanying balance
        sheets at December 31, 1999 and 1998, and the deficiency per the
        limited partnerships' combined financial statements is due primarily
        to the cumulative unrecognized equity in losses of certain limited
        partnerships, costs capitalized to the investment account and
        cumulative distributions recognized as income.

        Selected financial information from the combined financial statements at
        December 31, 1999 and 1998 and for each of the three years in the period
        ended December 31, 1999, of the limited partnerships in which the
        Partnership has invested directly or indirectly, is as follows:


                                       20
<PAGE>   22


                           REAL ESTATE ASSOCIATES LIMITED III
                           (A California limited partnership)

                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                    DECEMBER 31, 1999

2.      INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

                                     Balance Sheets
<TABLE>
<CAPTION>
                                                              1999             1998
                                                            --------         --------
                                                                 (in thousands)
<S>                                                         <C>              <C>
        Land and buildings, net                             $  12,614        $ 13,709
                                                            =========        ========

        Total assets                                        $  15,787        $ 16,672
                                                            =========        ========

        Mortgages payable                                   $  29,569        $ 30,089
                                                            =========        ========

        Total liabilities                                   $  31,810        $ 32,270
                                                            =========        ========

        Deficiency in Equity of Real Estate Associates
          Limited III                                        $(16,338)       $(15,950)
                                                             ========        ========

        Equity of other partners                             $    315        $    352
                                                             ========        ========
</TABLE>

                                Statements of Operations
<TABLE>
<CAPTION>
                                                    1999          1998        1997
                                                   -------      --------     -------
                                                             (in thousands)
<S>                                                <C>           <C>          <C>
        Total revenue                              $ 6,525       $22,480      $23,173
                                                   =======       =======      =======

        Interest expense                           $ 1,787       $ 6,564      $ 6,929
                                                   =======      ========     ========

        Depreciation                               $ 1,264       $ 3,617      $ 3,674
                                                   =======      ========     ========

        Total expenses                             $ 6,835       $22,380      $23,114
                                                   =======       =======      =======

        Net income (loss)                          $  (310)      $   101      $    59
                                                   =======       =======      =======

        Net (loss) income allocable to the
          Partnership                              $  (310)      $    99      $    55
                                                   =======       =======      =======
</TABLE>



                                       21
<PAGE>   23
                           REAL ESTATE ASSOCIATES LIMITED III
                           (A California limited partnership)

                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                    DECEMBER 31, 1999

2.      INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

        Land and buildings, above, have been adjusted for the amount by which
        the investments in the limited partnerships exceed the Partnership's
        share of the net book value of the underlying net assets of the investee
        which are recorded at historical costs. Depreciation on the adjustment
        is provided for over the estimated remaining useful lives of the
        properties.

        An affiliate of NAPICO was the general partner in one of the limited
        partnerships in which the partnership interests were sold on December
        30, 1998, and another affiliate received property management fees of 5
        percent of its revenue. The affiliate received property management fees
        of $16,128 and $17,408 in 1998 and 1997, respectively.

        Under recently adopted law and policy, the United States Department of
        Housing and Urban Development ("HUD") has determined not to renew the
        Housing Assistance Payment ("HAP") Contracts on a long term basis on the
        existing terms. In connection with renewals of the HAP Contracts under
        such new law and policy, the amount of rental assistance payments under
        renewed HAP Contracts will be based on market rentals instead of above
        market rentals, which may be the case under existing HAP Contracts. The
        payments under the renewed HAP Contracts are not expected to be in an
        amount that would provide sufficient cash flow to permit owners of
        properties subject to HAP Contracts to meet the debt service
        requirements of existing loans insured by the Federal Housing
        Administration of HUD ("FHA") unless such mortgage loans are
        restructured. In order to address the reduction in payments under HAP
        Contracts as a result of this new policy, the Multi-family Assisted
        Housing Reform and Affordability Act of 1997 ("MAHRAA"), which was
        adopted in October 1997, provides for the restructuring of mortgage
        loans insured by the FHA with respect to properties subject to the
        Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be
        restructured into a first mortgage loan which will be amortized on a
        current basis and a low interest second mortgage loan payable to FHA
        which will only be payable on maturity of the first mortgage loan. This
        restructuring results in a reduction in annual debt service payable to
        the owner of the FHA-insured mortgage loan and is expected to result in
        an insurance payment from FHA to the holder of the FHA-insured loan due
        to the reduction in the principal amount. MAHRAA also phases out
        project-based subsidies on selected properties serving families not
        located in rental markets with limited supply, converting such subsidies
        to a tenant-based subsidy.

        On September 11, 1998, HUD issued interim regulations implementing
        MAHRAA and final regulations are expected to be issued in 2000.



                                       22
<PAGE>   24
                           REAL ESTATE ASSOCIATES LIMITED III
                           (A California limited partnership)

                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                    DECEMBER 31, 1999

2.      INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

        When the HAP Contracts are subject to renewal, there can be no assurance
        that the local limited partnerships in which the Partnership has an
        investment will be permitted to restructure its mortgage indebtedness
        under MAHRAA. In addition, the economic impact on the Partnership of the
        combination of the reduced payments under the HAP Contracts and the
        restructuring of the existing FHA-insured mortgage loans under MAHRAA is
        uncertain.

        As a result of the foregoing, the Partnership in 1997 undertook an
        extensive review of disposition, refinancing or re-engineering
        alternatives for the properties in which the limited partnerships have
        invested and are subject to HUD mortgage and rental subsidy programs.
        The Partnership has incurred expenses in connection with this review by
        various third party professionals, including accounting, legal,
        valuation, structural and engineering costs, which amounted to $434,940,
        $627,059 and $140,915 for the years ended December 31, 1999, 1998 and
        1997, respectively, and are included in administrative expenses.
        Accounts payable at December 31, 1998 includes $283,861 of such costs.

        On December 30, 1998, the Partnership sold its limited partnership
        interests in 20 local limited partnerships, with a total carrying value
        of $988,570, to the Operating Partnership. The sale resulted in proceeds
        to the Partnership of $1,950,530 and a net gain of $2,647,716, after
        being relieved of notes and interest payable of $1,947,962 and incurring
        selling costs of $262,206. The cash proceeds were held in escrow at
        December 31, 1998 and were collected in 1999. In March 1999, the
        Partnership made cash distributions of $6,881,025 to the limited
        partners and $69,506 to the general partners, which included using
        proceeds from the sale of the partnership interests.

        The Operating Partnership purchased such limited partner interests for
        cash, which it raised in connection with a private placement of its
        equity securities. The purchase was subject to, among other things, (i)
        the purchase of the general partner interests in the local limited
        partnerships by the Operating Partnership; (iii) the approval of HUD and
        certain state housing finance agencies; and (iii) the consent of the
        limited partners to the sale of the local limited partnership interests
        held for investment by the Partnership.

        In August 1998, a consent solicitation statement was sent to the limited
        partners setting forth the terms and conditions of the purchase of the
        limited partners' interests held for investment by the Partnership,
        together with certain amendments to the Partnership Agreement and other
        disclosures of various conflicts of interest in connection with the
        proposed transaction. Prior to the sale of the partnership interests,
        the consents of the limited partners to the sale and amendments to the
        Partnership Agreement were obtained.



                                       23
<PAGE>   25
                           REAL ESTATE ASSOCIATES LIMITED III
                           (A California limited partnership)

                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                    DECEMBER 31, 1999

3.      NOTES PAYABLE

        Certain of the Partnership's investments involved purchases of
        partnership interests from partners who subsequently withdrew from the
        operating partnership. The Partnership was obligated on non-recourse
        notes payable of $1,510,000, bearing interest at 10 percent, to the
        sellers of the partnership interests. These notes were payable by the
        Partnership through REA, and had principal maturity dates in June 2020
        and March 2024 or upon the sale or refinancing of the underlying
        partnership properties. These notes and the related interest were
        collateralized by REA's investment in the respective limited
        partnerships and were payable only out of cash distributions from the
        investee partnerships, as defined in the notes. Unpaid interest was due
        at maturity of the notes.

        The Partnership was relieved of these notes and related accrued interest
        in connection with the sale of the partnership interests in 1998.

4.      FEES AND EXPENSES DUE GENERAL PARTNER

        Under the terms of the Restated Certificate and Agreement of Limited
        Partners, the Partnership is liable to NAPICO for an annual management
        fee equal to .4 percent of the original invested assets of the remaining
        limited partnerships. Invested assets is defined as the costs of
        acquiring project interests, including the proportionate amount of the
        mortgage loans related to the Partnership's interest in the capital
        accounts of the respective partnerships.

        The Partnership reimburses NAPICO for certain expenses. The
        reimbursement to NAPICO was $16,488, $35,231 and $35,227 in 1999, 1998
        and 1997, respectively, and is included in administrative expenses.

5.      CONTINGENCIES

        On August 27, 1998, two investors holding an aggregate of eight units of
        limited partnership interests in the Partnership and two investors
        holding an aggregate of five units of limited partnership interest in
        Real Estate Associates Limited VI (another affiliated partnership in
        which NAPICO is the managing general partner) commenced an action in the
        United States District Court for the Central District of California
        against the Partnership, NAPICO and certain other affiliated entities.
        The complaint alleges that the defendants breached their fiduciary duty
        to the limited partners of certain NAPICO managed partnerships and made
        materially false and misleading statements in the consent solicitation
        statements sent to the






                                       24
<PAGE>   26

                           REAL ESTATE ASSOCIATES LIMITED III
                           (A California limited partnership)

                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                    DECEMBER 31, 1999
5.    CONTINGENCIES (CONTINUED)

      limited partners of such partnerships relating to approval of the transfer
      of partnership interests in limited partnerships, owning certain of the
      properties, to the Operating Partnership organized by an affiliate of
      NAPICO. The plaintiffs seek equitable relief, as well as compensatory
      damages and litigation related costs. On August 4, 1999, one investor
      holding one unit of limited partnership interest in Housing Programs
      Limited (another affiliated partnership in which NAPICO is the managing
      general partner) commenced a virtually identical action in the United
      States District Court for the Central District of California against the
      Partnership, NAPICO and certain other affiliated entities. The managing
      general partner of such NAPICO managed partnerships and the other
      defendants believe that the plaintiffs' claims are without merit and
      intend to contest the actions vigorously.

      The corporate general partner of the Partnership is a plaintiff in various
      lawsuits and has also been named a defendant in other lawsuits arising
      from transactions in the ordinary course of business. In the opinion of
      management and the corporate general partner, the claims will not result
      in any material liability to the Partnership.

6.    INCOME TAXES

      No provision has been made for income taxes in the accompanying financial
      statements since such taxes, if any, are the liability of the individual
      partners. The major differences in tax and financial reporting result from
      the use of different bases and depreciation methods for the properties
      held by the limited partnerships. Differences in tax and financial losses
      also arise as losses are not recognized for financial reporting purposes
      when the investment balance has been reduced to zero.

7.    FAIR VALUE OF FINANCIAL INSTRUMENTS

      Statement of Financial Accounting Standards No. 107, "Disclosure about
      Fair Value of Financial Instruments," requires disclosure of fair value
      information about financial instruments. The carrying amount of assets and
      liabilities reported on the balance sheets that require such disclosure
      approximates fair value due to their short-term maturity.



                                       25
<PAGE>   27
                           REAL ESTATE ASSOCIATES LIMITED III
                           (A California limited partnership)

                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                    DECEMBER 31, 1999


8.      FOURTH QUARTER ADJUSTMENT

        The Partnership's policy is to record its equity in income of limited
        partnerships on a quarterly basis, using estimated financial information
        furnished by the various local operating general partners. The equity in
        income reflected in the accompanying annual financial statements is
        based primarily upon audited financial statements of the investee
        limited partnerships. The increase of approximately $26,000, between the
        estimated nine-month equity in income and the actual total for 1999
        equity in income has been recorded in the fourth quarter.



                                       26
<PAGE>   28

                                                                        SCHEDULE

                       REAL ESTATE ASSOCIATES LIMITED III
                       INVESTMENTS IN LIMITED PARTNERSHIPS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                              Year Ended December 31, 1999
                                -------------------------------------------------------------------------------------
                                                                 Cash         Equity
                                 Balance                        Distri-         in                         Balance
                                 January         Capital        butions       Income                       December
Limited Partnerships             1, 1999       Contributions   Received       (Loss)         Sale          31, 1999
-----------------------------   -----------    ------------    ----------    ----------    ----------     -----------
<S>                             <C>             <C>             <C>           <C>          <C>            <C>
Charlotte                       $               $               $             $            $              $
Hidden Pines Apartments
Jenks School Apartments            744,457                       (41,229)      190,985                       894,213
Lakeside Apartments
Ramblewood Apartments
Santa Maria Apartments
Sunset Grove Apartments
Sunshine Canyon Apartments
Vicente Geigel Polanco Apts.
Village Apartments
Vista De Jagueyes
Westgate Apartments
                                ----------     -----------     ---------     ---------     ---------      ----------
                                $  744,457     $         -     $ (41,229)    $ 190,985     $       -      $  894,213
                                ==========     ===========     =========     =========     =========      ==========

</TABLE>



                                       27
<PAGE>   29

                                                                        SCHEDULE
                                                                     (Continued)


                       REAL ESTATE ASSOCIATES LIMITED III
                       INVESTMENTS IN LIMITED PARTNERSHIPS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
                                                              Year Ended December 31, 1998
                                -------------------------------------------------------------------------------------
                                                                 Cash         Equity
                                 Balance                        Distri-         in                         Balance
                                 January         Capital        butions       Income                       December
Limited Partnerships             1, 1998       Contributions   Received       (Loss)         Sale          31, 1998
-----------------------------   -----------    ------------    ----------    ----------    ----------     -----------
<S>                            <C>            <C>              <C>           <C>           <C>            <C>
Bowin Place *                   $   683,280    $               $  (39,861)   $  154,970    $ (798,389)    $         -
Casa de las Hermanitas *
Charlotte
Creekview Apartments *
Foothill Gardens *
Frazier Park Apartments *
Gary Manor *
Grandview Homes *
Hidden Pines Apartments
Highlawn Place *                                                 (175,156)      175,156                             -
Jenks School Apartments             566,141                       (41,229)      219,545                       744,457
Kern Villa *
Lakeside Apartments
New Baltimore Towers *                                            (23,749)       23,749                             -
Panorama Park Apartments *                                        (25,639)       25,639                             -
Ramblewood Apartments                                35,000                     (35,000)                            -
Santa Maria Apartments
Senior Chateau *
Sheraton Towers *
South Bay Villa *
Sunset Grove Apartments
Sunshine Canyon Apartments
Tujunga Gardens *
Twenty-Nine Palms Apartments *
Vicente Geigel Polanco Apts.
Village Apartments
Village Apartments (Kaufman) *
Village Grove Apartments *                          190,181                                  (190,181)              -
Vista De Jagueyes
Westgate Apartments
Wilderness Trail Manor *
Wilkes Towers *
                                -----------    ------------    ----------    ----------    ----------     -----------

                                $ 1,249,421    $    225,181    $ (305,634)   $  564,059    $ (988,570)    $   744,457
                                ===========    ============    ==========    ==========    ==========     ===========
</TABLE>

* Sold to the Operating Partnership in 1998




                                       28
<PAGE>   30


                                                                        SCHEDULE
                                                                     (Continued)

                       REAL ESTATE ASSOCIATES LIMITED III
                       INVESTMENTS IN LIMITED PARTNERSHIPS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
                                                            Year Ended December 31, 1997
                                       ---------------------------------------------------------------------
                                                                        Cash         Equity
                                        Balance                        Distri-         in          Balance
                                        January         Capital        butions       Income       December
Limited Partnerships                    1, 1997       Contributions   Received       (Loss)       31, 1997
                                       -----------    ------------    ----------    ----------    ----------
<S>                                    <C>            <C>             <C>           <C>           <C>
Bowin Place                            $   596,966    $               $  (28,489)   $  114,803    $  683,280
Casa de las Hermanitas
Charlotte
Creekview Apartments
Foothill Gardens
Frazier Park Apartments
Gary Manor
Grandview Homes
Hidden Pines Apartments
Highlawn Place
Jenks School Apartments                    466,521                       (41,229)      140,849       566,141
Kern Villa
Lakeside Apartments
New Baltimore Towers
Panorama Park Apartments
Ramblewood Apartments
Santa Maria Apartments
Senior Chateau
Sheraton Towers
South Bay Villa
Sunset Grove Apartments
Sunshine Canyon Apartments
Tujunga Gardens
Twenty-Nine Palms Apartments
Vicente Geigel Polanco Apts.
Village Apartments
Village Apartments (Kaufman)
Village Grove Apartments
Vista De Jagueyes
Westgate Apartments
Wilderness Trail Manor
Wilkes Towers
                                       -----------    ------------    ----------    ----------    ----------

                                       $ 1,063,487    $          -    $  (69,718)   $  255,652    $1,249,421
                                       ===========    ============    ==========    ==========    ==========

</TABLE>


                                       29
<PAGE>   31

                                                                        SCHEDULE
                                                                     (CONTINUED)


                       REAL ESTATE ASSOCIATES LIMITED III
          INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED
                        FROM AFFILIATES AND OTHER PERSONS
                                   YEARS ENDED
                        DECEMBER 31, 1999, 1998 AND 1997


NOTES:      1.    Equity in losses of the limited partnerships represents the
                  Partnership's allocable share of the net loss from the limited
                  partnerships for the year. Equity in losses of the limited
                  partnerships will be recognized until the investment balance
                  is reduced to zero or below zero to an amount equal to future
                  capital contributions to be made by the Partnership.

            2.    Cash distributions from the local limited partnerships will
                  be treated as a return on the investment and will reduce the
                  investment balance until such time as the investment is
                  reduced to an amount equal to additional contributions.
                  Distributions subsequently received will be recognized as
                  income.


                                       30
<PAGE>   32
                                                                    SCHEDULE III


                       REAL ESTATE ASSOCIATES LIMITED III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                 OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS
                        IN WHICH REAL III HAS INVESTMENTS
                                DECEMBER 31, 1999
<TABLE>
<CAPTION>
                                                                      Building
                                                                     Furnishings
                                                                    and Equipment-
                                                                     Initial Cost
                                                                     to Partnership
                             Number                                   and Amount
                              of       Outstanding                    Carried at                       Accumulated    Construction
Partnership/Location         Units    Mortgage Loans     Land       Close of Period       Total        Depreciation      Period
--------------------         -----    --------------  ----------    ---------------    -----------     ------------   ------------
<S>                          <C>      <C>             <C>            <C>               <C>             <C>            <C>
Charlottle Lakeview            553     $12,194,921    $  551,500      $19,112,102      $19,663,602     $15,966,823      (A)
  Rochester, NY
Hidden Pines Apartments         40       1,360,326        43,954        1,648,093        1,692,047       1,642,417      1981
  Greenville, Michigan
Jenks School Apartments         83       1,913,510        96,740        3,682,974        3,779,714       2,089,083      1981-1982
  Pawtucket, Rhode Island
Lakeside Apartments             32         871,855        72,336        1,018,475        1,090,811         801,742      1980-1981
  Stuart, Florida
Ramblewood Apartments           64       1,479,759        53,267        2,075,176        2,128,443       1,116,926      1980-1981
  Fort Payne, Alabama
Santa Maria Apartments          86       2,773,619        86,106        3,412,337        3,498,443       2,189,926      1981-1982
  San German, Puerto Rico
Sunset Groove Apartments        22         648,496        19,432          815,429          834,861         797,138      1981-1982
  Carson City, Michigan
Sunshine Canyon Apartments      26         829,990        20,262          999,551        1,019,813         978,542      1981-1982
  Stanton, Michigan
Village Apartments              50       1,429,932        65,245        1,774,324        1,839,569       1,274,669      1981-1982
  La Follette, Tennessee
Vicente Geigel Polanco Apts     80       2,550,526       107,685        3,012,687        3,120,372       1,902,285      1981-1982
  Issabela, Puerto Rico
Vista De Jagueyes               73       2,515,518       102,554        3,265,050        3,367,604       2,224,802      1981-1982
  Aguas Buenas, Puerto Rico
Westgate Apartments             72       1,000,872        80,000        1,486,035        1,566,035         823,148      1980-1981
  Albertville, Alabama
Additional basis of real
 estate due to REAL III's
capital contribution to
investee limited partnership                              84,671        2,649,036        2,733,707       1,913,598
                                       -----------    ----------     -----------      -----------      -----------
TOTAL                         1181     $29,569,324    $1,383,752      $44,951,269      $46,335,021     $33,721,099
                                       ===========    ==========      ===========     ============     ===========

</TABLE>

(A) This project was completed when REAL III entered the local partnership.




                                       31
<PAGE>   33

                                                                    SCHEDULE III
                                                                     (CONTINUED)

                       REAL ESTATE ASSOCIATES LIMITED III
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                       HELD BY LOCAL LIMITED PARTNERSHIPS
                        IN WHICH REAL III HAS INVESTMENTS
                        DECEMBER 31, 1999, 1998 AND 1997


NOTES:      1.   Each local limited partnership has developed, owns and
                 operates the housing project.  Substantially all projects
                 costs, including construction period interest
                 expense, were capitalized by the limited partnerships.

            2.   Depreciation is provided for by various methods over the
                 estimated useful lives of Projects. The estimated composite
                 useful lives of the buildings are generally from 25 to 40
                 years.

            3.   Investments in property and equipment:
<TABLE>
<CAPTION>
                                                             Buildings,
                                                            Furnishings
                                            Land            and Equipment          Total
                                         ------------       -------------       -------------
<S>                                      <C>                <C>                 <C>
Balance, January 1, 1997                 $  8,822,413       $ 121,718,426       $ 130,540,839

Net additions during 1997                       5,770           1,271,089           1,276,859
                                         ------------       -------------       -------------

Balance, December 31, 1997                  8,828,183         122,989,515         131,817,698

Sales of Properties during 1998            (7,444,431)        (78,827,654)        (86,272,085)

Net additions during 1998                           -             655,826             655,826
                                         ------------       -------------       -------------

Balance, December 31, 1998                  1,383,752          44,817,687          46,201,439

Net additions during 1999                           -             133,582             133,582
                                         ------------       -------------       -------------

Balance, December 31, 1999               $  1,383,752       $  44,951,269       $  46,335,021
                                         ============       =============       =============
</TABLE>



                                       32
<PAGE>   34

                                                                    SCHEDULE III
                                                                     (Continued)


                       REAL ESTATE ASSOCIATES LIMITED III
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                       HELD BY LOCAL LIMITED PARTNERSHIPS
                        IN WHICH REAL III HAS INVESTMENTS
                                DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                Buildings,
                                                               Furnishings
                                                                   And
                                                                Equipment
                                                              -------------
<S>                                                         <C>
Accumulated Depreciation:

Balance, January 1, 1997                                      $ 75,533,431

Net additions during 1997                                        3,617,652
                                                              ------------

Balance, December 31, 1997                                      79,151,083

Sales of Properties during 1998                                (50,235,484)

Net additions during 1998                                        3,576,549
                                                              ------------

Balance, December 31, 1998                                      32,492,148

Net additions during 1999                                        1,228,951
                                                              ------------

Balance, December 31, 1999                                    $ 33,721,099
                                                              ============
</TABLE>




                                       33
<PAGE>   35

PART III.

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

REAL ESTATE ASSOCIATES LIMITED III (the "Partnership") has no directors or
executive officers of its own.

Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating
Partnership"), a majority owned subsidiary of Casden Properties Inc., a real
estate investment trust organized by Alan I. Casden, purchased a 95.25% economic
interest in NAPICO. The following biographical information is presented for the
directors and executive officers of NAPICO with principal responsibility for the
Partnership's affairs.

CHARLES H. BOXENBAUM, 70, Chairman of the Board of Directors and Chief Executive
Officer of NAPICO. Mr. Boxenbaum has been associated with the NAPICO since its
inception. He has been active in the real estate industry since 1960, and prior
to joining NAPICO was a real estate broker with the Beverly Hills firm of Carl
Rhodes Company.

Mr. Boxenbaum has been a guest lecturer at national and state realty
conventions, certified properties exchanger's seminars, Los Angeles Town Hall,
National Association of Home Builders, International Council of Shopping
Centers, Society of Conventional Appraisers, California Real Estate Association,
National Institute of Real Estate Brokers, Appraisal Institute, various mortgage
banking seminars, and the North American Property Forum held in London, England.
In 1963, he was the winner of the Snyder Award, the highest annual award offered
by the National Association of Real Estate Boards for Best Exchange. He is one
of the founders and a past director of the First Los Angeles Bank, organized in
November 1974. Mr. Boxenbaum was a member of the Board of Directors of the
National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree
from the University of Chicago.

BRUCE E. NELSON, 48, President and a director of NAPICO.

Mr. Nelson joined the NAPICO in 1980 and became President in February 1989. He
is responsible for the operations of all NAPICO sponsored limited partnerships.
Prior to that he was primarily responsible for the securities aspects of the
publicly offered real estate investment programs. Mr. Nelson is also involved in
the identification, analysis, and negotiation of real estate investments.

From February 1979 to October 1980, Mr. Nelson held the position of Associate
General Counsel at Western Consulting Group, Inc., private residential and
commercial real estate syndicators. Prior to that time Mr. Nelson was engaged in
the private practice of law in Los Angeles. Mr. Nelson received his Bachelor of
Arts degree from the University of Wisconsin and is a graduate of the University
of Colorado School of Law. He is a member of the State Bar of California and is
a licensed real estate broker in California and Texas.

ALAN I. CASDEN, 54, Chairman of Casden Properties Inc., a director and member of
the audit committee of NAPICO, and chairman of the Executive Committee of
NAPICO.

Mr. Casden has been involved in approximately $3 billion of real estate
financings and sales and has been responsible for the development and
construction of more than 12,000 apartment units and 5,000 single-family homes
and condominiums.


Mr. Casden is a member of the American Institute of Certified Public Accountants
and of the California Society of Certified Public Accountants. Mr. Casden is a
member of the advisory board of the National Multi-Family Housing Conference,
the Multi-Family Housing Council, and the President's Council of the California
Building Industry Association. He also serves on the advisory board to the
School of Accounting of the University of




                                       34
<PAGE>   36

Southern California. He holds a Bachelor of Science and a Masters in Business
Administration degree from the University of Southern California.

PAUL PATIERNO, 43, Chief Financial Officer.

Mr. Patierno joined NAPICO in 1998 and is responsible for its financial affairs,
as well as the limited partnerships sponsored by it. From 1995 until joining
NAPICO in September 1998, Mr. Patierno was a senior manager in the affordable
housing group of Altschuler, Melvoin and Glasser LLP, a national public
accounting firm. From 1990 to 1995, he practiced public accounting with a firm
specializing in real estate syndication. Mr. Patierno received his bachelor of
science degree in accounting from California State University at Northridge, and
is a member of the American Institute of Certified Public Accountants and the
California Society of Certified Public Accountants.

PATRICIA W. TOY, 70, Senior Vice President - Communications and Assistant
Secretary.

Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the
Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a
U.S. Naval Officer in communications and personnel assignments. She holds a
Bachelor of Arts Degree from the University of Nebraska.

MARK L. WALTHER, 39, Executive Vice President, General Counsel and Assistant
Secretary.

Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of
the NAPICO sponsored limited partnerships. Prior to joining NAPICO, Mr. Walther
worked in the San Francisco law firm of Browne and Kahn which specialized in
construction litigation. Mr. Walther received his Bachelor of Arts Degree in
Political Science from the University of California, Santa Barbara and is a
graduate of the University of California, Davis, School of Law. He is a member
of the State Bar of Hawaii.

NAPICO and several of its officers, directors and affiliates, including Charles
H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on
June 25, 1997, of an administrative cease and desist order by the U.S.
Securities and Exchange Commission (the "Commission"), without admitting or
denying any of the findings made by the Commission. The Commission found that
NAPICO and others had violated certain federal securities laws in connection
with transactions unrelated to the Partnership. The Commission's order did not
impose any cost, burden or penalty on any partnership managed by NAPICO and does
not impact NAPICO's ability to serve as the Partnership's Managing General
Partner.

ITEM 11.   MANAGEMENT RENUMERATION AND TRANSACTIONS

Real Estate Associates Limited III has no officers, employees or directors.
However, under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to pay the Corporate General Partner
an annual management fee The annual management fee is approximately equal to .4
percent of the invested assets, including the Partnership's allocable share of
the mortgages related to real estate properties held by local limited
partnerships is to be paid to the general partners. The fee is earned beginning
in the month the Partnership makes its initial contribution to the limited
partnership. In addition, the Partnership reimburses the Corporate General
Partner for certain expenses.





                                       35
<PAGE>   37

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT:

(a)          Security Ownership of Certain Beneficial Owners

             The general partners own all of the outstanding general partnership
             interests of REAL III; no person is known to own beneficially in
             excess of 5% of the outstanding limited partnership interests.

(b)          At December 31, 1999, security ownership of management is
             as listed:

<TABLE>
<CAPTION>
                                                                Amount and        Percentage of
                                                                 Nature of         Outstanding
                                          Name of               Beneficial           Limited
Title of Class                       Beneficial Owner              Owner        Partner Interests
--------------                       ----------------           ----------      -----------------
<S>                              <C>                            <C>             <C>
Limited Partnership Interest     Coast Housing Investments
                                 Associates  (CHIA)
                                 9090 Wilshire Blvd., #201
                                 Beverly Hills, CA 90211           30,000                 *

Limited Partnership Interest     Charles H. Boxenbaum
                                 780 Latimer Road
                                 Santa Monica, CA 90402            17,500                 *

Limited Partnership Interest     Bruce E. Nelson
                                 7036 Grasswood Avenue
                                 Malibu, CA 90265                   5,000                 *
</TABLE>

*   Cumulative Limited Partnership interests owned by corporate officers or the
    general partner is less than 1% interest of total outstanding Limited
    Partnership interests.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

The Partnership has no officers, directors or employees of its own. All of its
affairs are managed by the Corporate General Partner, National Partnership
Investments Corp. The Partnership is obligated to NAPICO for an annual
management fee equal to .4 percent of the original remaining invested assets of
the limited partnerships. Invested assets is defined as the costs of acquiring
project interests, including the proportionate amount of the mortgage loans
related to the Partnership's interest in the capital accounts of the respective
partnerships. The management fee was $129,292 for the year ended December 31,
1999 and $454,800 for each of the two years in the period ended December 31,
1998.

The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was $16,488, $35,231 and $35,227 in 1999, 1998 and 1997, respectively,
and is included in operating expenses.

An affiliate of NAPICO was the general partner in one of the limited
partnerships in which the partnership interests were sold on December 30, 1998,
and another affiliate received property management fees of approximately 5
percent of its revenue. The affiliate received property management fees of
$16,128 and $17,408 in 1998 and 1997, respectively.


On December 30, 1998, the Partnership sold its limited partnership interests in
20 local limited partnerships, with a carrying value of $988,570, to the
Operating Partnership. The sale resulted in net proceeds to the


                                       36
<PAGE>   38

Partnership of $1,950,530 and a net gain of $2,647,716, after being relieved of
notes and interest payable of $1,947,962 and incurring selling cost of $262,206.
In March 1999, the Partnership made cash distributions of $6,881,025 to the
limited partners and $69,506 to the general partners, which included using
proceeds from the sale of the partnership interests.

The Operating Partnership purchased such limited partner interests for cash,
which it raised in connection with a private placement of its equity securities.
The purchase was subject to, among other things, (i) the purchase of the general
partner interests in the local limited partnerships by the Operating
Partnership; (ii) the approval of HUD and certain state housing finance
agencies; and (iii) the consent of the limited partners to the sale of the local
limited partnership interests held for investment by the Partnership.

In August 1998, a consent solicitation statement was sent to the limited
partners setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together with
certain amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the proposed transaction. Prior to the
sale of the partnership interests, the consents of the limited partners to the
sale and amendments to the Partnership Agreement were obtained.


ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:

FINANCIAL STATEMENTS

Report of Independent Public Accountants.

Balance Sheets as of December 31, 1999 and 1998.

Statements of Operations for the years ended December 31, 1999, 1998 and 1997.

Statements of Partners' Equity (Deficiency) for the years ended December 31,
1999, 1998 and 1997.

Statements of Cash Flow for the years ended December 31, 1999, 1998 and 1997.

Notes to Financial Statements.

FINANCIAL STATEMENT SCHEDULES
APPLICABLE TO REAL ESTATE ASSOCIATES LIMITED III, REAL ESTATE ASSOCIATES AND THE
LIMITED PARTNERSHIPS IN WHICH REAL ESTATE ASSOCIATES LIMITED III AND REAL ESTATE
ASSOCIATES HAVE INVESTMENTS:

Schedule - Investments in Limited Partnerships, December 31, 1999, 1998 and
1997.

Schedule III - Real estate and accumulated depreciation, December 31, 1999, 1998
and 1997.

The remaining schedules are omitted because the required information is included
in the financial statements and notes thereto or they are not applicable or not
required.

EXHIBITS

(3)   Articles of incorporation and bylaws: The registrant is not incorporated.
      The Partnership Agreement was filed with Form S-11 #268983 incorporated
      herein by reference.


                                       37
<PAGE>   39

(10)    Material contracts: The registrant is not party to any material
        contracts, other than the Restated Certificate and Agreement of Limited
        Partnership dated January 5, 1981, and the thirty-three contracts
        representing the Partnership investment directly or indirectly in local
        limited partnerships as previously filed at the Securities Exchange
        Commission, File 268983 which is hereby incorporated by reference.

REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the year ended December 31, 1999.




                                       38
<PAGE>   40

                                           SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Los Angeles,
State of California.


REAL ESTATE ASSOCIATES LIMITED III

By:       NATIONAL PARTNERSHIP INVESTMENTS CORP.
          General Partner

/s/ CHARLES H. BOXENBAUM
-----------------------------------
Charles H. Boxenbaum
Chairman of the Board of Directors
and Chief Executive Officer


/s/ BRUCE E. NELSON
-----------------------------------
Bruce E. Nelson
Director and President


/s/ ALAN I. CASDEN
-----------------------------------
Alan I. Casden
Director


/s/ PAUL PATIERNO
-----------------------------------
Paul Patierno
Chief Financial Officer



                                       39