<PAGE>   1

                             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, 2000

                             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, 2000, 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 may not 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


<PAGE>   3

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.

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.


<PAGE>   4

During 2000, the projects in which REAL III had invested were substantially
rented. The following is a schedule of the status as of December 31, 2000, 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, 2000


<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                    553/  0           538                   97%
 Residential Project
 Rochester, NY

Hidden Pines Apts.                                   40                     40/  0            40                  100%
 Greenville, MI

Jenks School Apts.                                   83                     83/  0            78                   94%
 Pawtucket, RI

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

Ramblewood Apts.                                     64                      0/ 13            59                   92%
 Fort Payne, AL

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

Sunset Grove Apts.                                   22                     22/  0            20                   91%
 Carson City, MI

Sunshine Canyon                                      26                     26/  0            25                   96%
 Stanton, MI

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


<PAGE>   5

            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL III HAS AN INVESTMENT
                          DECEMBER 31, 2000 (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              67                  93%
 Albertville, AL
                                -----              ------           -----                 ---

TOTALS                          1,181              460/50           1,148                  97%
                                =====              ======           =====                 ===
</TABLE>


<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 (an 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 second action has been subsumed in the
first action, which has been certified as a class action. 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, 2000, 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, 2000, there were 1,889 registered
holders of units in REAL III. 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. A 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. 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. No other distributions have
been made since the inception of the Partnership.


<PAGE>   7

ITEM 6. SELECTED FINANCIAL DATA:


<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                   ----------------------------------------------------------------------------------------

                                       2000               1999               1998               1997               1996
                                   ------------       ------------       ------------       ------------       ------------
<S>                                <C>                <C>                <C>                <C>                <C>
Loss From Operations               $     (2,728)      $   (515,047)      $   (928,096)      $   (443,767)      $   (518,472)

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

Distributions From
   Limited Partnerships
   Recognized as Income                  34,619             18,112          1,508,602          1,072,912            858,869

Equity in Income of
   Limited Partnerships
   and Amortization of
   Acquisition Costs                    216,729            190,985            564,059            255,652            383,682
                                   ------------       ------------       ------------       ------------       ------------

Net (Loss) Income                  $    248,620       $   (305,950)      $  3,792,281       $    884,797       $    724,079
                                   ============       ============       ============       ============       ============

Net (Loss) Income per Limited
   Partnership Interest            $         21       $        (26)      $        328       $         76       $         63
                                   ============       ============       ============       ============       ============



Total assets                       $  6,725,476       $  6,467,723       $ 14,026,790       $ 11,960,231       $ 10,933,018
                                   ============       ============       ============       ============       ============

Investments in Limited
   Partnerships                    $  1,069,713       $    894,213       $    744,457       $  1,249,421       $  1,063,487
                                   ============       ============       ============       ============       ============

Notes Payable                      $         --       $         --       $         --       $  1,510,000       $  1,510,000
                                   ============       ============       ============       ============       ============
</TABLE>


<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, 2000, 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 95% 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, 2000, the Partnership has a positive investment balance
in only one local limited partnership.

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 $(499,000), $(310,000) and $99,000 for the
years ended December 31, 2000, 1999 and 1998, 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 $216,729, $190,985 and $564,059 for the years ended
December 31, 2000, 1999 and 1998, respectively. The income recognized decreased
in 2000 and 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 $17,460,000 and $16,745,000 as of
December 31, 2000 and 1999, respectively.

Distributions from the local limited partnerships in which the Partnership did
not have a positive investment balance were $34,619, $18,112 and $1,508,602 for
the years ended December 31, 2000, 1999 and 1998, respectively. These


<PAGE>   9

amounts were recognized as income on the accompanying statements of operations,
in accordance with the equity method of accounting. Distributions decreased in
2000 and 1999 as a result of the sale of certain partnership interests in 1998.

As of December 31, 2000, 1999 and 1998, the Partnership has cash and cash
equivalents of $5,655,763, $5,571,366 and $11,331,803, respectively.
Substantially all of these amounts are on deposit primarily with 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 $314,363, $215,072 and $493,522 in interest
income for the years ended December 31, 2000, 1999 and 1998, 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 to
$129,292 for 2000 and 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.
Interest expense was $151,000 for the year ended December 31, 1998. 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 may not 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.

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.


<PAGE>   10

As a result of the foregoing, the Partnership in 1997 commenced 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 and $627,059 for the years ended December 31, 1999 and 1998,
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 $121,717, $94,550 and $83,573 for the years ended December 31, 2000, 1999
and 1998, respectively. Administrative expenses were $66,082, $506,277 and
$732,245 for the years ended December 31, 2000, 1999 and 1998, respectively.
Included in administrative expenses are reimbursements to NAPICO for certain
expenses, which totaled $11,349, $16,488 and $35,231 for the years ended
December 31, 2000, 1999 and 1998, respectively. Also included in administrative
expenses for 1999 and 1998 is $434,940 and $627,059, 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, 2000 and 1999 as compared to 1998, 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 for the
year ended December 31, 1998, to $6,583,000 and $6,525,000 for the years ended
December 31, 2000 and 1999, respectively.

Total expenses for the local partnerships decreased from $22,380,000 for the
year ended December 31, 1998 to $7,090,000 and $6,835,000 for the years ended
December 31, 2000 and 1999, respectively.

The total net (loss) income for the local partnerships for 2000, 1999 and 1998
aggregated $(507,000), $(310,000) and $101,000, respectively. The (loss) income
allocated to the Partnership was $(499,000), $(310,000) and $99,000 for 2000,
1999 and 1998, 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


<PAGE>   11

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.


<PAGE>   12

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                              FINANCIAL STATEMENTS,
                          FINANCIAL STATEMENT SCHEDULES
                   AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
                                DECEMBER 31, 2000


<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, 2000 and 1999,
and the related statements of operations, partners' equity (deficiency) and cash
flows for each of the three years in period ended December 31, 2000. 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 16 percent and 13 percent of
total assets as of December 31, 2000 and 1999, respectively, and the equity in
income of these limited partnerships represents 25 percent, 17 percent and 11
percent of the total net income of the Partnership for the years ended December
31, 2000, 1999 and 1998, 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. 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 28, 2001


<PAGE>   14

                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

                                 BALANCE SHEETS

                           DECEMBER 31, 2000 AND 1999

                                     ASSETS


<TABLE>
<CAPTION>
                                                             2000              1999
                                                         -----------       -----------
<S>                                                      <C>               <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)             $ 1,069,713       $   894,213

CASH AND CASH EQUIVALENTS (Note 1)                         5,655,763         5,571,366

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

          TOTAL ASSETS                                   $ 6,725,476       $ 6,467,723
                                                         ===========       ===========


                  LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)

LIABILITIES:
     Accounts payable                                    $    15,294       $     6,161
                                                         -----------       -----------


COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)


PARTNERS' EQUITY (DEFICIENCY):
    General partners                                        (131,875)         (134,361)
    Limited partners                                       6,842,057         6,595,923
                                                         -----------       -----------

                                                           6,710,182         6,461,562
                                                         -----------       -----------
           TOTAL LIABILITIES AND PARTNERS'
                EQUITY                                   $ 6,725,476       $ 6,467,723
                                                         ===========       ===========
</TABLE>


     The accompanying notes are integral part of these financial statements.


<PAGE>   15

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                                        2000             1999              1998
                                                    -----------       -----------       -----------
<S>                                                 <C>               <C>               <C>
INTEREST AND OTHER INCOME                           $   314,363       $   215,072       $   493,522

OPERATING EXPENSES:
    Legal and accounting                                121,717            94,550            83,573
    Management fees - general partner (Note 4)          129,292           129,292           454,800
    Interest (Note 3)                                        --                --           151,000
    Administrative  (Note 4)                             66,082           506,277           732,245
                                                    -----------       -----------       -----------

              Total operating expenses                  317,091           730,119         1,421,618
                                                    -----------       -----------       -----------

LOSS FROM OPERATIONS                                     (2,728)         (515,047)         (928,096)

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

DISTRIBUTIONS FROM LIMITED
      PARTNERSHIPS RECOGNIZED AS
      INCOME (Note 2)                                    34,619            18,112         1,508,602

EQUITY IN INCOME OF LIMITED
      PARTNERSHIPS AND AMORTI-
       ZATION OF ACQUISITION
       COSTS (Note 2)                                   216,729           190,985           564,059
                                                    -----------       -----------       -----------

NET INCOME (LOSS)                                   $   248,620       $  (305,950)      $ 3,792,281
                                                    ===========       ===========       ===========

NET INCOME (LOSS) PER LIMITED
     PARTNERSHIP INTEREST (Note 1)                  $        21      $       (26)      $       328
                                                    ===========       ===========       ===========
</TABLE>


     The accompanying notes are integral part of these financial statements.


<PAGE>   16

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                   STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                               General           Limited
                              Partners           Partners             Total
                            ------------       ------------       ------------
<S>                         <C>                <C>                <C>
EQUITY (DEFICIENCY),
   January 1, 1998          $    (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

   Net income for 2000             2,486            246,134            248,620
                            ------------       ------------       ------------

EQUITY (DEFICIENCY),
   December 31, 2000        $   (131,875)      $  6,842,057       $  6,710,182
                            ============       ============       ============
</TABLE>


     The accompanying notes are integral part of these financial statements.

<PAGE>   17

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                                                            2000               1999               1998
                                                                        ------------       ------------       ------------
<S>                                                                     <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income (loss)                                                 $    248,620       $   (305,950)      $  3,792,281
      Adjustments to reconcile net income (loss) to net cash
        provided by (used in) operating activities:
          Gain on sale of limited partnership interests                           --                 --         (2,647,716)
          Equity in income of limited partnerships and
              amortization of acquisition costs                             (216,729)          (190,985)          (564,059)
          Decrease (increase) in other assets                                  2,144             (2,144)           135,000
          Increase accrued interest payable                                       --                 --             23,685
          Increase (decreease) in accounts payables                            9,133           (302,586)           198,555
                                                                        ------------       ------------       ------------

               Net cash provided by (used in) operating activities            43,168           (801,665)           937,746
                                                                        ------------       ------------       ------------

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             41,229            305,634
      Capital contributions and advances
           to limited partnerships                                                --                 --           (225,181)
      Proceeds from the sale of limited partnership interests                     --          1,950,530                 --
                                                                        ------------       ------------       ------------

                Net cash provided by investing activities                     41,229          1,991,759           (181,753)
                                                                        ------------       ------------       ------------

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


NET INCREASE (DECREASE) IN CASH AND
     CASH EQUIVALENTS                                                         84,397         (5,760,437)           755,993

CASH AND CASH EQUIVALENTS,
      BEGINNING OF YEAR                                                    5,571,366         11,331,803         10,575,810
                                                                        ------------       ------------       ------------

CASH AND CASH EQUIVALENTS,
      END OF YEAR                                                       $  5,655,763       $  5,571,366       $ 11,331,803
                                                                        ============       ============       ============

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

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.


<PAGE>   18

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


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.
       The business of the Partnership 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 remaining
       economic interest, including a majority of the voting common stock,
       continues to be owned by CIC.

       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



<PAGE>   19

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

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.

       Basis of Presentation

       The accompanying financial statements have been prepared in conformity
       with accounting principles generally accepted in the United States of
       America.

       Use of Estimates

       The preparation of financial statements in conformity with accounting
       principles generally accepted in the United States of America 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 (loss) 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.



<PAGE>   20

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       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 with high credit
       quality financial institutions. Such cash and cash equivalents are in
       excess of the FDIC insurance limit.

       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, 2000 and 1999, 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 95 percent
       and 99 percent of the profits and losses of the limited partnerships.

       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 $17,460,000 and $16,745,000 as of December 31, 2000 and
       1999, 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.



<PAGE>   21

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

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>
                                                                2000              1999
                                                            -----------       -----------
<S>                                                         <C>               <C>
Investment balance, beginning of year                       $   894,213       $   744,457
Equity in income of limited partnerships                        218,950           193,206
Investment in limited partnerships sold
Amortization of capitalized acquisition costs and fees           (2,221)           (2,221)
Cash distributions recognized as return of capital              (41,229)          (41,229)
                                                            -----------       -----------

Investment balance, end of year                             $ 1,069,713       $   894,213
                                                            ===========       ===========
</TABLE>

       The difference between the investment in the accompanying balance sheets
       at December 31, 2000 and 1999, 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, 2000 and 1999 and for each of the three years in the period
       ended December 31, 2000, of the limited partnerships in which the
       Partnership has invested directly or indirectly, is as follows:

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                      2000           1999
                                                    --------       --------
                                                         (in thousands)
<S>                                                 <C>            <C>
Land and buildings, net                             $ 11,520       $ 12,614
                                                    ========       ========

Total assets                                        $ 14,802       $ 15,787
                                                    ========       ========

Mortgages payable                                   $ 29,064       $ 29,569
                                                    ========       ========

Total liabilities                                   $ 31,431       $ 31,810
                                                    ========       ========

Deficiency in Equity of Real Estate Associates
  Limited III                                       $(16,910)      $(16,338)
                                                    ========       ========

Equity of other partners                            $    281       $    315
                                                    ========       ========
</TABLE>



<PAGE>   22

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

2.     INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

                            Statements of Operations


<TABLE>
<CAPTION>
                                                     2000            1999            1998
                                                    -------       ----------       -------
                                                                (in thousands)
<S>                                                 <C>         <C>                <C>
Total revenue                                       $ 6,583       $    6,525       $22,480
                                                    =======       ==========       =======

Interest expense                                    $ 1,799       $    1,787       $ 6,564
                                                    =======       ==========       =======

Depreciation                                        $ 1,278       $    1.264       $ 3,617
                                                    =======       ==========       =======

Total expenses                                      $ 7,090       $    6,835       $22,380
                                                    =======       ==========       =======

Net (loss) income                                   $  (507)      $     (310)      $   101
                                                    =======       ==========       =======

Net (loss) income allocable to the Partnership      $  (499)      $     (310)      $    99
                                                    =======       ==========       =======
</TABLE>


       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 interest was 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 in 1998.

       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 may not 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



<PAGE>   23

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

2.     INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

       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.

       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 commenced 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
       and $627,059 for the years ended December 31, 1999 and 1998,
       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.



<PAGE>   24

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

2.     INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

       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.

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 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 the Partnership'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.



<PAGE>   25

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

4.     FEES AND EXPENSES DUE GENERAL PARTNER (CONTINUED)

       The Partnership reimburses NAPICO for certain expenses. The reimbursement
       to NAPICO was $11,349, $16,488 and $35,231 in 2000, 1999 and 1998,
       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 (an 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 second
       action has been subsumed in the first action, which has been certified as
       a class action. 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.



<PAGE>   26

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2000

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.

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 $74,000, between the
       estimated nine-month equity in income and the actual total for 2000
       equity in income has been recorded in the fourth quarter.



<PAGE>   27

                                                                        SCHEDULE

                       REAL ESTATE ASSOCIATES LIMITED III
                       INVESTMENTS IN LIMITED PARTNERSHIPS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                                              Year Ended December 31, 2000
                                -------------------------------------------------------------------------------------
                                                                 Cash         Equity
                                 Balance                        Distri-         in                         Balance
                                 January         Capital        butions       Income                       December
Limited Partnerships             1, 2000       Contributions   Received       (Loss)         Sale          31, 2000
-----------------------------   -----------    ------------    ----------    ----------    ----------     -----------
<S>                            <C>            <C>             <C>           <C>           <C>           <C>
Charlotte                      $              $               $             $             $             $
Hidden Pines Apartments
Jenks School Apartments            894,213                       (41,229)      216,729                     1,069,713
Lakeside Apartments
Ramblewood Apartments
Santa Maria Apartments
Sunset Grove Apartments
Sunshine Canyon Apartments
Vicente Geigel Polanco Apts.
Village Apartments
Vista De Jagueyes
Westgate Apartments
                                -----------    ------------    ----------    ----------    ----------     -----------

                               $   894,213    $         --    $  (41,229)   $  216,729    $       --    $  1,069,713
                                ===========    ============    ==========    ==========    ==========     ===========
</TABLE>


<PAGE>   28

                                                                     SCHEDULE
                                                                     (Continued)

                       REAL ESTATE ASSOCIATES LIMITED III
                       INVESTMENTS IN LIMITED PARTNERSHIPS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<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>


<PAGE>   29

                                                                     SCHEDULE
                                                                     (Continued)

                       REAL ESTATE ASSOCIATES LIMITED III
                       INVESTMENTS IN LIMITED PARTNERSHIPS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<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


<PAGE>   30

                                                                     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, 2000, 1999 AND 1998


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.


<PAGE>   31

                                                                    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, 2000



<TABLE>
<CAPTION>
                                                                           Buildings,
                                                                        Furnishings and
                                                                       Equipment-Initial
                                                                       Cost to Partnership
                                  Number of   Outstanding              and Amount Carried               Accumulated    Construction
Partnership/Location                Units    Mortgage Loan     Land    at Close of Period   Total       Depreciation      Period
<S>                               <C>        <C>            <C>        <C>               <C>            <C>            <C>
Charlottle Lakeview                   553    $12,013,320    $   551,500    $19,108,245   $19,659,745    $16,545,999     (A)
  Rochester, NY
Hidden Pines Apartments                40      1,351,017         43,954      1,648,093     1,692,047      1,644,550     1981
  Greenville, Michagan
Jenks School Apartments                83      1,693,527         96,740      3,706,993     3,803,733      2,224,269     1981-1982
  Pawtucket, Rhode Island
Lakeside Apartments                    32        921,572         72,336      1,017,782     1,090,118        812,319     1980-1981
  Stuart, Florida
Ramblewood Apartments                  64      1,472,909         53,267      2,115,646     2,168,913      1,176,947     1980-1981
  Fort Payne, Alabama
Santa Maria Apartments                 86      2,745,057         86,106      3,452,503     3,538,609      2,294,900     1981-1982
  San German, Puerto Rico
Sunset Groove Apartments               22        640,797         19,432        815,429       834,861        800,666     1981-1982
  Carson City, Michagan
Sunshine Canyon Apartments             26        823,340         20,262        999,551     1,019,813        981,865     1981-1982
  Stanton, Michagan
Village Apartments                     50      1,424,108         65,245      1,805,622     1,870,867      1,321,700     1981-1982
  La Follette, Tennessee
Vicente Geigel Polanco Apts            80      2,533,574        107,685      3,052,518     3,160,203      1,999,812     1981-1982
  Issabela, Puerto Rico
Vista De Jagueyes                      73      2,471,167        102,554      3,256,461     3,359,015      2,335,366     1981-1982
  Aguas Buenas, Puerto Rico
Westgate Apartments                    72        974,099         80,000      1,487,142     1,567,142        864,788     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      1,975,138
                                             -----------    -----------    -----------   -----------    ------------

TOTAL                                1181    $29,064,487    $ 1,383,752    $45,115,021   $46,498,773    $ 34,978,319
                                             ===========    ===========    ===========   ===========    ============
</TABLE>


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


<PAGE>   32

                                                                    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, 2000, 1999 AND 1998


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, 1998             $   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

Net additions during 2000                       --             163,752             163,752
                                     -------------       -------------       -------------

Balance, December 31, 2000           $   1,383,752       $  45,115,021       $  46,498,773
                                     =============       =============       =============
</TABLE>


<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, 2000


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

Balance, January 1, 1998                     $ 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

Net additions during 2000                       1,257,220
                                             ------------

Balance, December 31, 2000                   $ 34,978,319
                                             ============
</TABLE>


<PAGE>   34

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, 71, Chairman of the Board of Directors and Chief Executive
Officer of NAPICO.

Mr. Boxenbaum has been associated with 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 member of the Board of Directors of Casden Properties Inc.
since 1998.

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.
He is one of the founders and a past director of the First Los Angeles Bank,
organized in November 1974. Since March 1995, Mr. Boxenbaum has served on 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, 49, President, Chief Operating Officer and a director of
NAPICO.

Mr. Nelson joined 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. Mr.
Nelson is a member of the Board of Directors of Casden Properties Inc. and is a
Director of the Affordable Housing Tax Credit Coalition.

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, 55, Chairman of the Board of Directors and Chief Executive
Officer 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.


<PAGE>   35

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, the President's Council of the California
Building Industry Association and the Urban Land Institute. He also serves on
the Board of Trustees of the University of Southern California. He holds a
Bachelor of Science degree and a Masters in Business Administration degree from
the University of Southern California.

BRIAN H. SHUMAN, 38, Vice President and Chief Financial Officer.

Mr. Shuman joined NAPICO in 2000, and is responsible for the financial affairs
of NAPICO, as well as the limited partnerships sponsored by it. From 1996 until
joining NAPICO in August 2000, Mr. Shuman was Vice President - Finance for
Preferred Health Management Inc., the largest provider of worker compensation
diagnostic imaging services in California formed in 1996, and was responsible
for establishing and managing the accounting, billing, collection , treasury and
financial reporting departments. From 1994 to 1996, he was the Controller for
DVI Business Credit Corporation, which provides asset based lending to a wide
range of health concerns. From 1985 to 1994, Mr. Shuman served in senior
management positions, as a director or manager of finance, a portfolio tax
analyst, and a senior accountant/tax consultant. He holds a Bachelor of Arts
degree in economics and accounting from the University of Maryland. Mr. Shuman
is a Certified Public Accountant and is a member of American Institute of
Certified Public Accountants and the California Society of Public Accountants.

PATRICIA W. TOY, 71, 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.

JEFFREY H. SUSSMAN, 34, Senior Vice President, General Counsel and Secretary.

Mr. Sussman joined NAPICO in 1998, and is responsible for the legal affairs of
NAPICO and its affiliates. He is also the President of NPEI and a member of the
preliminary investment committee. Prior to joining NAPICO in April 1998, Mr.
Sussman was an associate with the law firm of Rus, Miliband, Williams & Smith in
Irvine, California. His practice emphasized real estate finance and insolvency
law and included the representation of borrowers, lenders, and court-appointed
trustees in matters involving apartment complexes, retail centers and hotels.
Mr. Sussman received a Bachelor of Arts degree from the University of
California, Berkeley and Juris Doctor and Master in Business Administration
degrees from the University of Southern California. He is a member of the State
Bar of California, and holds Series 22, 39 and 63 licenses issued by the
National Association of Securities Dealers, Inc.

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


<PAGE>   36

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.


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, 2000, 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, $129,292 and $454,800 for the
years ended December 31, 2000, 1999 and 1998, respectively.

The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was $11,349, $16,488 and $35,231 in 2000, 1999 and 1998, respectively,
and is included in operating expenses.


<PAGE>   37

An affiliate of NAPICO was the general partner in one of the limited
partnerships in which the partnership interest was 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 in 1998.

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 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, 2000 and 1999.

Statements of Operations for the years ended December 31, 2000, 1999 and 1998.

Statements of Partners' Equity (Deficiency) for the years ended December 31,
2000, 1999 and 1998.

Statements of Cash Flow for the years ended December 31, 2000, 1999 and 1998.

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, 2000, 1999 and
1998.

Schedule III - Real estate and accumulated depreciation, December 31, 2000, 1999
and 1998.

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.


<PAGE>   38

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.


(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, 2000.


<PAGE>   39

                                   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/ BRIAN H. SHUMAN
---------------------------------------
Brian H. Shuman
Chief Financial Officer