<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended     December 31, 1997
                              -----------------

Commission file number             0-11962
                              -----------------

                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                 Maryland                               52-1311532
----------------------------------------------    ---------------------
     (State or other jurisdiction of              (I.R.S. Employer
     incorporation or organization)               Identification No.)

11200 Rockville Pike, Rockville, Maryland                20852
---------------------------------------------     ---------------------
(Address of principal executive offices)               (Zip Code)


(Registrant's telephone number,
including area code)                                 (301) 468-9200
                                                  ---------------------

           Securities registered pursuant to Section 12(b) of the Act:

                                                  Name of each exchange
             Title of each class                  on which registered
---------------------------------------------     ---------------------
                  NONE                                    N/A


           Securities registered pursuant to Section 12(g) of the Act:

                            LIMITED PARTNERSHIP UNITS
-------------------------------------------------------------------------------
                                (Title of class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]   No [ ]

     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)

     The partnership interests of the Registrant are not traded in any market.
Therefore, the partnership interests had neither a market selling price nor an
average bid or asked price within the 60 days prior to the date of this filing.
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                         1997 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS

                                                                 Page
                                                                 ----
                                     PART I
                                     ------


Item 1.  Business   . . . . . . . . . . . . . . . . . . . .      I-1
Item 2.  Properties   . . . . . . . . . . . . . . . . . . .      I-7
Item 3.  Legal Proceedings  . . . . . . . . . . . . . . . .      I-7
Item 4.  Submission of Matters to a Vote
           of Security Holders  . . . . . . . . . . . . . .      I-7


                                     PART II
                                     -------

Item 5.  Market for the Registrant's Partnership
           Interests and Related Partnership Matters  . . .      II-1
Item 6.  Selected Financial Data  . . . . . . . . . . . . .      II-2
Item 7.  Management's Discussion and Analysis
           of Financial Condition and Results
           of Operations  . . . . . . . . . . . . . . . . .      II-3
Item 8.  Financial Statements and Supplementary Data  . . .      II-9
Item 9.  Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure   . . . .      II-9


                                    PART III
                                    --------

Item 10. Directors and Executive Officers
           of the Registrant  . . . . . . . . . . . . . . .      III-1
Item 11. Executive Compensation   . . . . . . . . . . . . .      III-2
Item 12. Security Ownership of Certain Beneficial
           Owners and Management  . . . . . . . . . . . . .      III-2
Item 13. Certain Relationships and Related Transactions   .      III-3


                                     PART IV
                                     -------

Item 14. Exhibits, Financial Statement Schedules and
           Reports on Form 8-K  . . . . . . . . . . . . . .      IV-1

Signatures  . . . . . . . . . . . . . . . . . . . . . . . .      IV-3

Exhibit Index . . . . . . . . . . . . . . . . . . . . . . .      IV-31
<PAGE>
                                     PART I
                                     ------

ITEM 1.   BUSINESS
          --------

     Capital Realty Investors-III Limited Partnership (the Partnership) is a
limited partnership which was formed under the Maryland Revised Uniform Limited
Partnership Act on June 27, 1983.  On November 7, 1983, the Partnership
commenced offering 60,000 limited partnership interests through a public
offering which was managed by Merrill Lynch, Pierce, Fenner and Smith,
Incorporated.  The Partnership closed the offering in January 1984 when it
became fully subscribed.

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

     The Partnership was formed to invest in real estate, which is the
Partnership's principal business activity, by acquiring and holding a limited
partnership interest in limited partnerships (Local Partnerships).  The
Partnership originally made investments in thirty-seven Local Partnerships.  As
of December 31, 1997, the Partnership had investments in thirty-two Local
Partnerships.  Each of these Local Partnerships owns or owned a federal or state
government-assisted or conventionally financed apartment complex, which provides
housing principally to the elderly and/or to individuals and families of low or
moderate income.  The original objectives of these investments, not necessarily
in order of importance, were to:

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

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

     The Local Partnerships in which the Partnership has invested were organized
by private developers who acquired the sites, or options thereon, applied for
applicable mortgage insurance and/or subsidies, and remain as the local general
partners in the Local Partnerships.  The Partnership became the principal
limited partner in thirty-one (twenty-seven as of December 31, 1997) of these
Local Partnerships pursuant to negotiations with these developers who act as the
local general partners.  However, in the event of non-compliance with the Local
Partnerships' partnership agreements, the local general partner may be removed
and replaced with another local general partner or with an affiliate of the
Partnership's Managing General Partner.  As a limited partner, the Partnership's
legal liability for obligations of the Local Partnership is limited to its
investment.  In six (five as of December 31, 1997) Local Partnerships, the
Partnership invested as a limited partner in intermediary partnerships which, in
turn, have invested as general partners in the Local Partnerships. An affiliate
of the Managing General Partner of the Partnership is also a general partner of
the twenty-seven Local Partnerships and the five intermediary partnerships. In
most cases, the local general partners of the Local Partnership retain
responsibility for developing, constructing, maintaining, operating and managing

                                       I-1
<PAGE>
                                     PART I
                                     ------

ITEM 1.   BUSINESS - Continued
          --------

the project.  Additionally, the local general partners and affiliates of the
Managing General Partner may operate other apartment complexes which may be in
competition for eligible tenants with the Local Partnerships' apartment
complexes.

     Although each of the Local Partnerships in which the Partnership has
invested owns an apartment complex which must compete in the market place for
tenants, interest subsidies and/or rent supplements from governmental agencies
generally make it possible to offer certain of these dwelling units to eligible
tenants at a cost significantly below the market rate for comparable
conventionally financed dwelling units. Based on available data, the General
Partners believe there to be no material risk of market competition in the
operations of the apartment complexes described below which would adversely
impact the Partnership, except in specific circumstances as described in Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.










































                                       I-2
<PAGE>
                                     PART I
                                     ------

ITEM 1.   BUSINESS - Continued
          --------

     A schedule of the apartment complexes owned by Local Partnerships in
which the Partnership has an investment follows.

                SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
            IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
                                HAS AN INVESTMENT(1)
<TABLE>
<CAPTION>
                                                                                               Units          Expiration
                           Mortgage                                                        Authorized for         of
 Name and Location        Payable at        Financed and/or Insured         Number of       Rental Asst.       Section 8
of Apartment Complex     12/31/97 (2)       and/or Subsidized Under        Rental Units     Under Sec. 8      HAP Contract
--------------------     ------------    -----------------------------     ------------    --------------     -------------
<S>                      <C>             <C>                               <C>             <C>                <C>
Arboretum Village        $  8,934,566    Conventional                         308               0                  --
 Lisle, IL

Audubon Towers              3,556,002    New Jersey Housing and Mortgage      124             123               02/11/20
 Audubon, NJ                              Finance Agency (NJHMFA)

Bartley Manor                 804,563    Federal National Mortgage Associ-     70              69               07/31/98 (4)
 Superior, WI                             ation (FNMA)/236

Briar Crest I                 583,802    FNMA/236                              53              53               06/30/98
 Niles, MI

Briar Crest II                621,842    FNMA/236                              49              49               06/30/98
 Niles, MI

Briar Hills                   599,908    FNMA/236                              50              33               09/30/98 (4)
 South Haven, MI

College Park                1,305,000    Mid Atlantic National Bank           100             100               05/01/08
 Meridian, MS

Congress Plaza              2,333,391    Connecticut Housing Finance Agency   101             100               02/28/99
 Bridgeport, CT

Glen Agnes                  4,363,540    California Housing Finance Agency    149             149               01/27/18
 Fresno, CA                               (CHFA)

Greeley Manor               1,304,403    FNMA/236                             128             119               11/01/98
 Greeley, CO

Heritage Estates I          2,783,845    Missouri Housing Development         228               0                  --
 St. Louis, MO                            Agency (MHDA)/Section 221(d)(4)
                                          of the National Housing Act (NHA)

Heritage Estates II         2,223,552    MHDA/Section 221 (d)(4) of the NHA   160               0                  --
 St. Louis, MO

Highland Manor              2,258,824    Government National Mortgage         111             111               02/08/98 (4)
 Birmingham, AL                           (GNMA)/ Section 221(d)(4) of the
                                          NHA/ Section 8

</TABLE>
                                                                  (Continued)

                                       I-3
<PAGE>
                SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
           IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
                          HAS AN INVESTMENT(1) - Continued

<TABLE>
<CAPTION>
                                                                                               Units          Expiration
                           Mortgage                                                        Authorized for         of
 Name and Location        Payable at        Financed and/or Insured         Number of       Rental Asst.       Section 8
of Apartment Complex     12/31/97 (2)       and/or Subsidized Under        Rental Units     Under Sec. 8      HAP Contract
--------------------     ------------    -----------------------------     ------------    --------------     -------------
<S>                      <C>             <C>                               <C>             <C>                <C>
Indian Hills             $    527,660    FNMA/236                              40              24               09/30/98 (4)
 Townhouses
 Dowagiac, MI

Lakewood Apts.                828,120    Farmers Home Administration/515       50              50               08/01/99
 Eufaula, AL

Meadow Lanes Apts.          1,829,614    Michigan State Housing Development   118              24               03/01/16
 Holland, MI                              Authority

Monterey/Hillcrest         13,773,153    GNMA 221(d)(4)                       300              60               12/13/03
 Waukesha, WI

O'Farrell Towers            8,145,211    CHFA                                 101             101               09/20/03
 San Francisco, CA

Rolling Green at            6,295,411    Massachusetts Housing Finance        304              18               04/01/11
 Milford                                  Agency/236
 Milford, MA

Southmoor Townhouse           465,087    Intrawest Mortgage Company Federal    40               8               08/31/99 (4)
 Apts.                                    National Mortgage Assn./236
 Greeley, CO

Tyee Apts.                  1,372,698    FNMA/236                             100              56               07/31/98
 Anchorage, AK

Victorian Towers            5,108,032    NJHMFA/236                           205              27               04/01/31
 Cape May, NJ

Villa Mirage I              2,172,763    CHFA                                  50              50               12/01/05
 Rancho Mirage, CA

Villa Mirage II             2,155,152    CHFA                                  48              48               10/01/05
 Rancho Mirage, CA

Village Green                 352,973    FNMA/236                              36              36               09/30/98 (4)
 Reedsburg, WI

Village Square                476,158    FNMA/236                              48              48               09/30/98 (4)
 Barabou, WI

Village Squire I & II       8,984,563    Conventional                         377               0                  --
 Canton, MI

Village Squire III          5,796,746    Conventional                         224               0                  --
 Canton, MI

</TABLE>
                                                                  (continued)


                                       I-4
<PAGE>
                                     PART I
                                     ------

ITEM 1.   BUSINESS - Continued
          --------

<PAGE>
                 SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
            IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
                        HAS AN INVESTMENT(1) - Continued

<TABLE>
<CAPTION>
                                                                                               Units          Expiration
                           Mortgage                                                        Authorized for         of
 Name and Location        Payable at        Financed and/or Insured         Number of       Rental Asst.       Section 8
of Apartment Complex     12/31/97 (2)       and/or Subsidized Under        Rental Units     Under Sec. 8      HAP Contract
--------------------     ------------    -----------------------------     ------------    --------------     -------------
<S>                      <C>             <C>                               <C>             <C>                <C>
Walsh Park               $  5,135,674    IHDA                                 134             134               10/31/13
 Chicago, IL

Winchester Gardens Apts.    3,171,089    FNMA/236                             206             202               08/31/98 (4)
 Columbus, OH

Windham Village             2,476,121    CHFA                                  50              44               10/31/15
 Santa Rose, CA

Woodside Village            2,592,313    FNMA/236                             180             114               08/31/98 (4)
 Anchorage, AK
                         ------------                                      ------          ------
Totals 32                $103,331,776                                       4,242           1,950
                         ============                                      ======          ======
</TABLE>






























                                       I-5
<PAGE>
                  SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
              IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
                          HAS AN INVESTMENT(1) - Continued

<TABLE>
<CAPTION>
                                                                                    Average Effective Annual
                                      Units Occupied As                                  Rental Per Unit
                                  Percentage of Total Units                            for the Year Ended
                                      As of December 31,                                   December 31,
 Name and Location            ---------------------------------       -----------------------------------------------------
of Apartment Complex          1997   1996    1995   1994   1993         1997       1996        1995       1994       1993
--------------------          ----   ----    ----   ----   ----       --------   --------    --------   --------   --------
<S>                           <C>    <C>     <C>    <C>    <C>        <C>        <C>         <C>        <C>        <C>
Arboretum Village              94%    92%     94%    96%    97%       $  8,724   $  8,677    $  8,363   $  7,976   $  7,593
 Lisle, IL

Audubon Towers                100%   100%     100%  100%   100%          9,166      9,164       9,129      9,563      8,614
 Audubon, NJ

Bartley Manor                  93%    98%     90%    97%    91%          5,313      5,116       5,024      5,263      4,549
 Superior, WI

Briar Crest I                 100%    98%     98%   100%    98%          5,012      4,844       4,611      4,696      4,572
 Niles, MI

Briar Crest II                100%   100%    100%   100%   100%          4,986      4,950       4,579      4,689      4,615
 Niles, MI

Briar Hills                    96%    94%     96%    98%    96%          4,430      4,446       4,105      4,164      4,123
 South Haven, MI

College Park                  100%   100%    100%   100%    98%          4,944      4,927       4,856      4,701      4,735
 Meridian, MS

Congress Plaza                100%   100%    100%   100%   100%         10,511     10,524      10,507     10,196      9,895
 Bridgeport, CT

Glen Agnes                     95%    94%     94%    97%    97%          7,623      7,654       7,742      7,793      7,776
 Fresno, CA

Greeley Manor                  98%    97%     97%    98%    98%          3,159      3,087       2,928      2,819      2,816
 Greeley, CO

Heritage Estates I            100%    98%     98%    97%    95%          4,776      4,722       4,629      4,494      4,267
 St. Louis, MO

Heritage Estates II           100%    94%     98%    95%    91%          4,764      4,663       4,605      4,373      3,983
 St. Louis, MO

Highland Manor                 97%   100%     99%    98%    98%          9,188      9,011       8,739      8,621      9,173
 Birmingham, AL

Indian Hills                  100%    95%     98%   100%   100%          5,002      4,847       4,653      4,706      4,673
 Townhouses
 Dowagiac, MI

Lakewood Apts.                 98%   100%    100%   100%   100%          4,363      4,264       4,200      4,103      4,951
 Eufaula, AL

</TABLE>
                                                                  (continued)


                                       I-6
<PAGE>
                                     PART I
                                     ------

ITEM 1.   BUSINESS - Continued
          --------

<PAGE>
                  SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
             IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
                         HAS AN INVESTMENT(1) - Continued

<TABLE>
<CAPTION>
                                                                                    Average Effective Annual
                                      Units Occupied As                                  Rental Per Unit
                                  Percentage of Total Units                            for the Year Ended
                                      As of December 31,                                   December 31,
 Name and Location            ---------------------------------       -----------------------------------------------------
of Apartment Complex          1997   1996    1995   1994   1993         1997       1996        1995       1994       1993
--------------------          ----   ----    ----   ----   ----       --------   --------    --------   --------   --------
<S>                           <C>    <C>     <C>    <C>    <C>        <C>        <C>         <C>        <C>        <C>
Meadow Lanes Apts.             93%    96%     98%    97%    97%          6,056      5,985       5,694      5,369      5,110
 Holland, MI

Monterey/Hillcrest             94%    90%     94%    94%    95%          8,745      8,742       8,413      8,215      8,098
 Waukesha, WI

O'Farrell Towers              100%   100%     99%   100%   100%         14,079     14,316      14,391     14,134     13,906
 San Francisco, CA

Rolling Green at               99%    97%     98%    99%    99%       $  8,012   $  7,663    $  7,457   $  7,447   $  7,445
 Milford
 Milford, MA

Southmoor Townhouse            98%   100%     98%   100%   100%          4,838      4,547       4,464      4,415      4,147
 Apts.
 Greeley, CO

Tyee Apts.                     84%    94%     98%    99%    98%          8,676      8,565       8,311      7,540      6,721
 Anchorage, AK

Victorian Towers               97%   100%    100%   100%    99%          4,902      4,783       4,588      4,504      4,325
 Cape May, NJ

Villa Mirage I                100%    98%    100%    98%    92%          9,671      9,660       9,560      9,686      9,339
 Rancho Mirage, CA

Villa Mirage II               100%    98%    100%   100%    98%          9,600      9,702       9,673      9,580      9,349
 Rancho Mirage, CA

Village Green                  89%    98%     94%    97%   100%          3,764      3,744       3,761      3,796      3,638
 Reedsburg, WI

Village Square                 98%    95%     94%    96%    92%          4,275      4,023       3,988      4,083      3,944
 Barabou, WI

Village Squire I               92%    91%     98%    96%    85%          5,858      5,898       5,682      5,247      4,766
 & II
 Canton, MI

</TABLE>
                                                                  (continued)

                                       I-7
<PAGE>
                                     PART I
                                     ------

ITEM 1.   BUSINESS - Continued
          --------

<PAGE>
                 SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
             IN WHICH CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
                       HAS AN INVESTMENT(1) - Continued

<TABLE>
<CAPTION>
                                                                                    Average Effective Annual
                                      Units Occupied As                                  Rental Per Unit
                                  Percentage of Total Units                            for the Year Ended
                                      As of December 31,                                   December 31,
 Name and Location            ---------------------------------       -----------------------------------------------------
of Apartment Complex          1997   1996    1995   1994   1993         1997       1996        1995       1994       1993
--------------------          ----   ----    ----   ----   ----       --------   --------    --------   --------   --------
<S>                           <C>    <C>     <C>    <C>    <C>        <C>        <C>         <C>        <C>        <C>
Village Squire III             96%    94%     96%    96%    77%          5,779      5,813       5,567      5,077      4,535
 Canton, MI

Walsh Park                     98%    99%    100%   100%   100%         11,301     11,083      10,777     10,584     10,255
 Chicago, IL

Winchester Gardens             99%   100%     98%   100%   100%          4,452      4,447       4,405      4,129      4,094
 Apts.
 Columbus, OH

Windham Village               100%   100%    100%    98%   100%         10,438     10,439      10,396     10,038     10,157
 Santa Rose, CA

Woodside Village               84%    84%     90%    93%    95%          8,576      8,927       9,145      9,027      7,886
 Anchorage, AK
----------------              ----   ----    ----   ----   ----       --------   --------    --------   --------   --------
Totals(3)  32                  97%    97%     97%    98%    96%       $  6,906   $  6,851    $  6,717   $  6,595   $  6,377
                              ====   ====    ====   ====   ====       ========   ========    ========   ========   ========

</TABLE>

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

(2)  The amounts provided are the balances of first mortgage loans payable of
     the Local Partnerships as of December 31, 1997.

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

(4)  The Section 8 contract expiration date reflects a one year extension from
     the original expiration date, in accordance with Federal legislation.

     For additional information regarding the real estate of Local Partnerships
in which the Partnership has invested, see Part IV, Schedule III - "Real Estate
and Accumulated Depreciation of Local Partnerships in which Capital Realty
Investors-III Limited Partnership has Invested."



                                       I-8
<PAGE>
                                     PART I
                                     ------

ITEM 1.   BUSINESS - Continued
          --------

     On January 16, 1997, the purchase money noteholders foreclosed on the
Partnership's interest in Cedar Valley Apartments Limited (Cedar Valley) as a
result of the Partnership's default on the purchase money notes relating to  the
Local Partnership which came due on May 1, 1996.  See the notes to the
consolidated financial statements for additional information pertaining to the
foreclosure.

     On July 2, 1997, New Fifth Lakewood Associates Limited Partnership (Walden
Apartments) sold the property to a non-profit entity.  See the notes to the
consolidated financial statements for additional information pertaining to the
sale.

     The local managing general partner of Tyee Associates Limited Partnership
(Tyee Apartments) is analyzing a sale offer received from a third party to
purchase the property.  See the notes to the consolidated financial statements
for additional information pertaining to this purchase offer.

     There were no contemplated sales of investments in partnerships as of March
19, 1998.


ITEM 2.   PROPERTIES
          ----------

     Through its ownership of limited partnership interests in Local
Partnerships, Capital Realty Investors-III Limited Partnership indirectly holds
an interest in the underlying real estate.  See Part I, Item 1 and Schedule III
of Part IV, Item 14 for information pertaining to these properties.


ITEM 3.   LEGAL PROCEEDINGS
          -----------------

     There are no material legal proceedings to which the Partnership is a
party.


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

     No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
















                                       I-9
<PAGE>
                                     PART II
                                     -------

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

     (a)  It is not anticipated that there will be any formal market for resale
          of interests in the Partnership.  As a result, investors may be unable
          to sell or otherwise dispose of their interests in the Partnership.

     (b)  As of March 19, 1998 there were approximately 5,500 registered holders
          of limited partnership interests in the Partnership.

     (c)  On November 10, 1997, the Partnership distributed $1,200,000 ($20 per
          Additional Limited Partnership unit) to the Additional Limited
          Partners.  The distribution was a result of the sale of the property
          relating to the Partnership's investment in Walden Apartments.  On
          April 30, 1996, the Partnership distributed $579,000 ($9.65 per
          Additional Limited Partnership unit) to the Additional Limited
          Partners.  The distribution was a result of the sale of the property
          relating to the Partnership's investment in Park Heights Towers.  The
          Partnership received distributions of $1,372,058 and $10,047,625 and
          $2,142,665 from the Local Partnerships during 1997, 1996 and 1995,
          respectively.  Some of the Local Partnerships operate under
          restrictions imposed by the pertinent government agencies that limit
          the cash return available to the Partnership.




































                                      II-1
<PAGE>
                                     PART II
                                     -------

ITEM 6.   SELECTED FINANCIAL DATA
          -----------------------
<TABLE>
<CAPTION>
                                                                   For the years ended December 31,
                                        ---------------------------------------------------------------------------------
                                            1997              1996             1995             1994             1993
                                        ------------      ------------     ------------     ------------     ------------
<S>                                     <C>               <C>              <C>              <C>              <C>
Share of income from partnerships       $     19,975      $  5,890,474     $  1,761,512     $  3,036,990     $    759,161
Interest and other income                    339,357           187,470          166,943          201,695          194,736
Expenses                                  (7,982,264)       (8,423,056)     (10,077,802)      (9,081,713)      (9,419,795)
Gain on disposition of investment
 in partnership                            3,282,005         2,081,463               --               --               --
Extraordinary gain from
 extinguishment of debt                    5,473,855         3,015,210               --        3,052,664               --
                                        ------------      ------------     ------------     ------------     ------------

Net income (loss)                       $  1,132,928      $  2,751,561     $ (8,149,347)    $ (2,790,364)    $ (8,465,898)
                                        ============      ============     ============     ============     ============
Net income (loss) allocated to
 Additional Limited Partners (97%)      $  1,098,940      $  2,669,014     $ (7,904,867)    $ (2,706,653)    $ (8,211,921)
                                        ============      ============     ============     ============     ============
Net income (loss) per unit of
 Additional Limited Partnership
 Interest based on 60,000 units
 outstanding                            $      18.32      $      44.48     $    (131.75)    $     (45.11)    $    (136.87)
                                        ============      ============     ============     ============     ============
Cash distribution per unit
 of Additional Limited
 Partnership Interest based
 on 60,000 units outstanding            $      20.00      $       9.65     $         --     $         --     $         --
                                        ============      ============     ============     ============     ============

Total assets                            $ 30,621,494      $ 29,526,962     $ 33,961,256     $ 34,138,522     $ 38,256,363
                                        ============      ============     ============     ============     ============
Total remaining amounts due on
 investments, including accrued
 interest on purchase money
 notes and unpaid purchase price        $ 69,338,319      $ 71,610,833     $ 81,724,496     $ 78,337,884     $ 83,631,738
                                        ============      ============     ============     ============     ============

</TABLE>


















                                      II-2
<PAGE>
                                     PART II
                                     -------

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

                                     General
                                     -------

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

     The original investment objectives of the Partnership primarily were to
deliver tax benefits, as well as cash proceeds upon disposition of the
properties, through the Partnership's investment in local limited partnerships.
Only limited annual cash distributions from property operations were projected
because of the regulatory restrictions on cash distributions from the
properties.

     The original investment objectives of the Partnership have been affected by
the Tax Reform Act of 1986, which virtually eliminated many of the incentives
for the new construction or the sale of existing low income housing properties
by limiting the use of passive loss deductions.  Therefore, the Managing General
Partner continues to concentrate on transferring the source of investment yield
from tax benefits to cash flow wherever possible and potentially enhancing the
ability of the Partnership to share in the appreciated value of the properties.

     The acquisition of interests in certain Local Partnerships resulted in
purchase money note obligations of the Partnership.  The purchase money notes
are nonrecourse obligations of the Partnership which typically mature fifteen
years from the dates of acquisition of the interests in particular Local
Partnerships.

     The Managing General Partner has been working to develop a strategy to sell
certain properties by utilizing opportunities presented by federal affordable
housing legislation, favorable financing terms and preservation incentives
available to nonprofit purchasers.  The Managing General Partner intends to
utilize part or all of the Partnership's net proceeds (after a 50% distribution
to limited partners) received from the sales of properties to fund reserves for
paying at maturity, prepaying or purchasing prior to maturity, at a discount
where possible, currently outstanding purchase money notes.  The Managing
General Partner believes that this represents an opportunity to reduce the
Partnership's long-term obligations.

     Some of the rental properties owned by the Local Partnerships are financed
by state housing agencies.  The Managing General Partner has been working to
develop strategies to sell or refinance certain properties pursuant to programs
developed by these agencies or other potential buyers.  These programs may
include opportunities to sell a property to a qualifying purchaser who would
agree to maintain the property as low to moderate income housing in perpetuity,
or to refinance a property, or to obtain supplemental financing.  The Managing
General Partner continues to monitor certain state housing agency programs
and/or programs provided by certain lenders, to ascertain whether the properties



                                      II-3
<PAGE>
                                     PART II
                                     -------

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

would qualify within the parameters of a given program and whether these
programs would provide an appropriate economic benefit to the limited partners
of the Partnership.

     Some of the rental properties owned by the Local Partnerships are dependent
on the receipt of project-based rental Housing Assistance Payments (HAP)
provided by HUD pursuant to Section 8 HAP contracts.  Under Section 8 HAP
contracts, HUD guaranteed rental properties a high monthly rental payment for
each low and moderate income apartment unit maintained in the complex.  Over the
years, annual increases have pushed rents on many of the Section 8 HAP contracts
above the market rate for comparable non-subsidized properties.  In an effort to
deal with the increasing burden of funding Section 8 HAP contracts, many of
which are now expiring, President Clinton signed into law, effective October 1,
1997, the Fiscal Year 1998 HUD appropriations bill which includes Mark-to-Market
legislation.  The new legislation allows all Section 8 contracts with rents at
(or reduced to) less than 120% of fair market rents which expire between now and
September 1998 to be renewed for one year.  At the beginning of Fiscal Year 1999
(October 1, 1998), all expiring contracts with rents exceeding comparable market
rents and whose mortgages are insured by FHA will be subject to the Mark-to-
Market legislation.

     Mark-to-Market implementation will reduce rental income at properties which
are currently subsidized at higher-than-market rental rates, and will therefore
lower cash flow available to meet mortgage payments and operating expenses.
Each affected property will undergo debt restructuring according to terms
determined by an individual property and operations evaluation.  This will
involve reducing the first mortgage loan balance to an amount supportable by the
property, taking into account the property's operating expenses and reduced
income.  The balance of the amount written down from the first mortgage will be
converted to a non-performing but accruing (soft) second mortgage.

     Under current law, the write down of an FHA-insured mortgage under Mark-to-
Market would trigger cancellation of debt income to the additional limited
partners, a taxable event, even though no actual cash is received.
Additionally, the newly created second mortgage may accrue interest at a lower-
than-market rate, thereby generating further taxable "income."  Proposals to
counter these tax effects have been presented; however, no form of relief has
been approved under IRS regulations at this time.  Each property subject to
Mark-to-Market will be affected in a different manner, and it is very difficult
to predict the exact form of restructuring or potential tax liabilities to the
additional limited partners at this time.

     In addition to the above, current HUD legislation no longer funds the Low
Income Housing Preservation and Home Ownership Act (LIHPRHA) which had provided
property owners with restricted opportunities to sell low income housing.  With
the discontinuation of the LIHPRHA program and the uncertainty of continued
project-based Section 8 subsidies for properties with expiring HAP contracts,
the Managing General Partner remains committed to improving operations,
increasing efficiency, maintaining and increasing occupancy, working with state
housing agencies where appropriate, and effectively increasing salability of the
properties wherever possible.

     The Managing General Partner has developed new strategies to deal with the
ever changing environment of affordable housing policy.  Section 236 and Section
221(d)(3) properties that are in the 18th year of their mortgage may be eligible

                                      II-4
<PAGE>
                                     PART II
                                     -------

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

for pre-payment of the mortgage.  Properties with expiring Section 8 HAP
contracts may become convertible to market-rate apartment properties.
Currently, there are a few lenders that will provide financing either to prepay
the existing mortgage or provide additional funds to allow the property to
convert to market-rate units.  Where opportunities exist, the Managing General
Partner will continue to work with the Local Partnerships to develop strategies
that make economic sense for all parties involved.

                          Financial Condition/Liquidity
                          -----------------------------

     As of December 31, 1997 the Partnership had approximately 5,500 investors
who subscribed to a total of 60,000 units of limited partnership interests in
the original amount of $60,000,000.  The Partnership originally made investments
in 37 Local Partnerships, of which 32 remain at December 31, 1997.  The
Partnership's liquidity, with unrestricted cash resources of $8,268,903 as of
December 31, 1997, along with anticipated future cash distributions from the
Local Partnerships, is expected to meet its current and anticipated operating
cash needs.  The Partnership determined that the carrying amount of its cash and
cash equivalents approximates fair value.  As of March 19, 1998, there are no
material commitments for capital expenditures.

     During 1997, 1996 and 1995, the Partnership received cash distributions of
$1,372,058, $10,047,625 and $2,142,665, respectively, from the Local
Partnerships.

     The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$25,513,096 (exclusive of unamortized discount on purchase money notes of
$4,969,212) plus accrued interest of $43,671,703 as of December 31, 1997, are
payable in full upon the earliest of: (i) sale or refinancing of the respective
Local Partnership's rental property; (ii) payment in full of the respective
Local Partnership's permanent loan; or (iii) maturity.  Purchase money notes in
an aggregate principal amount of $1,726,050 and $1,365,000 originally matured on
January 1, 1996 and July 1, 1997, respectively, but were extended.  Purchase
money notes in an aggregate principal amount of $2,100,000 matured on May 1,
1996 and were not paid or extended, and the purchase money noteholders
foreclosed the Partnership's interest in the related Local Partnership. Purchase
money notes in an aggregate principal amount of $1,700,000 matured on December
31, 1997 and have not been paid or extended.  Purchase money notes in an
aggregate principal amount of $2,250,000 mature on August 31, 1998.  The
remaining purchase money notes mature from 1999 to 2015.  See the notes to the
consolidated financial statements for additional information pertaining to these
purchase money notes.

     The purchase money notes are generally secured by the Partnership's
interest in the respective Local Partnership.  There is no assurance that the
underlying properties will have sufficient appreciation and equity to enable the
Partnership to pay the purchase money notes' principal and accrued interest when
due.  If a purchase money note is not paid in accordance with its terms, the
Partnership will either have to renegotiate the terms of repayment or risk
losing its partnership interest in the Local Partnership.  The Partnership's
inability to pay certain of the purchase money note principal and accrued
interest balances when due, and the resulting uncertainty regarding the
Partnership's continued ownership interest in the related Local Partnerships,

                                      II-5
<PAGE>
                                     PART II
                                     -------

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

does not impact the Partnership's financial condition because the purchase money
notes are nonrecourse and secured solely by the Partnership's interest in the
related Local Partnerships.  Therefore, should the investment in any of the
Local Partnerships with maturing purchase money notes not produce sufficient
value to satisfy the related purchase money notes, the Partnership's exposure to
loss is limited because the amount of the nonrecourse indebtedness of each of
the maturing purchase money notes exceeds the carrying amount of the investment
in and advances to the related Local Partnerships.  Thus, even a complete loss
of one of these Local Partnerships would not have a material impact on the
financial condition of the Partnership.

     The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's debt obligations.  These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, buying out certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes, or
refinancing the respective properties' underlying debt and using the
Partnership's share of the proceeds to pay or buy down certain purchase money
note obligations.  See the notes to the consolidated financial statements for
alternatives relating to specific properties.

     The Partnership has determined that it is not practicable to estimate the
fair value of the purchase money notes, either individually or in the aggregate,
due to:  (1) the lack of an active market for this type of financial instrument,
(2) the variable nature of purchase money note interest payments as a result of
fluctuating cash flow distributions received from the related Local
Partnerships, and (3) the excessive costs associated with an independent
appraisal of the purchase money notes.

     The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
In 1997, 1996 and 1995, the receipt of distributions from Local Partnerships was
adequate to support operating cash requirements.  Cash and cash equivalents
increased during 1997 primarily as a result of the sale of Walden Apartments, as
discussed in the notes to the consolidated financial statements.

                              Results of Operations
                              ---------------------

1997 versus 1996
----------------

     The Partnership's net income decreased in 1997 from 1996 primarily due to a
decrease in share of income from partnerships principally due to the receipt of
proceeds during 1996 from the Village Squire I & II and Village Squire III
mortgage refinancings which were in excess of the Partnership's investments in
the respective Local Partnerships.  Contributing to the decrease in the
Partnership's net income was an increase in general and administrative expenses
due to LIHPRHA processing fees which were paid by the Partnership in connection
with the Briar Crest I, Briar Crest II and Briar Hills purchase money note
extensions.  Partially offsetting the decrease in the Partnership's net income
was an increase in extraordinary gain from extinguishment of debt related to the
Cedar Valley foreclosure in 1997 which exceeded the gain on the Park Heights
extinguishment in 1996, and an increase in gain on disposition of investment in
partnership related to the Walden Apartments sale during 1997 versus the Park

                                      II-6
<PAGE>
                                     PART II
                                     -------

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

Heights sale in 1996.  Also partially offsetting the decrease in the
Partnership's net income was a decrease in interest expense due to amortization
of imputed interest and the extinguishment of the Village Squire I & II, Village
Squire III, Park Heights and Cedar Valley purchase money notes, and an increase
in interest and other income due to increased cash and cash equivalents during
1997.  See the notes to the consolidated financial statements for additional
information pertaining to the Village Squire I & II, and Village Squire III
mortgage refinancings, the Briar Crest I, Briar Crest II and Briar Hills
purchase money note extensions, the Cedar Valley foreclosure and the Park
Heights and Walden Apartments sales.

1996 versus 1995
----------------

     The Partnership's net income increased in 1996 from 1995 primarily due to
an increase in share of income from partnerships principally due to the receipt
of refinancing proceeds from the Village Squire I & II and Village Squire III
mortgages which were in excess of the Partnership's investments in the
respective Local Partnerships.  Contributing to the increase in the
Partnership's net income was the extraordinary gain on the extinguishment of
debt related to Park Heights as well as the gain on disposition of the
Partnership's investment in Park Heights.  Also contributing to the increase in
the Partnership's net income was a decrease in interest expense resulting from
the retirement of the Park Heights, Village Squire I & II and Village Squire III
purchase money notes during 1996.  The increase in the Partnership's net income
was partially offset by an increase in amortization expense due to the write-
down of acquisition fees and property purchase costs during 1996 relating to
Cedar Valley in order to record the investment at its net realizable value.  See
the notes to the consolidated financial statements for additional information
pertaining to the Village Squire I & II and Village Squire III mortgage
refinancings, the Park Heights sale and the Cedar Valley foreclosure.

     The purchase money notes originated from 1983 through 1985. When they were
issued, the market interest rate was approximately 15%, while the stated
interest rates ranged from 9% to 12%. The notes were discounted as required by
Generally Accepted Accounting Principles, and a simple/compound method was used
at the stated interest rate for tax purposes, and the compound method at the
market interest rate was used for book purposes. As the book interest is being
compounded, the interest expense for book purposes will eventually surpass the
interest expense for tax purposes, thereby reducing the discount and increasing
the interest expense.  In fiscal year 1997, all properties, except O'Farrell,
with purchase money notes had book interest which exceeded the tax interest.
This increase in interest expense and the resulting reduction in the discount
are expected to continue in future years.

     For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships.  As
a result, the Partnership's share of income from Local Partnerships for the
years ended December 31, 1997, 1996 and 1995 did not include losses of $493,207,
$655,126 and $822,642, respectively.  The Partnership's net loss recognized from
the Local Partnerships is generally expected to decrease in subsequent years as
the Partnership's investments in the Local Partnerships are reduced to zero.
Accordingly, excludable losses are generally expected to increase.

                                      II-7
<PAGE>
                                     PART II
                                     -------

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

Distributions of $480,770, $4,891,762 and $287,289 received from nine, nine and
six Local Partnerships during 1997, 1996 and 1995, respectively, were offset
against the respective years' recorded losses because these amounts were in
excess of the Partnership's investment.

                                    Inflation
                                    ---------

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

     The following table reflects the combined rental revenues of the properties
for the five years ended December 31, 1997.  Combined rental revenue amounts for
years prior to 1997 have been adjusted to reflect property sales and foreclosure
in 1997 and 1996, as discussed in the notes to the consolidated financial
statements.




































                                      II-8
<PAGE>
                                     PART II
                                     -------

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

<TABLE>
<CAPTION>
                                                         For the year ended December 31,
                       ----------------------------------------------------------------------------------------------
                          1997                 1996               1995                  1994                 1993
                       -----------          -----------        -----------           -----------          -----------
<S>                    <C>           <C>    <C>          <C>   <C>           <C>     <C>          <C>     <C>
Combined Rental
  Revenue              $29,843,989          $29,665,245        $29,009,229           $28,216,179          $27,072,382

Annual Percentage
  Increase                           0.60%               2.26%               2.81%                4.22%

</TABLE>

                            Year 2000 Computer Issue
                            ------------------------

     The Year 2000 ("Y2K") Computer Issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year.  The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19."  As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and  process "00," "01," "02,", etc., incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002.  In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.

     The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue.  The
Managing General Partner is studying what actions will be necessary to make its
computer systems Year 2000 compliant; certain upgrades are already scheduled.
The expense associated with these actions cannot presently be determined, but
the Managing General Partner does not expect it to be material.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
          -------------------------------------------

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


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

     None.






                                      II-9
<PAGE>
                                    PART III
                                    --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
          --------------------------------------------------

     (a), (b) and (c)

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

     (a), (b), (c) and (e)

          The names, ages and business experience of the directors and executive
          officers of C.R.I., Inc. (CRI), the Managing General Partner of the
          Partnership, are as follows:

William B. Dockser, 61, has been the Chairman of the Board of CRI and a Director
since 1974.  Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment properties.  For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs.  Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts.  He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University.  He is also Chairman of the
Board and a Director of CRIIMI MAE Inc. and CRIIMI, Inc.

H. William Willoughby, 51, has been President, Secretary and a Director of CRI
since January 1990 and was Senior Executive Vice President, Secretary and a
Director of CRI from 1974 to 1989.  He is principally responsible for the
financial management of CRI and its associated partnerships.  Prior to joining
CRI in 1974, he was Vice President of Shelter Corporation of America and a
number of its subsidiaries dealing principally with real estate development and
equity financing. Before joining Shelter Corporation, he was a senior tax
accountant with Arthur Andersen & Co.  He holds a Juris Doctor degree, a Master
of Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota.  He is also a Director and
executive officer of CRIIMI MAE Inc. and CRIIMI, Inc.

Ronald W. Thompson, 51, is Group Executive Vice President-Hotel Asset
Management. Prior to joining CRI in 1985, he was employed at the Hyatt
Organization where he most recently served as the General Manager of the Hyatt
Regency in Flint, Michigan.  During his nine year tenure with Hyatt, he held
senior management positions with the Hyatt Regency in Dearborn, Michigan, the
Hyatt in Richmond, Virginia, the Hyatt in Winston-Salem, North Carolina and the
Hyatt Regency in Atlanta, Georgia.  Before joining Hyatt, Mr.  Thompson worked
in London, England for the English Tourist Board as well as holding management
positions in Europe, Australia, and New Zealand in the hotel industry.  Mr.
Thompson received his education in England where he received a business degree
in Hotel Administration from Winston College.









                                      III-1
<PAGE>
                                    PART III
                                    --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
          --------------------------------------------------

Susan R. Campbell, 39, is Executive Vice President and Chief Operating Officer.
Prior to joining CRI in March 1985, she was a budget analyst for the B. F. Saul
Advisory Company.  She holds a Bachelor of Science degree in General Business
from the University of Maryland.

Melissa Cecil Lackey, 42, is Senior Vice President and General Counsel.  Prior
to joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas.  She holds a Juris Doctor degree from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.

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

     (f)  Involvement in certain legal proceedings.

          None.

     (g)  Promoters and control persons.

          Not applicable.


ITEM 11.  EXECUTIVE COMPENSATION
          ----------------------

     (a), (b), (c), (d), (e), (f), (g), (i), (j), (k) and (l)

          The Partnership has no officers or directors.  However, in accordance
          with the Partnership Agreement, and as disclosed in the public
          offering, various kinds of compensation and fees were paid or are
          payable to the General Partners and their affiliates.  Additional
          information required in these sections is incorporated herein by
          reference to Notes 3 and 4 of the notes to the consolidated financial
          statements contained in Part IV, Item 14.

     (h)  Termination of employment and change in control arrangements.

          None.


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

     (a)  Security ownership of certain beneficial owners.

          No person or "group," as that term is used in Section 13(d)(3) of the
          Securities Exchange Act of 1934, is known by the Partnership to be the
          beneficial owner of more than 5% of the issued and outstanding
          partnership units at December 31, 1997.

     (b)  Security ownership of management.

          The following table sets forth certain information concerning all
          units beneficially owned, as of December 31, 1997, by each director

                                      III-2
<PAGE>
                                    PART III
                                    --------

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

          and by all directors and officers as a group of the Managing General
          Partner of the Partnership.

              Name of                   Amount and Nature       % of total
          Beneficial Owner           of Beneficial Ownership   Units issued
          ----------------           -----------------------   ------------
          William B. Dockser                   None                  0%
          H. William Willoughby                None                  0%
          All Directors and Officers
            as a Group (5 persons)             None                  0%

     (c)  Changes in control.

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


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

     (a)  Transactions with management and others.

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

     (b)  Certain business relationships.

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











                                      III-3
<PAGE>
                                    PART III
                                    --------

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
          ----------------------------------------------

     (c)  Indebtedness of management.

          None.

     (d)  Transactions with promoters.

          Not applicable.



















































                                      III-4
<PAGE>
                                     PART IV
                                     -------

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

     (a) 1.    Financial Statements                                   Page
               --------------------                                   ----

               Report of Independent Certified Public Accountants -
                 Capital Realty Investors-III Limited
                 Partnership                                          IV-4

               Reports of Independent Certified Public Accountants -
                 Local Partnerships in which Capital
                 Realty Investors-III Limited
                 Partnership has invested                             IV-5

               Consolidated Balance Sheets as of December 31,
                 1997 and 1996                                        IV-6

               Consolidated Statements of Operations for the
                 years ended December 31, 1997, 1996 and 1995         IV-7

               Consolidated Statements of Changes in
                 Partners' Deficit for the years
                 ended December 31, 1997, 1996 and 1995               IV-8

               Consolidated Statements of Cash Flows for the
                 years ended December 31, 1997, 1996 and 1995         IV-9

               Notes to Consolidated Financial Statements             IV-10

     (a) 2.    Financial Statement Schedules
               -----------------------------

               Included in Part IV of this report are the following schedules
               for the year ended December 31, 1997, which are applicable to the
               Local Partnerships in which Capital Realty Investors-III Limited
               Partnership has invested:

               Report of Independent Certified Public
                 Accountants on Financial Statement Schedule          IV-27

               Schedule  III - Real Estate and Accumulated
                 Depreciation                                         IV-28

               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.

     (a) 3.    Exhibits (listed according to the number assigned to the table in
               Item 601 of Regulation S-K)

               Exhibit No. 3.  - Articles of Incorporation and bylaws

               a.   Certificate of Limited Partnership of Capital Realty
                    Investors-III Limited Partnership.  (Incorporated by
                    reference from Exhibit 4 to Registrant's Registration
                    Statement on Form S-11, as amended, dated October 24, 1983.)


                                      IV-1
<PAGE>
                                     PART IV
                                     -------

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

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

               a.   Limited Partnership Agreement of Capital Realty
                    Investors-III Limited Partnership.  (Incorporated by
                    reference from Exhibit 4 to Registrant's Registration
                    Statement on Form S-11, as amended, dated October 24, 1983.)

               Exhibit No. 10.  -  Material contracts

               a.   Management Services Agreement between CRI and Capital Realty
                    Investors-III Limited Partnership. (Incorporated by
                    reference from Exhibit 10B to Registrant's Registration
                    Statement on Form S-11, as amended, dated October 24, 1983.)

               Exhibit No. 27 - Financial Data Schedule

               Exhibit No. 99 - Additional Exhibits

               a.   Prospectus of the Partnership, dated May 6, 1983
                    (Incorporated by reference to Registrant's Registration
                    Statement on Form S-11, as amended, dated October 24, 1983).

     (b)       Reports on Form 8-K
               -------------------

               No reports on Form 8-K were filed during the quarter ended
               December 31, 1997.

     (c)       Exhibits
               --------

               The list of Exhibits required by Item 601 of Regulation S-K is
               included in Item (a)3., above.

     (d)       Financial Statement Schedules
               -----------------------------

               See Item (a)2., above.

















                                      IV-2
<PAGE>
                                   SIGNATURES
                                   ----------

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized.


                         CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                         by: C.R.I., Inc.
                             Managing General Partner



March 30, 1998               by: /s/ William B. Dockser
-----------------                ---------------------------------
DATE                             William B. Dockser, Director,
                                   Chairman of the Board,
                                   and Treasurer
                                   (Principal Executive Officer)


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:



March 30, 1998               by: /s/ H. William Willoughby
-----------------                ---------------------------------
DATE                             H. William Willoughby,
                                   Director, President
                                   and Secretary





March 30, 1998               by: /s/ Michael J. Tuszka
-----------------                ---------------------------------
DATE                             Michael J. Tuszka
                                   Vice President
                                   and Chief Accounting Officer
                                   (Principal Financial Officer
                                   and Principal Accounting Officer)


















                                      IV-3
<PAGE>











                         REPORT OF INDEPENDENT CERTIFIED
                         -------------------------------
                                PUBLIC ACCOUNTANTS
                               -------------------

To the Partners
Capital Realty Investors-III Limited Partnership

     We have audited the consolidated balance sheets of Capital Realty
Investors-III Limited Partnership (a Maryland limited partnership) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in partners' deficit and cash flows for the years ended
December 31, 1997, 1996 and 1995.  These financial statements are the
responsibility of the Partnership's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.  We did
not audit the financial statements of certain Local Partnerships.  The
Partnership's share of income or loss from these Local Partnerships constitutes
$460,795 of losses, $998,712 and $1,402,971 of income in 1997, 1996 and 1995,
respectively, included in the Partnership's net income or loss.  The financial
statements of these Local Partnerships were audited by other auditors whose
reports thereon have been furnished to us, and our opinion expressed herein,
insofar as it relates to the amount included for these Local Partnerships, is
based solely upon the reports of the other auditors.

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

     In our opinion, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Capital Realty Investors-III
Limited Partnership as of December 31, 1997 and 1996, and the consolidated
results of its operations, changes in partners' deficit and cash flows for the
years ended December 31, 1997, 1996 and 1995, in conformity with generally
accepted accounting principles.


                                                              Grant Thornton LLP

Vienna, VA
March 19, 1998







                                      IV-4
<PAGE>























              REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -

                           LOCAL PARTNERSHIPS IN WHICH

                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                                  HAS INVESTED*



*    The reports of independent certified public accountants - Local
     Partnerships in which Capital Realty Investors-III Limited Partnership has
     invested were filed in paper format under Form SE on March 26, 1998, in
     accordance with the Securities and Exchange Commission's continuing
     hardship exemption granted January 22, 1998.


























                                      IV-5
<PAGE>
                 CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS


<TABLE>
<CAPTION>
                                                                                                       December 31,
                                                                                              -------------------------------
                                                                                                 1997                1996
                                                                                              ------------       ------------
<S>                                                                                           <C>                <C>
Investments in and advances to partnerships                                                   $ 21,304,841       $ 24,456,529
Cash and cash equivalents                                                                        8,268,903          3,942,254
Acquisition fees, principally paid to related parties, net
  of accumulated amortization of $450,706 and $475,794,
  respectively                                                                                     519,717            572,045
Property purchase costs, net of accumulated amortization of
  $419,846 and $425,423, respectively                                                              508,863            550,713
Other assets                                                                                        19,170              5,421
                                                                                              ------------       ------------

      Total assets                                                                            $ 30,621,494       $ 29,526,962
                                                                                              ============       ============



                       LIABILITIES AND PARTNERS' DEFICIT


Due on investments in partnerships                                                            $ 20,663,428       $ 19,552,892
Accrued interest payable                                                                        43,705,679         43,663,393
Accounts payable and accrued expenses                                                              102,803             94,221
Consulting fees payable to related parties                                                          42,500             42,500
                                                                                              ------------       ------------
      Total liabilities                                                                         64,514,410         63,353,006
                                                                                              ------------       ------------

Commitments and contingencies

Partners' capital (deficit):
  Capital paid in:
    General Partners                                                                                 2,000              2,000
    Limited Partners                                                                            60,001,500         60,001,500
                                                                                              ------------       ------------
                                                                                                60,003,500         60,003,500
  Less:
    Accumulated distributions to partners                                                       (3,488,481)        (2,288,681)
    Offering costs                                                                              (6,156,933)        (6,156,933)
    Accumulated losses                                                                         (84,251,002)       (85,383,930)
                                                                                              ------------       ------------
      Total partners' deficit                                                                  (33,892,916)       (33,826,044)
                                                                                              ------------       ------------

      Total liabilities and partners' deficit                                                 $ 30,621,494       $ 29,526,962
                                                                                              ============       ============

</TABLE>

                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                     IV-6
<PAGE>
                  CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                       For the years ended December 31,
                                                                                --------------------------------------------
                                                                                   1997             1996            1995
                                                                                -----------      -----------     -----------
<S>                                                                             <C>              <C>             <C>
Share of income from partnerships                                               $    19,975      $ 5,890,474     $ 1,761,512
                                                                                -----------      -----------     -----------
Other revenue and expenses:
   Revenue
     Interest and other income                                                      339,357          187,470         166,943
                                                                                -----------      -----------     -----------
   Expenses
     Interest                                                                     7,240,312        7,758,316       9,462,914
     Management fee                                                                 300,000          300,000         300,000
     General and administrative                                                     281,283          161,362         132,791
     Professional fees                                                               96,469           93,987         111,985
     Amortization                                                                    64,200          109,391          70,112
                                                                                -----------      -----------     -----------
                                                                                  7,982,264        8,423,056      10,077,802
                                                                                -----------      -----------     -----------
       Total other revenue and expenses                                          (7,642,907)      (8,235,586)     (9,910,859)
                                                                                -----------      -----------     -----------

Loss before gain on disposition of investment in
  partnership                                                                    (7,622,932)      (2,345,112)     (8,149,347)
                                                                                -----------      -----------     -----------

Gain on disposition of investment in partnership                                  3,282,005        2,081,463              --
                                                                                -----------      -----------     -----------

Loss before extraordinary gain from
  extinguishment of debt                                                         (4,340,927)        (263,649)     (8,149,347)
                                                                                -----------      -----------     -----------

Extraordinary gain from extinguishment of debt                                    5,473,855        3,015,210              --
                                                                                -----------      -----------     -----------

Net income (loss)                                                               $ 1,132,928      $ 2,751,561     $(8,149,347)
                                                                                ===========      ===========     ===========

Net income (loss) allocated to General Partners (1.51%)                         $    17,107      $    41,549     $  (123,055)
                                                                                ===========      ===========     ===========

Net income (loss) allocated to Initial and Special Limited
  Partners (1.49%)                                                              $    16,881      $    40,998     $  (121,425)
                                                                                ===========      ===========     ===========

Net income (loss) allocated to Additional Limited Partners (97%)                $ 1,098,940      $ 2,669,014     $(7,904,867)
                                                                                ===========      ===========     ===========

Net income (loss) per unit of Additional Limited Partnership Interest
  based on 60,000 units outstanding                                             $     18.32      $     44.48     $   (131.75)
                                                                                ===========      ===========     ===========
</TABLE>

                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                       IV-7
<PAGE>
                  CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

               CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT



<TABLE>
<CAPTION>

                                                                Initial and
                                                                  Special          Additional
                                              General             Limited           Limited
                                              Partners            Partners          Partners           Total
                                             -----------        -----------       ------------      ------------
<S>                                          <C>                <C>               <C>               <C>
Partners' deficit, January 1, 1995           $(1,229,078)       $(1,213,467)      $(25,406,713)     $(27,849,258)

  Net loss                                      (123,055)          (121,425)        (7,904,867)       (8,149,347)
                                             -----------        -----------       ------------      ------------

Partners' deficit, December 31, 1995          (1,352,133)        (1,334,892)       (33,311,580)      (35,998,605)

Distribution of $9.65 per Additional
  Limited Partnership Interest                        --                 --           (579,000)         (579,000)


  Net income                                      41,549             40,998          2,669,014         2,751,561
                                             -----------        -----------       ------------      ------------

Partners' deficit, December 31, 1996         $(1,310,584)       $(1,293,894)      $(31,221,566)     $(33,826,044)

Distribution of $20.00 per Additional
  Limited Partnership Interest                        --                 --         (1,199,800)       (1,199,800)

  Net income                                      17,107             16,881          1,098,940         1,132,928
                                             -----------        -----------       ------------      ------------

Partners' deficit, December 31, 1997         $(1,293,477)       $(1,277,013)      $(31,322,426)     $(33,892,916)
                                             ===========        ===========       ============      ============

</TABLE>




















                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                      IV-8
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                     For the years ended December 31,
                                                                              ----------------------------------------------
                                                                                  1997             1996             1995
                                                                              ------------     ------------     ------------
<S>                                                                           <C>              <C>              <C>
Cash flows from operating activities:
  Net income (loss)                                                           $  1,132,928     $  2,751,561     $ (8,149,347)
  Adjustments to reconcile net income (loss) to net cash used
    in operating activities:
    Share of income from partnerships                                              (19,975)      (5,890,474)      (1,761,512)
    Gain on disposition of investment in partnership                            (3,282,005)      (2,081,463)              --
    Extraordinary gain from extinguishment of debt                              (5,473,855)      (3,015,210)              --
    Payment of purchase money note interest                                       (397,732)      (3,137,083)      (1,516,680)
    Amortization of discount on purchase money notes                             3,425,336        3,484,686        4,559,622
    Amortization of deferred costs                                                  64,200          109,391           70,112

    Changes in assets and liabilities:
      (Increase) decrease in other assets                                          (13,749)           1,984          (58,960)
      Increase in accrued interest payable                                       3,813,871        4,273,630        4,903,292
      Increase in accounts payable                                                   8,582           22,122           25,847
                                                                              ------------     ------------     ------------
        Net cash used in operating activities                                     (742,399)      (3,480,856)      (1,927,626)
                                                                              ------------     ------------     ------------

Cash flows from investing activities:
  Receipt of distributions from partnerships                                     1,372,058       10,047,625        2,142,665
  Proceeds from disposition of investment in partnership                         5,111,590        3,292,472               --
                                                                              ------------     ------------     ------------
        Net cash provided by investing activities                                6,483,648       13,340,097        2,142,665
                                                                              ------------     ------------     ------------

Cash flows from financing activities:
  Distributions to Additional Limited Partners                                  (1,199,800)        (579,000)              --
  Pay-off of purchase money notes and related interest                                  --       (8,235,000)              --
  Payment of purchase money note principal                                        (214,800)              --               --
                                                                              ------------     ------------     ------------
        Net cash used in financing activities                                   (1,414,600)      (8,814,000)              --
                                                                              ------------     ------------     ------------

Net increase in cash and cash equivalents                                        4,326,649        1,045,241          215,039

Cash and cash equivalents, beginning of year                                     3,942,254        2,897,013        2,681,974
                                                                              ------------     ------------     ------------

Cash and cash equivalents, end of year                                        $  8,268,903     $  3,942,254     $  2,897,013
                                                                              ============     ============     ============


Supplemental disclosure of cash flow information:

  Cash paid during the year for interest                                      $   397,732      $  3,137,083     $  1,516,680
                                                                              ===========      ============     ============
</TABLE>

                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                     IV-9
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   Organization
          ------------

          Capital Realty Investors-III Limited Partnership (the Partnership) was
     formed under the Maryland Revised Uniform Limited Partnership Act on June
     27, 1983 and shall continue until December 31, 2037, unless sooner
     dissolved in accordance with the Partnership Agreement.  The Partnership
     was formed to invest in real estate by acquiring and holding a limited
     partnership interest in limited partnerships (Local Partnerships) which own
     and operate federal or state government-assisted or conventionally financed
     apartment properties located throughout the United States, which provide
     housing principally to the elderly and/or to individuals and families of
     low or moderate income.

          The General Partners of the Partnership are C.R.I., Inc. (CRI), which
     is the Managing General Partner, and current and former shareholders of
     CRI. The Initial Limited Partner is Rockville Pike Associates Limited
     Partnership-III, a limited partnership which includes certain officers and
     former employees of CRI or its affiliates. The Special Limited Partner is
     Two Broadway Associates II, a limited partnership comprised of an affiliate
     and employees of Merrill Lynch, Pierce, Fenner & Smith, Incorporated.

          The Partnership sold 60,000 units at $1,000 per unit of Additional
     Limited Partnership Interest through a public offering.  The offering
     period was terminated in January 1984.

     b.   Method of accounting
          --------------------

          The financial statements of the Partnership are prepared on the
     accrual basis of accounting in accordance with generally accepted
     accounting principles.

     c.   Principles of consolidation
          ---------------------------

          These financial statements include the accounts of five intermediary
     limited partnerships which have invested in five Local Partnerships which
     own and operate government assisted or conventionally financed apartment
     properties.

     d.   Investments in and advances to partnerships
          -------------------------------------------

          The investments in and advances to Local Partnerships (see Note 2) are
     accounted for by the equity method because the Partnership is a limited
     partner in the Local Partnerships.  Under this method, the carrying amount
     of the investments in and advances to Local Partnerships is (i) reduced by
     distributions received and (ii) increased or reduced by the Partnership's
     share of earnings or losses, respectively, of the Local Partnerships.  As
     of December 31, 1997 and 1996, the Partnership's share of cumulative losses
     of nine and eleven, respectively, of the Local Partnerships exceeds the
     amount of the Partnership's investments in and advances to those Local
     Partnerships by $5,384,969 and $12,026,985, respectively. Since the
     Partnership has no further obligation to advance funds or provide financing
     to these Local Partnerships, the excess losses have not been reflected in


                                      IV-10
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     the accompanying consolidated financial statements.  As of December 31,
     1997 and 1996, cumulative cash distributions of $5,372,532 and $4,891,762,
     respectively, have been received from the Local Partnerships for which the
     Partnership's carrying value is zero. These distributions are recorded as
     increases in the Partnership's share of income from partnerships.

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

     e.   Cash and cash equivalents
          -------------------------

          Cash and cash equivalents consist of all money market funds, time and
     demand deposits, repurchase agreements and commercial paper with original
     maturities of three months or less.

     f.   Offering costs
          --------------

          The Partnership incurred certain costs in connection with the offering
     and selling of limited partnership interests.  Such costs were recorded as
     a reduction of partners' capital when incurred.

     g.   Income taxes
          ------------

          For federal and state income tax purposes, each partner reports on his
     or her personal income tax return his or her share of the Partnership's
     income or loss as determined for tax purposes.  Accordingly, no provision
     (credit) has been made for income taxes in these consolidated financial
     statements.

     h.   Use of estimates
          ----------------

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















                                      IV-11
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     i.   Reclassifications
          -----------------

          Certain reclassifications have been made to the 1996 balances to
     conform to the 1997 presentation.

     j.   Fair Value of Financial Instruments
          -----------------------------------

          The financial statements include estimated fair value information as
     of December 31, 1997, as required by Statement of Financial Accounting
     Standards (SFAS) No. 107, "Disclosure About Fair Value of Financial
     Instruments."  Such information, which pertains to the Partnership's
     financial instruments (primarily cash and cash equivalents and purchase
     money notes), is based on the requirements set forth in SFAS No. 107 and
     does not purport to represent the aggregate net fair value of the
     Partnership.

          The balance sheet carrying amounts for cash and cash equivalents
     approximate estimated fair values of such assets.

          The Partnership has determined that it is not practicable to estimate
     the fair value of the purchase money notes, either individually or in the
     aggregate, due to:  (1) the lack of an active market for this type of
     financial instrument,  (2) the variable nature of purchase money note
     interest payments as a result of fluctuating cash flow distributions
     received from the related Local Partnerships, and (3) the excessive costs
     associated with an independent appraisal of the purchase money notes.


2.   INVESTMENTS IN PARTNERSHIPS

     a.   Due on investments in partnerships
          ----------------------------------

          As of December 31, 1997 and 1996, the Partnership held limited
     partnership interests in thirty-two and thirty-four Local Partnerships,
     respectively, which were organized to develop, construct, own, maintain and
     operate rental apartment properties which provide housing principally to
     the elderly and to individuals and families of low or moderate income.  The
     remaining principal amounts due on investments in the Local Partnerships
     were as follows.
















                                      IV-12
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
                                                December 31,
                                        -------------------------
                                           1997          1996
                                        -----------   -----------
     <S>                                <C>           <C>
     Due to local general partners      $   119,544   $   119,544
     Purchase money notes due in:
       1996                                      --     3,826,070
       1997                               1,700,000     3,065,000
       1998                               2,250,000     2,250,000
       1999                              18,979,500    17,614,500
       2000                                      --            --
       2001                                 750,000       750,000
       2002                               1,511,270            --
       Thereafter                           322,326       322,326
     Less:  unamortized discount         (4,969,212)   (8,394,548)
                                        -----------   -----------
            Total                       $20,663,428   $19,552,892
                                        ===========   ===========
</TABLE>

          The amounts due to local general partners will be paid upon the
     occurrence of certain specific events as outlined in the respective Local
     Partnership's partnership agreements.

          The purchase money notes have stated interest rates ranging from 9% to
     12%, certain of which are compounded annually.  Unamortized discounts are
     based on an imputed interest rate of 15% to reflect market interest rates
     which prevailed when the notes were issued.  The resulting discount has
     been recorded by the Partnership and is being amortized to interest expense
     over the life of the respective purchase money notes using the effective
     interest method.  The purchase money notes are payable upon the earliest
     of:  (1) sale or refinancing of the respective Local Partnership's rental
     property; (2) payment in full of the respective Local Partnership's
     permanent loan; or (3) maturity.  Purchase money notes in an aggregate
     principal amount of $1,726,050 and $1,365,000 originally matured on January
     1, 1996 and July 1, 1997, respectively, but were extended.  Purchase money
     notes in an aggregate principal amount of $2,100,000 matured on May 1, 1996
     and were not paid or extended, and the purchase money noteholders
     foreclosed the Partnership's interest in the related Local Partnership.
     Purchase money notes in an aggregate principal amount of $1,700,000 matured
     on December 31, 1997 and have not been paid or extended.  Purchase money
     notes in an aggregate principal amount of $2,250,000 mature on August 31,
     1998.  The remaining purchase money notes mature from 1999 to 2015.

          The purchase money notes are generally secured by the Partnership's
     interest in the respective Local Partnerships.  There is no assurance that
     the underlying properties will have sufficient appreciation and equity to
     enable the Partnership to pay the purchase money notes' principal and
     accrued interest when due.  If a purchase money note is not paid in
     accordance with its terms, the Partnership will either have to renegotiate
     the terms of repayment or risk losing its partnership interest in the Local
     Partnership.  The Partnership's inability to pay certain of the purchase
     money note principal and accrued interest balances when due, and the


                                      IV-13
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

     resulting uncertainty regarding the Partnership's continued ownership
     interest of the related Local Partnerships does not impact the
     Partnership's financial condition because the purchase money notes are
     nonrecourse and secured solely by the Partnership's interest in the related
     Local Partnerships.  Therefore, should the investment in any of the Local
     Partnerships with maturing purchase money notes not produce sufficient
     value to satisfy the related purchase money notes, the Partnership's
     exposure to loss is limited because the amount of the nonrecourse
     indebtedness of each of the maturing purchase money notes exceeds the
     carrying amount of the investment in and advances to the related Local
     Partnerships.  Thus, even a complete loss of one of these Local
     Partnerships would not have a material impact on the financial condition of
     the Partnership.

          Interest expense on the unpaid purchase price and the Partnership's
     purchase money notes for the years ended December 31, 1997, 1996 and 1995
     was $7,240,312, $7,758,316 and $9,462,914, respectively. The accrued
     interest on the purchase money notes of $43,671,703, $43,629,417, as of
     December 31, 1997 and 1996, respectively, is due on the respective maturity
     dates of the purchase money notes or earlier if the Local Partnerships have
     distributable net cash flow, as defined in the relevant Local Partnership
     agreements.

                 Bartley Manor, Village Square and Village Green
                ------------------------------------------------

          In September 1994, the Partnership modified purchase money notes
     totaling $1,365,000 relating to Bartley Manor, Village Square and Village
     Green.  In accordance with the modification agreement, the Partnership paid
     an aggregate of $100,000 in accrued interest, and the maturity dates for
     the notes were extended from February 1994 to July 1, 1997.  On July 1,
     1997, the Partnership defaulted on the purchase money notes relating to
     these Local Partnerships when the notes matured and were not paid.  The
     default amount included principal and accrued interest aggregating
     $1,365,000 and $2,185,356, respectively.  During 1997, the Managing General
     Partner and the purchase money noteholders reached an agreement to extend
     the purchase money notes until October 1, 1999.  In connection with the
     extension agreements, in August 1997, the Partnership made interest
     payments of $51,282, $28,571 and $20,147 to the purchase money noteholders
     related to Bartley Manor, Village Square and Village Green, respectively.
     Pursuant to the extension agreements, the Partnership will make interest
     payments on the purchase money notes of 100% of all annual cash flow
     distributions received from the related Local Partnerships to the purchase
     money noteholders.  The Partnership did not receive any cash flow
     distributions from the related Local Partnerships for the years ended
     December 31, 1997, 1996 and 1995.












                                      IV-14
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

           Briar Crest I, Briar Crest II, Briar Hills and Indian Hills
           -----------------------------------------------------------

          The Partnership defaulted on its purchase money notes relating to
     Briar Crest I, Briar Crest II, Briar Hills and Indian Hills on January 1,
     1996 when the notes matured and were not paid.  On April 1, 1997, the
     Partnership and the purchase money noteholders related to Briar Crest I,
     Briar Crest II and Briar Hills entered agreements extending the purchase
     money note maturity dates until January 1, 2002.  On July 17, 1997, the
     Partnership and the purchase money noteholders related to Indian Hills
     entered into an agreement extending the purchase money note maturity dates
     until January 1, 2002.  In connection with the extension agreements, the
     Partnership made principal payments of $55,000, $54,800, $55,000 and
     $50,000 to the purchase money noteholders related to Briar Crest I, Briar
     Crest II, Briar Hills and Indian Hills, respectively.  Additionally,the
     Partnership paid $30,243, $34,391, $36,380 and $14,484 to reimburse the
     purchase money noteholders and related entities for Low Income Housing
     Preservation and Resident Homeownership Act of 1990 (LIHPRHA) processing
     and legal fees previously incurred on behalf of Briar Crest I, Briar Crest
     II, Briar Hills and Indian Hills, respectively.  Pursuant to the extension
     agreements, the Partnership will make interest payments on the purchase
     money notes from 70% of all annual cash flow distributions received from
     the related Local Partnerships to the purchase money noteholders.  The
     Partnership did not receive any cash flow distributions from the related
     Local Partnerships for the years ended December 31, 1997, 1996 and 1995.

                                  Cedar Valley
                                  ------------

          The Partnership defaulted on its purchase money notes relating to
     Cedar Valley on May 1, 1996 when the notes matured and were not paid.  The
     default amount included principal and accrued interest of $2,100,000 and
     $3,166,710, respectively.  The Managing General Partner and the purchase
     money noteholders agreed to extend the purchase money notes until January
     1997.  On January 16, 1997, the purchase money noteholders foreclosed on
     the Partnership's interest in Cedar Valley.  As a result of the foreclosure
     on the Partnership's interest in Cedar Valley, the purchase money
     noteholders assumed ownership of the Partnership's interest in the Local
     Partnership.  The Partnership's loss of ownership interest in Cedar Valley
     did not impact the Partnership's financial condition because the related
     purchase money notes were nonrecourse and secured solely by the
     Partnership's interest in Cedar Valley.  The Partnership's investment in
     Cedar Valley had previously been reduced to zero as a result of losses from
     the Local Partnership during prior years.  Acquisition fees and property
     purchase costs relating to Cedar Valley were fully amortized as of December
     31, 1996, in order to record the investment at its net realizable value.
     The release of the Partnership's purchase money note obligation as a result
     of the Partnership's loss of ownership interest in Cedar Valley resulted in
     a net financial statement gain of approximately $5.5 million during 1997.
     The federal tax gain was approximately $5.8 million.








                                      IV-15
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

                                  Park Heights
                                  ------------

          In conjunction with the sale of the property, on February 2, 1996, the
     Partnership paid the purchase money note relating to Park Heights Towers
     Limited Partnership (Park Heights) at a discount, as discussed below.

                                  Rolling Green
                                  -------------

          The purchase money notes related to Roberts Milford Associates
     (Rolling Green), which aggregate a principal amount of $2,250,000, are due
     to mature on August 31, 1998.  The Managing General Partner is currently
     negotiating an extension on the purchase money notes related to Rolling
     Green, subject to obtaining a satisfactory refinancing of the mortgage
     loans related to the Local Partnership.  In connection with the proposed
     extension of the purchase money notes, the Managing General Partner, the
     local managing general partner and the purchase money noteholders are
     jointly exploring various options to refinance the Massachusetts Housing
     Finance Agency (MHFA) and HUD Section 236 interest rate subsidized mortgage
     loan related to this property.  The parties have signed a term sheet to
     restructure the deal, and as of March 19, 1998, the parties are working
     toward a finalized agreement.  There is no assurance that a finalized
     agreement will be reached or that a satisfactory refinancing will occur.
     Accordingly, there is no assurance that the Partnership will be able to
     retain its interest in this Local Partnership.  The uncertainty about the
     continued ownership of the Partnership's interest in this Local Partnership
     does not impact the Partnership's financial condition, as discussed above.

                   Village Squire I & II and Village Squire III
                  --------------------------------------------

          On March 1, 1996, the local general partner of Village Squire I & II
     and Village Squire III refinanced the loans secured by first mortgages on
     the respective properties.  On March 1, 1996, proceeds provided to the
     Partnership from the refinancings, along with an advance of approximately
     $560,000 from existing Partnership cash resources, were used to pay the
     related purchase money note obligations.  This advance was subsequently
     repaid by the Local Partnership during 1996.  The refinancing proceeds
     received by the Partnership exceeded the Partnership's investment in the
     respective Local Partnerships by approximately $4.1 million, and are
     included in share of income from partnerships in the consolidated
     statements of operations.

                               Winchester Gardens
                               ------------------

          The Partnership defaulted on its purchase money notes relating to
     Winchester Gardens on December 31, 1997 when the notes matured and were not
     paid.  The defaulted amount included principal and accrued interest of $1.7
     million and $2,995,648, respectively.  As of March 19, 1998, principal and
     accrued interest totaling $1.7 million and $3,059,791, respectively, were
     due.  The Managing General Partner is negotiating with the purchase money
     noteholders of Winchester Gardens for an extension on the related purchase
     money notes.  There is no assurance that an agreement will be reached.  Due
     to the uncertainty of a satisfactory resolution with the purchase money


                                      IV-16
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

     noteholders related to Winchester Gardens, there is no assurance that the
     Partnership will be able to retain its interest in this Local Partnership.
     The uncertainty about the continued ownership of the Partnership's interest
     in this Local Partnership does not impact the Partnership's financial
     condition, as discussed above.

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

          The Partnership has a 96% to 98.99% interest in profits, losses and
     cash distributions (as restricted by various federal and state housing
     agencies) of each Local Partnership.  An affiliate of the General Partners
     of the Partnership is also a general partner of each Local Partnership or
     the intermediary limited partnership which invests in the Local
     Partnership.  The Partnership received cash distributions from the rental
     operations of the Local Partnerships totaling $1,372,058, $10,047,625 and
     $2,142,665 during the years ended December 31, 1997, 1996 and 1995,
     respectively.  As of December 31, 1997 and 1996, thirty and twenty-six,
     respectively, of the Local Partnerships had surplus cash, as defined by
     their respective agencies, in the amounts of $1,984,688 and $2,044,904,
     respectively, which may be available for distribution in accordance with
     their respective agencies' regulations.

          The cash distributions to the Partnership from the operations of the
     rental properties may be limited by U. S. Department of Housing and Urban
     Development (HUD) regulations.  Such regulations limit annual cash
     distributions to a percentage of the owner's equity investment in a rental
     property. Funds in excess of those which may be distributed to owners are
     required to be placed in a residual receipts account held by the governing
     state or federal agency for the benefit of the property.

          Upon sale or refinancing of a property owned by a  Local Partnership,
     or upon the liquidation of a Local Partnership, the proceeds from such
     sale, refinancing or liquidation shall be distributed in accordance with
     the respective provisions of each Local Partnership's partnership
     agreement.  In accordance with such provisions, the Partnership would
     receive from such proceeds its respective percentage interest of any
     remaining proceeds, after payment of (1) all debts and liabilities of the
     Local Partnership and certain other items, (2) the Partnership's capital
     contributions plus certain specified amounts as outlined in each
     partnership agreement, and (3) certain special distributions to general
     partners and related entities of the Local Partnership.














                                      IV-17
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

     c.   Property matters
          ----------------

                                  Park Heights
                                  ------------

          On February 2, 1996, Park Heights, a 180 unit apartment complex
     located in Rochester, Minnesota was sold.  The sale of the property
     generated net sufficient proceeds to the Partnership to retire, at a
     discount, the Partnership's purchase money note obligation with respect to
     the property.  The sale resulted in a net financial statement gain in 1996
     of approximately $5.1 million, of which approximately $3 million resulted
     from the retirement of the purchase money note obligation with respect to
     the property.  The federal tax gain was approximately $7.1 million.

                      Tyee, Victorian Towers and Walsh Park
                      -------------------------------------

          During 1997, the local managing general partners of Tyee Associates
     Limited Partnership (Tyee Apartments), Victorian Towers Associates
     (Victorian Towers) and Walsh Park Associates Limited Partnership (Walsh
     Park) have received offers from third parties to purchase the respective
     properties.  The local managing general partners of these Local
     Partnerships have rejected these purchase offers.

                                Walden Apartments
                               ------------------

          On July 2, 1997, New Fifth Lakewood Associates Limited Partnership
     (Walden Apartments) sold the property.  The sale of the property generated
     net cash proceeds to the Partnership of approximately $4.6 million at
     closing.  Subsequent to closing, the Partnership received additional funds
     totaling $602,930 related to the Partnership's share of the release of
     funds held in security deposits, insurance accounts, real estate tax
     escrows and other accounts.  Also, subsequent to closing, the Partnership
     paid $75,523 as of March 19, 1998 related to outstanding expense invoices
     of the Local Partnership.  The sale resulted in an estimated net financial
     statement gain of approximately $1.7 million.  The federal tax gain was
     approximately $8.784 million.

     d.   Affordable housing legislation
          ------------------------------

          President Clinton signed the Fiscal Year 1998 HUD appropriations bill
     into law, effective October 1, 1997.  The new legislation allows all
     Section 8 contracts with rents at (or reduced to) less than 120% of fair
     market rents which expire between now and September 1998 to be renewed for
     one year.  At the beginning of Fiscal Year 1999 (October 1, 1998), all
     expiring contracts with rents exceeding comparable market rents and whose
     mortgages are insured by FHA will be subject to the Mark-to-Market
     legislation.

          Mark-to-Market implementation will reduce rental income at properties
     which are currently subsidized at higher-than-market rental rates, and will
     therefore lower cash flow available to meet mortgage payments and operating
     expenses.  Each affected property will undergo debt restructuring according


                                      IV-18
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

     to terms determined by an individual property and operations evaluation.
     This will involve reducing the first mortgage loan balance to an amount
     supportable by the property, taking into account the property's operating
     expenses and reduced income.  The balance of the amount written down from
     the first mortgage will be converted to a non-performing but accruing
     (soft) second mortgage.  The Section 8 HAP contracts for the following
     properties expire during the government's fiscal year 1998.



















































                                      IV-19
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

<TABLE>
<CAPTION>

                                                                     Units
                                                                 Authorized for           Expiration of
                                          Number of             Rental Assistance           Section 8
       Property                          Rental Units            Under Section 8          HAP Contract
       --------                          ------------           -----------------         -------------
       <S>                               <C>                    <C>                       <C>
       Bartley Manor                          70                       69                    07/31/98
       Briar Crest I                          53                       53                    06/30/98
       Briar Crest II                         49                       49                    06/30/98
       Briar Hills                            50                       33                    09/30/98
       Greeley Manor                         128                      119                    11/01/98
       Highland Manor                        111                      111                    02/08/98
       Indian Hills Townhouses                40                       24                    09/30/98
       Tyee Apartments                       100                       56                    07/31/98
       Village Green                          36                       36                    09/30/98
       Village Square                         48                       48                    09/30/98
       Winchester Gardens Apartments         206                      202                    08/31/98
       Woodside Village                      180                      114                    08/31/98

</TABLE>

          With the uncertainty of continued project-based Section 8 subsidies
     for properties with expiring HAP contracts, there is no assurance that
     these rental properties will be able to maintain the rental income and
     occupancy levels necessary to pay operating costs and debt service.  It is
     difficult to predict the impact on the Local Partnerships and the resulting
     impact on the Partnership at this time.

     e.   Summarized financial information
          --------------------------------

          Summarized financial information for the Local Partnerships at
     December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996
     and 1995 follows.





















                                      IV-20
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

                             COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                         ---------------------------------
                                                                                             1997                 1996
                                                                                         ------------         ------------
<S>                                                                                      <C>                  <C>
Rental property, at cost, net of accumulated depreciation
  of $71,585,566 and $73,063,135, respectively                                           $ 81,220,273         $ 93,786,201

 Land and land improvements                                                                13,618,320           14,582,655
 Other assets                                                                              18,688,569           18,790,710
                                                                                         ------------         ------------
      Total assets                                                                       $113,527,162         $127,159,566
                                                                                         ============         ============

Mortgage notes payable                                                                   $103,331,776         $110,454,384
Other liabilities                                                                           8,946,178           10,228,071
                                                                                         ------------         ------------
      Total liabilities                                                                   112,277,954          120,682,455

Partners' capital                                                                           1,249,208            6,477,111
                                                                                         ------------         ------------
      Total liabilities and partners' capital                                            $113,527,162         $127,159,566
                                                                                         ============         ============
</TABLE>

                       COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                For the years ended December 31,
                                                                    -------------------------------------------------------
                                                                        1997                 1996                 1995
                                                                    ------------         ------------         ------------
<S>                                                                 <C>                  <C>                  <C>
Revenue:
  Rental                                                            $ 31,459,037         $ 33,417,794         $ 33,256,209
  Interest                                                               716,736              674,147              695,422
  Other                                                                  787,654              773,800              748,368
                                                                    ------------         ------------         ------------
      Total revenue                                                   32,963,427           34,865,741           34,699,999
                                                                    ------------         ------------         ------------
Expenses:
  Operating                                                           19,596,085           21,006,072           20,943,312
  Interest                                                             8,913,090            7,538,528            7,085,360
  Depreciation                                                         5,308,139            5,546,213            5,749,135
  Amortization                                                            58,878               54,725               33,047
                                                                    ------------         ------------         ------------
       Total expenses                                                 33,876,192           34,145,538           33,810,854
                                                                    ------------         ------------         ------------
Net (loss) income                                                   $   (912,765)        $    720,203         $    889,145
                                                                    ============         ============         ============
</TABLE>


                                      IV-21
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

     f.   Reconciliation of the Local Partnerships' financial statement net
          -----------------------------------------------------------------
               (loss) income to taxable loss
               -----------------------------

          For federal income tax purposes, the Local Partnerships report on a
     basis whereby:  (1) certain revenue and the related assets are recorded
     when received rather than when earned; (2) certain costs are expensed when
     paid or incurred rather than capitalized and amortized over the period of
     benefit; and (3) a shorter life is used to compute depreciation on the
     property as permitted by Internal Revenue Service (IRS) Regulations.  These
     returns are subject to examination and, therefore, possible adjustment by
     the IRS.

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










































                                      IV-22
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   INVESTMENTS IN PARTNERSHIPS - Continued

<TABLE>
<CAPTION>
                                                                               For the years ended December 31,
                                                                    ------------------------------------------------------
                                                                        1997                 1996                 1995
                                                                    ------------         ------------         ------------
<S>                                                                 <C>                  <C>                  <C>
Financial statement net (loss) income                               $   (912,765)        $    720,203         $    889,145

Adjustments:
  Additional tax depreciation using accelerated
    methods, net of depreciation on construction
    period expenses capitalized for financial
    statement purposes                                                (2,122,629)          (3,169,569)          (3,413,758)

  Amortization for financial statement purposes not
    deducted for income tax purposes                                      48,379               49,756               25,569

  Interest expense on discounted mortgage loan                         1,562,764                   --                   --

  Miscellaneous, net                                                      11,357               49,021                2,199
                                                                    ------------         ------------         ------------
Taxable loss                                                        $ (1,412,894)        $ (2,350,589)        $ (2,496,845)
                                                                    ============         ============         ============

</TABLE>


3.   RELATED-PARTY TRANSACTIONS

     In accordance with the Partnership Agreement, the Partnership paid the
Managing General Partner a fee for services in connection with the review,
selection, evaluation, negotiation and acquisition of the interests in the Local
Partnerships.  The fee amounted to $1,200,000, which is equal to 2% of the
Additional Limited Partners' capital contributions to the Partnership.  The
acquisition fee was capitalized and is being amortized over a thirty-year period
using the straight-line method.

     In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership.  For the years ended December 31, 1997, 1996 and
1995, the Partnership paid $103,258, $113,632 and $77,544, respectively, as
direct reimbursement of expenses incurred on behalf of the Partnership. Such
expenses are included in the accompanying consolidated statements of operations
as general and administrative expenses.

     Additionally, in accordance with the terms of the Partnership Agreement,
the Partnership is obligated to pay the Managing General Partner an annual
incentive management fee (the Management Fee), after all other expenses of the
Partnership are paid.  The amount of the Management Fee shall be equal to .25%
of invested assets, as defined in the Partnership Agreement, and shall be
payable from the Partnership's cash available for distribution, as defined in
the Partnership Agreement, as of the end of each calendar year, as follows:





                                      IV-23
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   RELATED-PARTY TRANSACTIONS - Continued

     a.   First, on a monthly basis as an operating expense before any
          distributions to limited partners in the amount computed as described
          in the Partnership Agreement, provided that such amount shall not be
          greater than $300,000 and;
     b.   Second, after distributions to the limited partners in the amount of
          1% of the gross proceeds of the offering, the balance of such .25% of
          invested assets.

For each of the years ended December 31, 1997, 1996 and 1995, the Partnership
paid the Managing General Partner a Management Fee of $300,000.

     The Managing General Partner and/or its affiliates may receive a fee of not
more than 2% of the sales price of an investment in a Local Partnership or the
property it owns, payable under certain conditions upon the sale of an
investment in a Local Partnership or the property it owns.  The payment of the
fee is subject to certain restrictions, including the achievement of a certain
level of sales proceeds and making certain minimum distributions to limited
partners.  The Managing General Partner and/or its affiliates earned net fees
for services relating to the sale of the Partnership's interest in the Park
Heights Towers Local Partnership of $117,028 on February 2, 1996.  As of
December 31, 1997, $42,500 of these fees had not been paid and were accordingly
classified as consulting fees payable to related parties in the accompanying
financial statements.  On March 25, 1998, these fees were paid.


4.   PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS

     All profits and losses prior to the first date on which Additional Limited
Partners were admitted were allocated 98.49% to the Initial Limited Partners and
1.51% to the General Partners.  Upon admission of the Special Limited Partner
and the Additional Limited Partners, the interest of the Initial Limited
Partners was reduced to .49%.  The net proceeds resulting from the liquidation
of the Partnership or the Partnership's share of the net proceeds from any sale
or refinancing of the projects or their rental properties which are not
reinvested shall be distributed and applied as follows:

       (i)     to the payment of debts and liabilities of the Partnership
               (including all expenses of the Partnership incident to the sale
               or refinancing) other than loans or other debts and liabilities
               of the Partnership to any partner or any affiliate; such debts
               and liabilities, in the case of a non-liquidating distribution,
               to be only those which are then required to be paid or, in the
               judgment of the Managing General Partner, required to be provided
               for;
      (ii)     to the establishment of any reserves which the Managing General
               Partner deems reasonably necessary for contingent, unmatured or
               unforeseen liabilities or obligations of the Partnership;
     (iii)     to each partner in an amount equal to the positive balance in his
               capital account as of the date of the sale or refinancing,
               adjusted for operations and distributions to that date, but
               before allocation of any profits for tax purposes realized from
               such sale or refinancing and allocated pursuant to the
               Partnership Agreement;
      (iv)     to the limited partners (A) an aggregate amount of proceeds from
               sale or refinancing and all prior sales or refinancings equal to
               their capital contributions, without reduction for prior cash


                                      IV-24
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.   PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued

               distributions other than prior distributions of sale and
               refinancing proceeds, plus (B) an additional amount equal to a
               cumulative noncompounded 6% return on each limited partners'
               capital contribution, reduced, but not below zero, by (1) an
               amount equal to 50% of the losses for tax purposes plus tax
               credits allocated to such limited partner and (2) distributions
               of net cash flow to each limited partner, such return, losses for
               tax purposes and net cash flow distributions commencing on the
               first day of the month in which the capital contribution was
               made;
        (v)    to the repayment of any unrepaid loans theretofore made by any
               partner or any affiliate to the Partnership for Partnership
               obligations and to the payment of any unpaid amounts owing to the
               General Partners pursuant to the Partnership Agreement;
       (vi)    to the General Partners in the amount of their capital
               contributions;
      (vii)    thereafter, for their services to the Partnership, in equal
               shares to certain general partners (or their designees), whether
               or not any is then a general partner, an aggregate fee of 1% of
               the gross proceeds resulting from (A) such sale (if the proceeds
               are from a sale rather than a refinancing) and (B) any prior
               sales from which such 1% fee was not paid to the General Partners
               or their designees; and,
     (viii)    the remainder, 12% to the General Partners (or their assignees),
               3% to the Special Limited Partner and 85% to the Initial and
               Additional Limited Partners (or their assignees).

     Fees payable to certain general partners (or their designees) under (vii)
above, together with all other property disposition fees and any other
commissions or fees payable upon the sale of apartment properties, shall not in
the aggregate exceed the lesser of the competitive rate or 6% of the sales price
of the apartment properties.

     In addition, the Managing General Partner and/or its affiliates may receive
a fee in an amount of not more than 2% of the sales price of the investment in a
Local Partnership or the property it owns.  The fee would only be payable upon
the sale of the investment in a Local Partnership or the property it owns and
would be subject to certain restrictions, including achievement of a certain
level of sales proceeds and making certain minimum distributions to limited
partners.  The Managing General Partner and/or its affiliates earned net fees
for services relating to the sale of the Partnership's interest in the Park
Heights Towers Local Partnership of $117,028 on February 2, 1996.  As of
December 31, 1997, $42,500 of these fees had not been paid and were accordingly
classified as consulting fees payable to related parties in the accompanying
financial statements.  On March 25, 1998, these fees were paid.

     Pursuant to the Partnership Agreement, all cash available for distribution,
as defined, shall be distributed, not less frequently than annually, 97% to the
Additional Limited Partners, 1% to the Special Limited Partner, .49% to the
Initial Limited Partner and 1.51% to the General Partners, after payment of the
Management Fee (see Note 3), as specified in the Partnership Agreement.  As
defined in the Partnership Agreement, prior to the establishment of any reserves
deemed necessary by the Managing General Partner and after payment of the
Management Fee, the Partnership had cash available for distribution of
approximately $414,000, $1,000,000 and $250,000 for the years ended December 31,
1997, 1996 and 1995, respectively.


                                      IV-25
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.   PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued

     On November 10, 1997, the Managing General Partner distributed
approximately $1.2 million ($20.00 per Additional Limited Partnership Unit) to
the Additional Limited Partners from the proceeds of the sale of Walden
Apartments, to holders of record as of September 30, 1997.  On April 30, 1996,
the Partnership distributed $579,000 ($9.65 per Additional Limited Partnership
unit) to the Additional Limited Partners from the proceeds of the sale of Park
Heights.  No distributions were declared or paid by the Partnership during 1995.
The Managing General Partner intends to retain all of the Partnership's
remaining undistributed net sale proceeds for the possible repayment, prepayment
or purchase of the Partnership's outstanding purchase money notes related to
other Local Partnerships.


5.   RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET INCOME
          (LOSS) TO TAXABLE INCOME (LOSS)

     For federal income tax purposes, the Partnership reports on a basis
whereby:  (1) certain expenses are amortized rather than expensed when incurred;
(2) certain costs are amortized over a shorter period for tax purposes, as
permitted by IRS Regulations, and (3) certain costs are amortized over a longer
period for tax purposes.  The Partnership records its share of losses from its
investments in limited partnerships for federal income tax purposes as reported
on the Local Partnerships' federal income tax returns (see Note 2g), including
losses in excess of related investment amounts.  In addition, adjustments
arising from the imputation of interest on the Partnership's purchase money
notes for financial reporting purposes are eliminated for income tax purposes
(see Note 2a).  These returns are subject to audit and, therefore, possible
adjustment by the IRS.

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



























                                      IV-26
<PAGE>
                CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                   For the years ended December 31,
                                                                           --------------------------------------------------
                                                                               1997                1996             1995
                                                                           ------------        ------------     ------------
<S>                                                                        <C>                 <C>              <C>
Financial statement net income (loss)                                      $  1,132,928        $  2,751,561     $ (8,149,347)

  Adjustments:
    Differences between the income tax gains (losses)
      and financial statement gains (losses) related
      to the Partnership's equity in the Local Partnerships'
      losses                                                                  8,698,372         (10,312,584)      (5,112,498)

    Difference in extraordinary gain from extinguishment
      of debt                                                                   321,663                  --       (1,050,000)

    Costs amortized over a shorter period for income tax purposes               (38,722)            (16,698)         (82,742)

    Effect of imputed interest on purchase money notes for financial
       statement purposes                                                     3,409,011           3,538,365        4,570,051
                                                                           ------------        ------------     ------------
  Taxable income (loss)                                                    $ 13,523,252        $ (4,039,356)    $ (9,824,536)
                                                                           ============        ============     ============

</TABLE>






























                                      IV-27
<PAGE>




























                          FINANCIAL STATEMENT SCHEDULE



































                                      IV-28
<PAGE>
















              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
              -----------------------------------------------------
                          FINANCIAL STATEMENT SCHEDULE
                          ----------------------------


To the Partners
Capital Realty Investors-III Limited Partnership


     In connection with our audits of the consolidated financial statements of
Capital Realty Investors-III Limited Partnership referred to in our report dated
March 19, 1998, which is included in this Form 10-K, we have also audited
Schedule III as of December 31, 1997, 1996 and 1995.  We did not audit the
financial statements for certain Local Partnerships in 1997, 1996 and 1995,
which are accounted for as described in Note 1d.  In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.


                                                            Grant Thornton LLP


Vienna, VA
March 19, 1998























                                      IV-29
<PAGE>
                 CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF
         LOCAL PARTNERSHIPS IN WHICH CAPITAL REALTY INVESTORS-III LIMITED
                             PARTNERSHIP HAS INVESTED
                                 December 31, 1997
<TABLE>
<CAPTION>
       COL. A                   COL. B                          COL. C                                     COL. D
--------------------           -------             -------------------------------            -------------------------------
                                                               Initial                              Costs Capitalized
                                                            Cost to Local                               Subsequent
                                                             Partnership                              to Acquisition
                                                   -------------------------------            -------------------------------
                                                                        Building
    Description                Encum-                                     and                 Improvements/        Carrying
Operating Properties           brances                Land            Improvements             (Deletions)         Costs (B)
--------------------           -------             -----------        ------------            ------------        -----------
<S>                            <C>                 <C>                <C>                     <C>                 <C>
Arboretum Village                (A)               $ 1,165,630        $  9,319,370            $  3,240,213        $        --
 Lisle, IL
 (308 units-family
 apartment complex)

Monterey/Hillcrest               (A)                 1,332,233           2,168,760              13,096,588            468,293
 Apartments
 Waukesha, WI
 (300 units-family
 apartment complex)

O'Farrell Towers                 (A)                   950,000           1,680,000               8,367,518              5,988
  San Francisco, CA
  (101 units-elderly
  apartment complex)

Rolling Green                    (A)                   550,000           8,926,785               2,653,926                 --
  at Milford
  Milford, MA
  (304 units-family
  apartment complex)

Victorian Towers                 (A)                   634,387           7,676,587                 234,643                 --
  Cape May, NJ
  (205 units-elderly
  apartment complex)

Village Squire I & II            (A)                   942,500           8,864,440                (230,400)                --
  Canton, MI                                       -----------        ------------            ------------        -----------
  (377 units-family
  apartment complex)

     Sub-total                                       5,574,750          38,635,942              27,362,488            474,281
                                                   -----------        ------------            ------------        -----------

Aggregate of remaining
 properties (26) which are
 individually less than
 5% of the total of
 Column E                        (A)                 6,372,866          64,185,039              23,791,724             27,069
                                                   -----------        ------------            ------------        -----------
     Total                                         $11,947,616        $102,820,981            $ 51,154,212        $   501,350
                                                   ===========        ============            ============        ===========
</TABLE>


                                      IV-30
<PAGE>
                  CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
              SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF
           LOCAL PARTNERSHIPS IN WHICH CAPITAL REALTY INVESTORS-III LIMITED
                        PARTNERSHIP HAS INVESTED - Continued
                                December 31, 1997
<TABLE>
<CAPTION>
       COL. A                              COL. E                             COL. F      COL. G    COL. H         COL. I
--------------------     -------------------------------------------       ------------   -------   -------   ----------------
                                    Gross amount at which                                                       Life upon
                                 carried at close of period                                                     which dep-
                         -------------------------------------------                       Date                reciation in
                             Land          Building                         Accumulated     of                 latest income
    Description            and Land          and                           depreciation   Const-      Date     statement is
Operating Properties     Improvements    Improvements   Total (C) (D)          (D)        ruction   Acquired  computed (years)
--------------------     ------------    ------------   -------------      ------------   -------   --------  ----------------
<S>                      <C>             <C>            <C>                <C>            <C>       <C>       <C>
Arboretum Village        $ 1,625,930     $ 12,099,283   $  13,725,213      $  5,574,980     1972      1/84          5-30
 Lisle, IL
 (308 units-family
 apartment complex)

Monterey/Hillcrest         1,335,534       15,730,340      17,065,874         7,649,388     1984     11/83          5-30
 Apartments
 Waukesha, WI
 (300 units-family
 apartment complex)

O'Farrell Towers             950,000       10,053,506      11,003,506         4,300,393     1985     10/83          5-30
  San Francisco, CA
  (101 units-elderly
  apartment complex)

Rolling Green                465,015       11,665,696      12,130,711         5,032,740     1974      3/84          5-30
  at Milford
  Milford, MA
  (304 units-family
  apartment complex)

Victorian Towers             637,887        7,907,730       8,545,617         3,141,104     1984     11/83         10-36
  Cape May, NJ
  (205 units-elderly
  apartment complex)

Village Squire I & II        805,897        8,770,643       9,576,540         4,238,455     1980      3/84          5-33
  Canton, MI             -----------     ------------   -------------      ------------
  (376 units-family
  apartment complex)

     Sub-total             5,820,263       66,227,198      72,047,461        29,937,060
                         -----------     ------------   ------------       ------------

Aggregate of remaining
 properties (26) which are
 individually less than
 5% of the total of
 Column E                  7,798,057       86,578,641      94,376,698        41,648,506
                         -----------     ------------   -------------      ------------
     Total               $13,618,320     $152,805,839   $ 166,424,159      $ 71,585,566
                         ===========     ============   =============      ============
</TABLE>



                                      IV-31
<PAGE>
                 CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP

          NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                         OF LOCAL PARTNERSHIPS IN WHICH
           CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP HAS INVESTED

                                December 31, 1997

(A)  Secures mortgage loans.

(B)  Consists of capitalized construction period interest and real estate
     taxes during construction.

(C)  The aggregate cost of land for federal income tax purposes is $13,352,842
     and the aggregate cost of buildings and improvements for federal income
     tax purposes is $166,340,398.  The total of the above-mentioned items
     is $179,693,240.

(D)  Reconciliation of real estate
     -----------------------------

<TABLE>
<CAPTION>
                                                                                  For the years ended December 31,
                                                                        --------------------------------------------------
                                                                            1997               1996               1995
                                                                        ------------       ------------       ------------
<S>                                                                     <C>                <C>                <C>
Balance at beginning of period                                          $181,431,991       $183,526,081       $181,960,413

Additions during period                                                    1,919,075          3,699,917          1,962,413

Deletions during period                                                  (16,926,907)        (5,794,007)          (396,745)
                                                                        ------------       ------------       ------------
Balance at end of period                                                $166,424,159       $181,431,991       $183,526,081
                                                                        ============       ============       ============

</TABLE>

     Reconciliation of accumulated depreciation
     ------------------------------------------

<TABLE>
<CAPTION>
                                                                                   For the years ended December 31,
                                                                        --------------------------------------------------
                                                                            1997               1996               1995
                                                                        ------------       ------------       ------------
<S>                                                                     <C>                <C>                <C>
Balance at beginning of period                                          $ 73,063,135       $ 69,987,195       $ 64,566,221

Depreciation expense for the period                                        5,308,139          5,546,213          5,749,135

Deletions during period                                                   (6,785,708)        (2,470,273)          (328,161)
                                                                        ------------       ------------       ------------
Balance at end of period                                                $ 71,585,566       $ 73,063,135       $ 69,987,195
                                                                        ============       ============       ============

</TABLE>





                                      IV-32
<PAGE>


                                  EXHIBIT INDEX
                                  -------------


Exhibit                                                Method of Filing
-------                                         -----------------------------

27         Financial Data Schedule              Filed herewith electronically






















































                                                                IV-33