<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-KA


(Mark One)

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended December 31, 1999

[_]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

                        Commission file number 33-44158


                    Capital Preferred Yield Fund-III, L.P.
                    --------------------------------------
            (Exact name of registrant as specified in its charter)

                 Delaware                                   84-1248907
         (State of organization)                        (I.R.S. Employer
                                                      Identification Number)


 7175 W. Jefferson Avenue, Lakewood, Colorado                   80235
   (Address of principal executive offices)                  (Zip Code)

      Registrant's telephone number, including area code: (303) 980-1000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None


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. [_]

State the aggregate market value of the voting stock held by non-affiliates of
the registrant.  Not applicable.


                       Exhibit Index Appears on Page 39

                              Page 1 of 40 Pages
<PAGE>

Item 1.   Business
          --------

Capital Preferred Yield Fund-III, L.P., a Delaware limited partnership (the
"Partnership"), was organized on November 2, 1993 and is engaged in the business
of owning and leasing equipment.  CAI Equipment Leasing IV Corp., a Colorado
corporation and a wholly owned subsidiary of Capital Associates, Inc. ("CAI"),
is the general partner of the Partnership.

Capital Associates International, Inc. ("CAII"), an affiliate of the general
partner, is the Class B limited partner of the Partnership. In exchange for its
Class B limited partner interest, CAII contributed cash of $10,000 for each
$1,000,000 of investors' capital contribution (i.e., cash investments in the
Partnership) to the Partnership. The Class B limited partner's interest in
Distributable Cash is subordinated to the Class A limited partners' interest.
The contributions of CAII were made simultaneously with the purchase of
equipment by the Partnership.  CAII has contributed $500,000 to the Partnership
making it the largest single investor in the Partnership.

The Partnership's overall investment objectives are to (i) raise the maximum
allowable capital from investors for investment in accordance with the
Partnership's investment objectives described in the Prospectus; (ii) invest
such capital and related indebtedness in a diversified portfolio of equipment
subject to leases to creditworthy businesses with terms ranging from two to
seven years; (iii) if funds are available for distribution, make monthly cash
distributions to the Class A and Class B limited partners during the
reinvestment period (a period that ends approximately June 30, 2000); (iv) re-
invest all available undistributed cash from operations and cash from sales in
additional equipment during the reinvestment period to increase the
Partnership's portfolio of revenue-generating equipment, provided that suitable
equipment can be identified and acquired; and (v) sell or otherwise dispose of
the Partnership's equipment and other assets in an orderly manner and promptly
distribute cash from sales thereof to the Partners within three years of the end
of the reinvestment period.

During 1999, the Partnership acquired equipment of various types under lease to
third parties. All of the equipment was purchased by CAII directly from
manufacturers or from other independent third parties and sold to the
Partnership. The equipment is generally comprised of material handling
equipment, computer and peripheral equipment, industrial equipment, and
telecommunications equipment, among others (the "equipment"). See Item 13 of
this report, "Certain Relationships and Related Transactions" for the detail
listing of equipment purchased during 1999. The Partnership expects that a
majority of the equipment purchased during 2000 will be similar in nature to
that mentioned above.

The Partnership may assign the rentals from leases to financial institutions, or
acquire leases subject to such assignments, at fixed interest rates on a non-
recourse basis.  The proceeds of this non-recourse debt financing will be
utilized to finance the purchase of equipment under lease or to invest in
additional equipment under lease.  In the event of default by a lessee, the
financial institution has a first lien on the underlying leased equipment with
no further recourse against the Partnership.  Cash proceeds from such
financings, or financings assumed in the acquisition of leases, are recorded on
the balance sheet as discounted lease rentals.  As lessees make payments to
financial institutions, leasing revenue and interest expense are recorded.

                                      -2-
<PAGE>

Item 1. Business, continued
        --------

During 1999, the Partnership leased equipment to investment grade lessees in
diverse industries including the financial services, retail, telecommunications,
energy and manufacturing industries. Approximately 68% of the Partnership's
total equipment under lease was leased to investment grade lessees as of
December 31, 1999. Pursuant to the Partnership Agreement, an investment grade
lessee is a company (i) with a net worth in excess of $100,000,000 (and no debt
issues that are rated); or (ii) with a credit rating of not less than Baa as
determined by Moody's Investor Services, Inc. or comparable credit rating, as
determined by another recognized credit rating service; or (iii) a lessee, all
of whose lease payments have been unconditionally guaranteed or supported by a
letter of credit issued by a company meeting one of the above requirements.  The
Partnership limits its credit risk through selective use of non-recourse debt
financing of future lease rentals, as described above.

The Partnership only acquires equipment that is on lease at the time of
acquisition. After the initial term of its lease, each item of equipment is
expected to provide additional investment income from its re-lease or sale. Upon
expiration of the initial lease, the Partnership attempts to re-lease or sell
the equipment to the existing lessee. If a re-lease or sale to the lessee cannot
be negotiated, the Partnership will attempt to lease or sell the equipment to a
third party.

The Partnership's business is not subject to seasonal variations.

The ultimate rate of return on leases depends, in part, on the general level of
interest rates at the time the leases are originated as well as future equipment
values and on-going lessee creditworthiness. Because leasing is an alternative
to financing equipment purchases with debt, lease rates tend to rise and fall
with interest rates (although lease rate movements generally lag interest rate
changes in the capital markets). The amount of future distributions to the
partners will depend, in part, on future interest rates.

The Partnership has no employees.  The officers, directors and employees of the
general partner and its affiliates perform services on behalf of the
Partnership. The general partner is entitled to receive certain fees and expense
reimbursements in connection with the performance of these services. See Item 10
of this Report, "Directors and Executive Officers of the Partnership" and Item
13 of this Report, "Certain Relationships and Related Transactions," which are
incorporated herein by reference.

The Partnership competes in the leasing marketplace as a lessor with a
significant number of other companies, including equipment manufacturers,
leasing companies and financial institutions. The Partnership competes mainly on
the basis of the expertise of its general partner in remarketing equipment,
terms offered in its transactions, pricing and service. Although the Partnership
does not account for a significant percentage of the leasing market, the general
partner believes that the Partnership's marketing strategies, financing
capabilities, and remarketing expertise enable it to compete effectively in the
equipment leasing and remarketing markets.

The Partnership leases equipment to a significant number of lessees.  No one
lessee and its affiliates accounted for more than 10% of total revenue of
Partnership during 1999.

The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 2011. However, the general partner anticipates that all
equipment will be sold and the Partnership will be liquidated prior to that
date.

                                      -3-
<PAGE>

Item 2. Properties
        ----------

Per the Partnership Agreement, the Partnership does not own or lease any
physical properties other than the equipment discussed in Item 1 of this Report,
"Business," which is incorporated herein by reference.

Item 3. Legal Proceedings
        -----------------

Neither the Partnership nor any of the Partnership's equipment is the subject of
any material pending legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders
        ---------------------------------------------------

No matters were submitted to a vote of the limited partners of the Partnership,
through the solicitation of proxies or otherwise, during the fourth quarter
ended December 31, 1999.

Item 5. Market for the Partnership's Common Equity and Related Stockholder
        ------------------------------------------------------------------
Matters
-------

(a)  The Partnership's Class A limited partner units, Class B limited partner
     interest and general partner interest are not publicly traded.  There is no
     established public trading market for such units and interests and none is
     expected to develop.

(b)  At December 31, 1999, there were 2,858 Class A limited partners.

(c)  Distributions
     -------------

     During 1999, the Partnership made twelve (12) distributions (a portion of
     which constituted a return of capital) to Class A limited partners as
     follows:

<TABLE>
<CAPTION>
                                                Distributions Per
                                                 $100 Investment
           For the                Payment         (computed on          Total
         Period Ended           Made During     weighted average)   Distributions
         ------------         ---------------   -----------------   -------------
       <S>                    <C>               <C>                 <C>
       December 31, 1998      January 1999             $0.875          $  432,014
       January 31, 1999       February 1999             0.875             429,870
       February 28, 1999      March 1999                0.875             429,870
       March 31, 1999         April 1999                0.875             432,015
       April 30, 1999         May 1999                  0.875             429,564
       May 31, 1999           June 1999                 0.875             429,564
       June 30, 1999          July 1999                 0.875             431,708
       July 31, 1999          August 1999               0.875             429,564
       August 31, 1999        September 1999            0.875             429,564
       September 30, 1999     October 1999              0.875             431,708
       October 31, 1999       November 1999             0.875             429,564
       November 30, 1999      December 1999             0.875             429,467
                                                       ------          ----------
                                                       $10.50          $5,164,472
                                                       ======          ==========
</TABLE>

                                      -4-
<PAGE>

Item 5. Market for the Partnership's Common Equity and Related Stockholder
        ------------------------------------------------------------------
        Matters, continued
        -------

(c)  Distributions, continued
     -------------

     Distributions may be characterized for tax, accounting and economic
     purposes as a return of capital, a return on capital or a portion of both.
     The portion of each cash distribution by a partnership which exceeds its
     net income for the fiscal period may be deemed a return of capital for
     accounting purposes. However, the total percentage of a leasing
     partnership's return on capital over its life can only be determined after
     all residual cash flows (which include proceeds from the re-leasing and
     sale of equipment) have been realized at the termination of the
     Partnership.

     The distribution for the month ended December 31, 1999, totaling $433,568,
     was paid to the Class A limited partners on January 4, 2000.  Distributions
     to the general partner and Class B limited partner during 1999 are
     discussed in Item 13 of this Report, "Certain Relationships and Related
     Transactions."

     The general partner believes that the Partnership will generate sufficient
     cash flows from operations during 2000, to (1) meet current operating
     requirements, (2) enable it to fund cash distributions to both the Class A
     and Class B limited partners at annualized rates of 10.5% on their capital
     contributions (portions of which are expected to constitute returns of
     capital), and (3) reinvest in additional equipment under leases, provided
     that suitable equipment can be identified and acquired.

                                      -5-
<PAGE>

Item 5. Market for the Partnership's Common Equity and Related Stockholder
        ------------------------------------------------------------------
        Matters, continued
        -------

(c)  Distributions, continued
     -------------

     During 1998, the Partnership made twelve (12) distributions (a portion of
     which constituted a return of capital) to Class A limited partners as
     follows:

<TABLE>
<CAPTION>
                                             Distributions Per
                                              $100 Investment
            For the             Payment        (computed on         Total
          Period Ended        Made During    weighted average)  Distributions
       -------------------   --------------  -----------------  -------------
       <S>                   <C>             <C>                <C>

       December 31, 1997     January 1998          $ 0.875      $  432,859
       January 31, 1998      February 1998           0.875         431,108
       February 28, 1998     March 1998              0.875         431,108
       March 31, 1998        April 1998              0.875         432,378
       April 30, 1998        May 1998                0.875         430,058
       May 31, 1998          June 1998               0.875         429,927
       June 30, 1998         July 1998               0.875         432,072
       July 31, 1998         August 1998             0.875         429,927
       August 31, 1998       September 1998          0.875         429,870
       September 30, 1998    October 1998            0.875         432,015
       October 31, 1998      November 1998           0.875         429,870
       November 30, 1998     December 1998           0.875         429,870
                                                   -------      ----------
                                                   $ 10.50      $5,171,062
                                                   =======      ==========
</TABLE>

     The following represents annual and cumulative distributions per Class A
     limited partner unit, as described in note 1 to Notes to Consolidated
     Financial Statements.

<TABLE>
<CAPTION>
                      Distribution Amount        Distribution %
                       per $100 Class A         per $100 Class A
                     Limited Partner Unit      Limited Partner Unit
         Payment         (computed on             (computed on
       Made During     weighted average)     weighted average) (1)
       -----------    -------------------    ---------------------
       <S>            <C>                    <C>
           1994              $ 5.25                  10.5%
           1995               10.50                  10.5%
           1996               10.50                  10.5%
           1997               10.50                  10.5%
           1998               10.50                  10.5%
           1999               10.50                  10.5%
                             ------
                             $57.75
                             ======
</TABLE>

     (1) Cumulative distributions, as described in note 1 to Notes to
         Consolidated Financial Statements, began July 1994.

                                      -6-
<PAGE>

Item 6. Selected Financial Data
        -----------------------

The following selected financial data relates to the years ended December 31,
1995 through 1999. The data should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto appearing with Item 8
herein.

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                               -------------------------------------------------------------------
                                                   1999          1998          1997          1996         1995
                                               ------------  ------------  ------------  ------------  -----------
<S>                                            <C>           <C>           <C>           <C>           <C>
Total revenue                                   $17,896,120   $18,490,540   $20,994,438   $17,245,131  $ 8,195,180
Net income                                        2,200,668     1,745,560     4,414,329     2,074,001      553,710
Net income per weighted average Class A
  limited partner unit outstanding                     4.32          3.40          8.71          4.13         1.91
Total assets                                     42,103,741    47,803,687    53,890,874    62,471,309   48,463,584
Discounted lease rentals                          9,257,171    12,603,909    15,828,174    23,437,868   16,863,892
Distributions declared to partners                5,271,238     5,275,471     5,307,605     5,154,680    2,712,186
Distributions declared per weighted average
  Class A limited partner unit outstanding            10.50         10.50         10.50         10.50        10.50
</TABLE>

                                      -7-
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         -----------------------------------------------------------------------
         of Operations
         -------------

I. Results of Operations
   ---------------------

Presented below are schedules (prepared solely to facilitate the discussion of
results of operations that follows) showing condensed income statement
categories and analyses of changes in those condensed categories derived from
the Statements of Income:

<TABLE>
<CAPTION>
                                                   Years Ended December 31,                   Years Ended December 31,
                                        ------------------------------------------   -----------------------------------------
                                            1999           1998          Change          1998          1997          Change
                                        ------------   ------------   ------------   -----------    -----------    -----------
   <S>                                  <C>            <C>            <C>            <C>            <C>            <C>
   Leasing margin                       $  3,375,087   $  3,295,648   $     79,439   $ 3,295,648    $ 3,496,347    $  (200,699)
   Equipment sales margin                  1,187,086        450,186        736,900       450,186      1,821,419     (1,371,233)
   Interest income                           390,199        165,182        225,017       165,182        112,367         52,815
   Management fees paid to
      general partner                       (348,688)      (419,816)        71,128      (419,816)      (409,275)       (10,541)
   Direct services from
      general partner                       (135,846)      (209,528)        73,682      (209,528)      (120,015)       (89,513)
   General and administrative               (276,855)      (286,112)         9,257      (286,112)      (236,514)       (49,598)
   Provision for losses                   (1,990,315)    (1,250,000)      (740,315)   (1,250,000)      (250,000)    (1,000,000)
                                        ------------   ------------   ------------   -----------    -----------    -----------
        Net income                      $  2,200,668   $  1,745,560   $    455,108   $ 1,745,560    $ 4,414,329    $(2,668,769)
                                        ============   ============   ============   ===========    ===========    ===========
</TABLE>

Leasing Margin

Leasing margin consists of the following:

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                 ------------------------------------------
                                                     1999           1998           1997
                                                     ----           ----           ----
<S>                                              <C>            <C>            <C>
Operating lease rentals                          $ 16,104,518   $ 17,367,092   $ 18,695,558
Direct finance lease income                           214,317        508,080        365,094
Depreciation                                      (12,284,633)   (13,493,620)   (14,058,981)
Interest expense on discounted lease rentals         (659,115)    (1,085,904)    (1,505,324)
                                                 ------------   ------------   ------------

  Leasing margin                                 $  3,375,087   $  3,295,648   $  3,496,347
                                                 ============   ============   ============

  Leasing margin ratio                                     21%            18%            18%
                                                           ==             ==             ==
</TABLE>

Leasing margin ratio will vary due to changes in the portfolio, including, among
other things, the mix of operating leases versus direct finance leases, the
average maturity of leases comprising the portfolio, the average residual value
of leases in the portfolio, and the amount of discounted lease rentals financing
the portfolio.

Leasing margin ratio increased because a portion of the Partnership's portfolio
consists of operating leases financed with non-recourse debt.  Leasing margin
and the related leasing margin ratio for an operating lease financed with non-
recourse debt increases during the term of the lease since rents and
depreciation are typically fixed while interest expense declines as the related
non-recourse debt is repaid.

                                      -8-
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        -----------------------------------------------------------------------
        of Operations
        -------------

I.      Results of Operations, continued
        ---------------------

Leasing Margin, continued

The ultimate rate of return on leases depends, in part, on interest rates at the
time the leases are originated, as well as, future equipment values and on-going
lessee creditworthiness. Because leasing is an alternative to financing
equipment purchases with debt, lease rates tend to rise and fall with interest
rates (although lease rate movements generally lag interest rate changes in the
capital markets).

Equipment Sales Margin

Equipment sales margin from remarketing consists of the following:

<TABLE>
<CAPTION>
                                   Years Ended December 31,
                           ----------------------------------------
                               1999          1998          1997
                               ----          ----          ----
<S>                        <C>           <C>           <C>
Equipment sales revenue    $ 6,784,879   $ 4,934,639   $ 6,776,782
Cost of equipment sales     (5,597,793)   (4,484,453)   (4,955,363)
                           -----------   -----------   -----------
Equipment sales margin     $ 1,187,086   $   450,186   $ 1,821,419
                           ===========   ===========   ===========
</TABLE>

Equipment sales margin is affected by the number and dollar amount of equipment
leases that mature in a particular period. Currently, a portion of the
Partnership's initial leases have expired and the equipment is either being re-
leased or sold to the lessee or third parties and, accordingly, the timing and
amount of equipment sales cannot be projected accurately.

Interest Income

Interest income increased due to an increase in invested cash pending investment
in additional equipment or distribution to the partners.

Expenses

Management fees, direct services and general and administrative expenses paid to
general partner decreased in 1999 compared to 1998 due to portfolio runoff.
Management fees paid to general partner increased in 1998 compared to 1997
primarily due to an increase in the receipt of rents billed for direct finance
leases. Direct services from general partner increased in 1998 due to an
increase in remarketing activities associated with equipment returned to the
Partnership at lease maturity. General and administrative expenses increased in
1998 due to an increase in costs associated with remarketing equipment returned
to the Partnership at lease maturity.

                                      -9-
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        -----------------------------------------------------------------------
        of Operations
        -------------

I.      Results of Operations, continued
        ---------------------

Provision for losses

The remarketing of equipment for an amount greater than its book value is
reported as equipment sales margin (if the equipment is sold) or leasing margin
(if the equipment is re-leased).  The realization of less than the carrying
value of equipment (which is typically not known until remarketing subsequent to
the initial lease termination occurs) is recorded as provision for losses.

Residual values are established equal to the estimated value to be received from
the equipment following termination of the lease. In estimating such values, the
Partnership considers all relevant facts regarding the equipment and the lessee,
including, for example, the likelihood that the lessee will re-lease the
equipment. The nature of the Partnership's leasing activities is that it has
credit and residual value exposure and, accordingly, in the ordinary course of
business, it will incur losses from those exposures. The Partnership performs
on-going quarterly assessments of its assets to identify any other-than-
temporary losses in value.

A provision for loss of $1,990,315 was recorded for 1999. Of this amount,
$298,130 is related to a decline in the residual value on computer equipment and
$160,287 related to declines in the fair market value of forklifts returned to
the Partnership at lease maturity. In addition, $282,000 was related to losses
on the sales of certain telecommunications, computer, furniture, fixtures,
forklift and aircraft equipment, and $262,000 was recognized as losses on sales
of certain computer equipment. The provision also includes $501,000 which is
related to anticipated declines of telecommunications equipment, as well as
other miscellaneous equipment for $186,898. A provision of $300,000 was recorded
to cover a portion of the Receivable from Affiliates balance, as discussed
below.

A provision for loss of $1,250,000 was recorded for 1998. Of this amount
$286,000 is related to the estimated decline in residual value on computers and
furniture, fixtures and equipment returned to the Partnership at lease maturity.
In addition, $495,000 was recognized as losses on the sales of certain earth
moving, computer, manufacturing and printing equipment. The balance is comprised
of anticipated declines in the realizable value of mining equipment for $350,000
and other miscellaneous equipment for $119,000.

The provision for losses recorded during 1997 was primarily due to the
Partnership's loss exposure related to troubled lessees. In addition, there were
also losses related to the sales of equipment having a lower fair market value
than originally anticipated.

                                      -10-
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        -----------------------------------------------------------------------
        of Operations
        -------------

II.     Liquidity and Capital Resources
        -------------------------------

The Partnership funds its operating activities principally with cash from rents,
discounted lease rentals (non-recourse debt), interest income, and sales of off-
lease equipment. Available cash and cash reserves of the Partnership are
invested in short-term government securities pending the acquisition of
equipment or distribution to the partners.

During 1999, 1998 and 1997, the Partnership acquired equipment subject to leases
with a total equipment purchase price of approximately $13,586,000, $15,381,000
and $10,426,000, respectively, including non-recourse debt to lenders of
$6,646,000, $4,759,000, and $3,240,000, respectively. Also, during 1999 and 1998
the Partnership discounted future rental payments from certain leases to non-
recourse lenders and received proceeds of $206,000 and $1,728,000, respectively.
Non-recourse borrowing against unleveraged leases in the Partnership's lease
portfolio may occur in the future as well, when the general partner, in its
discretion, determines that such non-recourse financing is in the best interest
of the Partnership.

During 1999, 1998 and 1997 the Partnership declared distributions to the
partners of approximately $5,271,000, $5,275,000 and $5,308,000, respectively.
A substantial portion of such distributions are expected to constitute a return
of capital. Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital or a portion of both. The
portion of each cash distribution by a partnership which exceeds its net income
for the fiscal period may be deemed a return of capital for accounting purposes.
However, the total percentage of a partnership's return on capital over its life
can only be determined after all residual cash flows (which include proceeds
from the re-leasing and sale of equipment) have been realized at the termination
of the Partnership.

The general partner believes that the Partnership will generate sufficient cash
flows from operations during 2000, to (1) meet current operating requirements,
(2) enable it to fund cash distributions to both the Class A and Class B limited
partners at annualized rates of 10.5% on their capital contributions (portions
of which are expected to constitute returns of capital), and (3) reinvest in
additional equipment under leases, provided that suitable equipment can be
identified and acquired.

The Partnership will enter its liquidation period (as defined in the Partnership
Agreement) on approximately July 1, 2000. At that time, except for commitments
to purchase made during the reinvestment period, the Partnership will no longer
reinvest in additional equipment under leases.

As of March 31, 2000 CAII, an affiliate of the general partner, owes the
Partnership $654,087 for rents, remarketing proceeds and other amounts
(collectively, the "Prior Rents") collected by CAII on behalf of the Partnership
during periods prior to February 1, 2000 (the "Prior Periods"). According to its
own records, as of March 31, 2000 CAII owes approximately $3.9 million to other
investors and creditors (who, along with the Partnership, are referred to herein
as the "Payees"), for Prior Rents collected by CAII on their behalf during the
Prior Periods. CAII, which presently does not have the funds to repay all of the
Prior Rents, is in negotiations with the Payees to develop a plan for repayment
of the Prior Rents owed to all Payees over time. The Partnership is withholding
acquisition fees and managements fees otherwise payable to the general partner
and crediting such withheld fees (the "Fees") against the Prior Rents owing from
CAII. The Partnership intends to

                                      -11-
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        -----------------------------------------------------------------------
        of Operations
        -------------

II.     Liquidity and Capital Resources, continued
        -------------------------------

continue to withhold future Fees until such time as it recovers all Prior Rents.
Because the Partnership is not the only Payee to whom Prior Rents are owed and
because recovery of such Prior Rents is entirely  dependent on CAII's ability to
generate sufficient proceeds from operations after repayment of debt service,
there can be no assurance that CAII will, in fact, be able to repay all of the
Prior Rents owed to the Partnership. A provision for loss of $300,000 was
recorded as of December 31, 1999 to cover a portion of the Receivable from
Affiliates balance. The General Partner believes the remainder is recoverable.

The Partnership relies upon the services of CAII for origination of leases,
administrative and accounting services and remarketing of leases and equipment,
among other services. Should CAII be unable to develop a plan for repayment with
it's Payees, the Partnership may be required to contract with another party for
these services. In such event, there is no assurance that another provider of
these services can be identified.

III. New Accounting Pronouncements
     -----------------------------

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("Statement 133").
Statement 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, the
Financial Accounting Standards Board issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB No. 133, an Amendment of FASB Statement 133. Statement 137 effectively
extends the required application of Statement 133 to fiscal years beginning
after June 15, 2000, with earlier application permitted. The Partnership adopted
Statement 133 in the first quarter of 1999. The General Partner does not expect
the adoption of Statement 133 or Statement 137 to have an impact on its
financial reporting.

IV.  "Safe Harbor" Statement Under the Private Securities Litigation Reform Act
     --------------------------------------------------------------------------
     of 1995
     -------

The statements contained in this report which are not historical facts may be
deemed to contain forward-looking statements with respect to events, the
occurrence of which involve risks and uncertainties, and are subject to factors
that could cause actual future results to differ both adversely and materially
from currently anticipated results, including, without limitation; the level of
lease originations; realization of residual values; customer credit risk;
competition from other lessors, specialty finance lenders or banks; and the
availability and cost of financing sources.  Certain specific risks associated
with particular aspects of the Partnership's business are discussed in detail
throughout Parts I and II when and where applicable.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
          ----------------------------------------------------------

The partnership's leases with equipment users are non-cancelable and have lease
rates which are fixed at lease inception.  The partnership finances its leases,
in part, with discounted lease rentals.  Discounted lease rentals are a fixed
rate debt.  The partnerships other assets and liabilities are also at fixed
rates.  Consequently the partnership has no significant interest rate risk or
other market risk exposure.

                                      -12-
<PAGE>

Item 8.   Financial Statements and Supplementary Data
          -------------------------------------------

          Index to Financial Statements and
          Financial Statement Schedule

<TABLE>
<CAPTION>
                                                                           Page
                                                                          Number
                                                                          ------
          Financial Statements
          --------------------
          <S>                                                             <C>

               Independent Auditors' Report                                  14

               Balance Sheets as of December 31, 1999 and 1998               15

               Statements of Income for the years ended
                 December 31, 1999, 1998 and 1997                            16

               Statements of Partners' Capital for the years ended
                 December 31, 1999, 1998 and 1997                            17

               Statements of Cash Flows for the years ended
                 December 31, 1999, 1998 and 1997                          18-19

               Notes to Financial Statements                               20-31


          Financial Statement Schedule
          ----------------------------

               Independent Auditors' Report                                  32

               Schedule II - Valuation and Qualifying Accounts               33
</TABLE>

                                      -13-
<PAGE>

                         Independent Auditors' Report
                         ----------------------------



The Partners
Capital Preferred Yield Fund-III, L.P.:

We have audited the accompanying balance sheets of Capital Preferred Yield Fund-
III, L.P. as of December 31, 1999 and 1998, and the related statements of
income, partners' capital, and cash flows for each of the years in the three-
year period ended December 31, 1999. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Preferred Yield Fund-
III, L.P. as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1999, 1998 and 1997 in conformity with generally accepted accounting
principles.

                                    /s/KPMG LLP
                                    ------------------
                                    KPMG LLP

Denver, Colorado
March 31, 2000

                                      -14-
<PAGE>

                    CAPITAL PREFERRED YIELD FUND-III, L.P.

                                BALANCE SHEETS
                    Years Ended December 31, 1999 and 1998

                                    ASSETS

<TABLE>
<CAPTION>
                                                        1999          1998
                                                     -----------   -----------
<S>                                                  <C>           <C>
Cash and cash equivalents                            $ 4,382,378   $ 2,723,454
Accounts receivable                                    1,404,792     1,340,631
Receivable from affiliates                               715,524        50,521
Equipment held for sale or re-lease                    1,470,585       534,643
Net investment in direct finance leases                1,916,677     3,560,216
Leased equipment, net                                 32,213,785    39,594,222
                                                     -----------   -----------

  Total assets                                       $42,103,741   $47,803,687
                                                     ===========   ===========

                       LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
  Accounts payable and accrued liabilities           $ 2,337,411   $ 1,508,619
  Payables to affiliates                                  60,405        48,360
  Rents received in advance                              471,353       554,824
  Distributions payable to partners                      442,346       440,798
  Discounted lease rentals                             9,257,171    12,603,909
                                                     -----------   -----------

  Total liabilities                                   12,568,686    15,156,510
                                                     -----------   -----------

Commitments and contingencies (Note 10)

Partners' capital:
  General partner                                              -             -
  Limited partners:
     Class A 500,000 units authorized; 491,470 and
       492,145 units issued and outstanding in 1999
       and 1998, respectively                         29,158,012    32,239,114
     Class B                                             377,043       408,063
                                                     -----------   -----------

          Total partners' capital                     29,535,055    32,647,177
                                                     -----------   -----------

          Total liabilities and partners' capital    $42,103,741   $47,803,687
                                                     ===========   ===========
</TABLE>

                See accompanying notes to financial statements.

                                      -15-
<PAGE>

                    CAPITAL PREFERRED YIELD FUND-III, L.P.

                             STATEMENTS OF INCOME
                 Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                       1999          1998          1997
                                                   ------------  ------------  ------------
<S>                                                <C>           <C>           <C>
Revenue:
  Operating lease rentals                           $16,104,518   $17,367,092   $18,695,558
  Direct finance lease income                           214,317       508,080       365,094
  Equipment sales margin                              1,187,086       450,186     1,821,419
  Interest income                                       390,199       165,182       112,367
                                                    -----------   -----------   -----------

     Total revenue                                   17,896,120    18,490,540    20,994,438
                                                    -----------   -----------   -----------

Expenses:
  Depreciation                                       12,284,633    13,493,620    14,058,981
  Management fees paid to general partner               348,688       419,816       409,275
  Direct services from general partner                  135,846       209,528       120,015
  General and administrative                            276,855       286,112       236,514
  Interest on discounted lease rentals                  659,115     1,085,904     1,505,324
  Provision for losses                                1,990,315     1,250,000       250,000
                                                    -----------   -----------   -----------

       Total expenses                                15,695,452    16,744,980    16,580,109
                                                    -----------   -----------   -----------

Net income                                          $ 2,200,668   $ 1,745,560   $ 4,414,329
                                                    ===========   ===========   ===========

Net income allocated:
  To the general partner                            $    52,712   $    52,755   $    53,076
  To the Class A limited partners                     2,126,476     1,675,705     4,317,228
  To the Class B limited partner                         21,480        17,100        44,025
                                                    -----------   -----------   -----------

                                                    $ 2,200,668   $ 1,745,560   $ 4,414,329
                                                    ===========   ===========   ===========

Net income per weighted average Class A limited
  partner unit outstanding                          $      4.32   $      3.40   $      8.71
                                                    ===========   ===========   ===========

Weighted average Class A limited partner
  units outstanding                                     491,874       492,500       495,621
                                                    ===========   ===========   ===========
</TABLE>


                See accompanying notes to financial statements.

                                      -16-
<PAGE>

                    CAPITAL PREFERRED YIELD FUND-III, L.P.

                        STATEMENTS OF PARTNERS' CAPITAL
                 Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                    Class A
                                                    Limited        Class A      Class B
                                         General    Partner        Limited      Limited
                                         Partner     Units        Partners      Partner        Total
                                        --------   -----------   -------------  ---------   ------------
<S>                                     <C>        <C>           <C>            <C>         <C>
Partners' capital, January 1, 1997             -      $496,660    $36,936,407    $451,938    $37,388,345

Redemptions                                    -        (3,250)      (233,500)          -       (233,500)
Net income                                53,076             -      4,317,228      44,025      4,414,329
Distributions declared to partners       (53,076)            -     (5,202,029)    (52,500)    (5,307,605)
                                        --------   -----------    -----------    --------    -----------

Partners' capital, December 31, 1997           -       493,410     35,818,106     443,463     36,261,569

Redemptions                                    -        (1,265)       (84,481)          -        (84,481)
Net income                                52,755             -      1,675,705      17,100      1,745,560
Distributions declared to partners       (52,755)            -     (5,170,216)    (52,500)    (5,275,471)
                                        --------   -----------    -----------    --------    -----------

Partners' capital, December 31, 1998           -       492,145     32,239,114     408,063     32,647,177

Redemptions                                    -          (675)       (41,552)          -        (41,552)
Net income                                52,712             -      2,126,476      21,480      2,200,668
Distributions declared to partners       (52,712)            -     (5,166,026)    (52,500)    (5,271,238)
                                        --------   -----------    -----------    --------    -----------

Partners' capital, December 31, 1999    $      0   $   491,470    $29,158,012    $377,043    $29,535,055
                                        ========   ===========    ===========    ========    ===========
</TABLE>



                See accompanying notes to financial statements.

                                      -17-
<PAGE>

                     CAPITAL PREFERRED YIELD FUND-III, L.P.
                            STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                        1999           1998           1997
                                                                    ------------   ------------  -------------
<S>                                                                 <C>            <C>            <C>
Cash flows from operating activities:
  Net income                                                        $  2,200,668   $  1,745,560   $  4,414,329
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation                                                      12,284,633     13,493,620     14,058,981
    Provision for losses                                               1,990,315      1,250,000        250,000
    Cost of equipment sales                                            5,597,793      4,484,453      4,955,363
    Recovery of investment in direct finance leases                    1,934,798      2,297,749      1,903,849
    Changes in assets and liabilities:
     (Increase) decrease in accounts receivable                           45,254       (103,731)      (187,747)
     (Increase) decrease in receivable from related party               (965,001)       (43,998)        36,168
     Increase in accounts payable and accrued liabilities                828,792        820,892          9,620
     Increase (decrease) in payables to affiliates                        12,045          9,084        (15,075)
     Increase (decrease) in rents received in advance                    (83,471)       (77,654)       171,028
                                                                    ------------   ------------   ------------
Net cash provided by operating activities                             23,845,826     23,875,975     25,596,516
                                                                    ------------   ------------   ------------

Cash flows from investing activities:
  Purchases of equipment on operating leases from affiliate           (6,730,220)    (8,336,063)    (7,135,854)
  Investment in direct financing leases, acquired from affiliate        (209,885)    (2,286,569)       (50,602)
                                                                    ------------   ------------   ------------
Net cash used in investing activities                                 (6,940,105)   (10,622,632)    (7,186,456)
                                                                    ------------   ------------   ------------

Cash flows from financing activities:
  Proceeds from discounted lease rentals                                 205,734      1,728,059              -
  Principal payments on discounted lease rentals                     (10,141,287)    (9,710,829)   (10,849,449)
  Redemptions of Class A limited partnership units                       (41,553)       (84,481)      (233,500)
  Distributions to partners                                           (5,269,691)    (5,276,324)    (5,310,566)
                                                                    ------------   ------------   ------------
Net cash (used in) provided by financing activities                  (15,246,797)   (13,343,575)   (16,393,515)
                                                                    ------------   ------------   ------------

Net increase (decrease) in cash and cash equivalents                   1,658,924        (90,232)     2,015,546
Cash and cash equivalents at beginning of year                         2,723,454      2,813,686        798,140
                                                                    ------------   ------------   ------------

Cash and cash equivalents at end of year                            $  4,382,378   $  2,723,454   $  2,813,686
                                                                    ============   ============   ============
</TABLE>

                                      -18-
<PAGE>

                    CAPITAL PREFERRED YIELD FUND-III, L.P.
                           STATEMENTS OF CASH FLOWS
                 Years ended December 31, 1999, 1998 and 1997
                                  (continued)

<TABLE>
<CAPTION>
                                                                   1999        1998         1997
                                                                ----------  -----------  -----------
<S>                                                             <C>         <C>          <C>
Supplemental disclosure of cash flow information:
  Interest paid on discounted lease rentals                     $  651,468   $1,084,481   $1,505,324
Supplemental disclosure of noncash investing and
  financing activities:
  Discounted lease rentals assumed in equipment acquisitions     6,645,920    4,758,504    3,239,755
  Discounted lease rentals for bankrupt lessee
     written-off as uncollectible                                   57,104            -            -
 </TABLE>


                See accompanying notes to financial statements.

                                      -19-
<PAGE>

                    CAPITAL PREFERRED YIELD FUND-III, L.P.

                         NOTES TO FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies
   -----------------------------------------------------------

   Organization

   Capital Preferred Yield Fund-III, L.P. (the "Partnership") was organized on
   November 2, 1993 as a limited partnership under the laws of the State of
   Delaware pursuant to an Agreement of Limited Partnership (the "Partnership
   Agreement"). The Partnership was formed for the purpose of acquiring and
   leasing a diversified portfolio of equipment to unaffiliated third parties.
   The Partnership will continue until December 31, 2011 unless terminated
   earlier in accordance with the terms of the Partnership Agreement. All
   equipment owned by the Partnership is expected to be sold and the Partnership
   liquidated between 2000 and 2003. The general partner of the Partnership is
   CAI Equipment Leasing IV Corp., a wholly owned subsidiary of Capital
   Associates, Inc. ("CAI").

   The general partner manages the Partnership, including investment of funds,
   purchase and sale of equipment, lease negotiation and other administrative
   duties.  The Partnership initially sold 500,000 Class A limited partner units
   to 4,968 investors at a price of $100 per Class A limited partner unit.

   Capital Associates International, Inc. ("CAII"), a wholly owned subsidiary of
   CAI, is the Class B limited partner. The Class B limited partner contributed
   cash, upon acquisition of equipment, in an amount equal to 1% of gross
   offering proceeds received from the sale of Class A limited partner units.

   Use of Estimates

   The preparation of financial statements in conformity with generally accepted
   accounting principles requires management to make estimates and assumptions
   that affect the reported amounts of assets and liabilities and disclosure of
   contingent assets and liabilities at the date of the financial statements and
   the reported amounts of revenue and expenses during the reporting period. For
   leasing entities, this includes the estimate of residual values,
   collectibility of accounts receivable and valuation of inventory, as
   discussed below. Actual results could differ from those estimates.

   Partnership Allocations

   Cash Distributions
   ------------------

   During the Reinvestment Period (as defined in the Partnership Agreement),
   available cash is distributed to the partners as follows:

                                      -20-
<PAGE>

                    CAPITAL PREFERRED YIELD FUND-III, L.P.

                   NOTES TO FINANCIAL STATEMENTS, continued

1. Organization and Summary of Significant Accounting Policies, continued
   -----------------------------------------------------------

   Partnership Allocations, continued

   Cash Distributions, continued
   ------------------

     First, 1.0% to the general partner and 99.0% to the Class A limited
     partners until the class A limited partners receive annual, non-compounded
     cumulative distributions equal to 10.5% of their contributed capital.

     Second, 1.0% to the general partner and 99.0% to the Class B limited
     partner until the Class B limited partner receives annual non-compounded
     cumulative distributions equal to 10.5% of its contributed capital.

     Third, any remaining available cash will be reinvested or distributed to
     the partners as specified in the Partnership Agreement.

   After the Reinvestment Period (as defined in the Partnership Agreement),
   available cash will be distributed to the partners as follows:

     First, in accordance with the first and second allocations during the
     Reinvestment Period as described above.

     Second, 99.0% to the Class A limited partners and 1.0% to the general
     partner, until the Class A limited partners achieve Payout (as defined in
     the Partnership Agreement).

     Third, 99.0% to the Class B limited partner, 1.0% to the general partner,
     until the Class B limited partner achieves Payout (as defined in the
     Partnership Agreement).

     Fourth, 99.0% to the Class A and Class B limited partners (as a class) and
     1.0% to the general partner, until the Class A and Class B limited partners
     receive cash distributions equal to 170% of their capital contributions.

     Thereafter, 90% to the Class A and Class B limited partners (as a class)
     and 10% to the general partner.

   Federal Income Tax Basis Profits and Losses
   -------------------------------------------

   There are several special allocations that precede the general allocations of
   profits and losses to the partners.  The most significant special allocations
   are as follows:

                                      -21-
<PAGE>

                    CAPITAL PREFERRED YIELD FUND-III, L.P.

                   NOTES TO FINANCIAL STATEMENTS, continued

1. Organization and Summary of Significant Accounting Policies, continued
   -----------------------------------------------------------

   Partnership Allocations, continued

   Federal Income Tax Basis Profits and Losses (continued)
   -------------------------------------------

     First, commissions and expenses paid in connection with the sale of Class A
     limited partner units are allocated 1.0% to the general partner and 99.0%
     to the Class A limited partners.

     Second, depreciation relating to Partnership equipment and any losses
     resulting from the sale of equipment are generally allocated 1.0% to the
     general partner and 99.0% to the limited partners (shared 99.0%/1.0% by the
     Class A and Class B limited partners, respectively) until the cumulative
     amount of such depreciation and such losses allocated to each limited
     partner equals such limited partner's contributed capital reduced by
     commissions and other expenses paid in connection with the sale of Class A
     limited partner units allocated to such partner. Thereafter, gain on sale
     of equipment, if any, will be allocated to the general partner in an amount
     equal to the sum of depreciation and loss on sale of equipment previously
     allocated to the general partner.

     Third, notwithstanding anything in the Partnership Agreement to the
     contrary, and before any other allocation is made, items of income and gain
     for the current year (or period) shall be allocated, as quickly as
     possible, to the general partner to the extent of any deficit balance
     existing in the general partner's capital account as of the close of the
     immediately preceding year, in order to restore the balance in the general
     partner's capital account to zero.

   After giving effect to special allocations, profits (as defined in the
   Partnership Agreement) are first allocated in proportion to, and to the
   extent of, any previous losses, in reverse chronological order and priority.
   Any remaining profits are allocated in the same order and priority as cash
   distributions.

   After giving effect to special allocations, losses (as defined in the
   Partnership Agreement) are allocated in proportion to, and to the extent of,
   any previous profits, in reverse chronological order and priority. Any
   remaining losses are allocated 1.0% to the general partner and 99.0% to the
   limited partners (shared 99.0%/1.0% by the Class A and Class B limited
   partners, respectively).

   Financial Reporting - Profits and Losses
   ----------------------------------------

   For financial reporting purposes, net income is allocated to the partners in
   a manner consistent with the allocation of cash distributions.

                                      -22-
<PAGE>

                     CAPITAL PREFERRED YIELD FUND-III L.P.

                   NOTES TO FINANCIAL STATEMENTS, continued

1. Organization and Summary of Significant Accounting Policies, continued
   -----------------------------------------------------------

   Recently Issued Financial Accounting Standards

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
   Accounting for Derivative Instruments and Hedging Activities ("Statement
   133"). Statement 133 establishes accounting and reporting standards for
   derivative instruments and for hedging activities. It requires that an entity
   recognize all derivatives as either assets or liabilities in the statement of
   financial position and measure those instruments at fair value. In June 1999,
   the Financial Accounting Standards Board issued SFAS No. 137, Accounting for
   Derivative Instruments and Hedging Activities - Deferral of the Effective
   Date of FASB No. 133, an Amendment of FASB Statement 133. Statement 137
   effectively extends the required application of Statement 133 to fiscal years
   beginning after June 15, 2000, with earlier application permitted. The
   Partnership adopted Statement 133 in the first quarter of 1999. The General
   Partner does not expect the adoption of Statement 133 or Statement 137 to
   have an impact on its financial reporting.

   Long-lived Assets

   The Partnership accounts for long-lived assets under the provisions of
   Statement of Financial Accounting Standards No. 121, Accounting for the
   Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of
   ("SFAS No. 121"). SFAS No. 121 requires that long-lived assets, including
   equipment subject to operating leases and certain identifiable intangibles to
   be held and used by an entity, be reviewed for impairment whenever events or
   changes in circumstances indicate that the carrying amount of an asset may
   not be recoverable. In performing the review for recoverability, the entity
   should estimate the future net cash flows expected to result from the use of
   the asset and its eventual disposition. If the sum of the expected future net
   cash flows (undiscounted and without interest charges) is less than the
   carrying amount of the asset, an impairment loss is recognized. Measurement
   of an impairment loss for long-lived assets, including equipment subject to
   operating leases and identifiable intangibles held by the Partnership, is
   based on the fair value of the asset. The fair value of the asset may be
   calculated by discounting the expected future net cash flows at an
   appropriate interest rate.

                                      -23-
<PAGE>

                     CAPITAL PREFERRED YIELD FUND-III L.P.

                   NOTES TO FINANCIAL STATEMENTS, continued

1. Organization and Summary of Significant Accounting Policies, continued
   -----------------------------------------------------------

   Lease Accounting

   Statement of Financial Accounting Standards No. 13, Accounting for Leases,
   requires that a lessor account for each lease by the direct finance, sales-
   type or operating lease method. The Partnership currently utilizes the direct
   financing and operating methods for all of the Partnership's equipment under
   lease. Direct finance leases are defined as those leases which transfer
   substantially all of the benefits and risks of ownership of the equipment to
   the lessee. For all types of leases, the determination of profit considers
   the estimated value of the equipment at lease termination, referred to as the
   residual value. After the inception of a lease, the Partnership may engage in
   financing of lease receivables on a nonrecourse basis (i.e., "non-recourse
   debt" or "discounted lease rentals") and/or equipment sale transactions to
   reduce or recover its investment in the equipment.

   The Partnership's accounting methods and their financial reporting effects
   are described below.

   Net Investment in Direct Finance Leases ("DFLs")

   The cost of the equipment, including acquisition fees paid to the general
   partner, is recorded as net investment in DFLs on the accompanying balance
   sheet. Leasing revenue, which is recognized over the term of the lease,
   consists of the excess of lease payments plus the estimated residual value
   over the equipment's cost. Earned income is recognized monthly to provide a
   constant yield and is recorded as direct finance lease income on the
   accompanying income statements. Residual values are established at lease
   inception equal to the estimated value to be received from the equipment
   following termination of the initial lease (which in certain circumstances
   includes anticipated re-lease proceeds), as determined by the general
   partner. In estimating such values, the general partner considers all
   relevant information regarding the equipment and the lessee.

                                      -24-
<PAGE>

                     CAPITAL PREFERRED YIELD FUND-III L.P.

                   NOTES TO FINANCIAL STATEMENTS, continued

1. Organization and Summary of Significant Accounting Policies, continued
   -----------------------------------------------------------

   Equipment on Operating Leases ("OLs")

   The cost of equipment, including acquisition fees paid to the general
   partner, is recorded as leased equipment in the accompanying balance sheets
   and is depreciated on a straight-line basis over the lease term to an amount
   equal to the estimated residual value at the lease termination date. Leasing
   revenue consists principally of monthly rents and is recognized as operating
   lease rentals in the accompanying income statements. Residual values are
   established at lease inception equal to the estimated value to be received
   from the equipment following termination of the initial lease (which in
   certain circumstances includes anticipated re-lease proceeds), as determined
   by the general partner. In estimating such values, the general partner
   considers all relevant information and circumstances regarding the equipment
   and the lessee. Because revenue, depreciation expense and the resultant
   profit margin before interest expense are recorded on a straight-line basis,
   and interest expense on discounted lease rentals (discussed below) is
   recorded on the interest method, lower returns are realized in the early
   years of the term of an OL and higher returns in later years.

   Non-recourse Discounting of Rentals

   The Partnership may assign the future rentals from leases to financial
   institutions, or acquire leases subject to such assignments, at fixed
   interest rates on a non-recourse basis. In return for such assigned future
   rentals, the Partnership receives the discounted value of the rentals in
   cash. In the event of default by a lessee, the financial institution has a
   first lien on the underlying leased equipment, with no further recourse
   against the Partnership. Cash proceeds from such financings, or the
   assumption of such financings, are recorded on the balance sheet as
   discounted lease rentals. As lessees make payments to financial
   institutions, leasing revenue and interest expense are recorded.

   Allowance for Losses

   An allowance for losses is maintained at levels determined by the general
   partner to adequately provide for any other-than-temporary declines in asset
   values. In determining losses, economic conditions, the activity in the used
   equipment markets, the effect of actions by equipment manufacturers, the
   financial condition of lessees, the expected courses of action by lessees
   with regard to leased equipment at termination of the initial lease term, and
   other factors which the general partner believes are relevant, are
   considered. Asset chargeoffs are recorded upon the termination or remarketing
   of the underlying assets. The lease portfolio is reviewed quarterly to
   determine the adequacy of the allowance for losses.

   Transactions Subsequent to Initial Lease Termination

   After the initial term of equipment under lease expires, the equipment is
   either sold or re-leased to the existing lessee or another third party. The
   remaining net book value of equipment sold is removed and gain or loss
   recorded when equipment is sold. The accounting for re-leased equipment is
   consistent with the accounting described under "Net Investment in Direct
   Finance Leases" and "Equipment on Operating Leases" above.

                                      -25-
<PAGE>

                     CAPITAL PREFERRED YIELD FUND-III L.P.

                   NOTES TO FINANCIAL STATEMENTS, continued

1. Organization and Summary of Significant Accounting Policies, continued
   -----------------------------------------------------------

   Income Taxes

   No provision for income taxes has been made in the financial statements since
   taxable income or loss is recorded in the tax return of the individual
   partners.


   Cash Equivalents

   The Partnership considers short-term, highly liquid investments that are
   readily convertible to known amounts of cash to be cash equivalents. Cash
   equivalents of approximately $4,299,000 and $2,546,000 at December 31, 1999
   and 1998, respectively, are comprised of investments in a mutual fund which
   invests solely in U.S. Government treasury bills having maturities of 90 days
   or less.

   Net Income Per Class A Limited Partner Unit

   Net income per Class A limited partner unit is computed by dividing the net
   income allocated to the Class A limited partners by the weighted average
   number of Class A limited partner units outstanding during the period.


2. Net Investment in Direct Finance Leases
   ---------------------------------------

   The components of the net investment in direct finance leases as of December
   31, 1999 and 1998 were:

<TABLE>
<CAPTION>
                                            1999          1998
                                        -----------   -----------
<S>                                     <C>           <C>
   Minimum lease payments receivable     $1,574,987    $2,099,035
   Estimated residual values                644,553     1,633,266
   Less unearned income                    (302,863)     (172,085)
                                         ----------    ----------

        Total                            $1,916,677    $3,560,216
                                         ==========    ==========
</TABLE>

                                      -26-
<PAGE>

                     CAPITAL PREFERRED YIELD FUND-III L.P.

                   NOTES TO FINANCIAL STATEMENTS, continued

3. Leased Equipment, net
   ---------------------
   The Partnership's investment in equipment on operating leases by major
   classes as of December 31, 1999 and 1998 were:

                                                  1999           1998
                                              ------------   ------------

   Transportation and industrial equipment    $ 28,744,322   $ 39,323,302
   Computers and peripherals                    11,919,735     15,279,370
   Furniture, fixtures and equipment            16,203,136     12,542,349
   Other                                         2,304,378      1,126,682
                                              ------------   ------------
                                                59,171,571     68,271,703
   Less accumulated depreciation               (26,737,041)   (28,499,909)
   Allowance for losses                           (220,745)      (177,572)
                                              ------------   ------------

                                              $ 32,213,785   $ 39,594,222
                                              ============   ============

   Depreciation expense for 1999, 1998 and 1997 was $12,284,633, $13,493,620 and
   $14,058,981, respectively.


4. Future Minimum Lease Payments
   -----------------------------

   Future minimum lease payments receivable from noncancelable leases as of
   December 31, 1999 are:

     Years Ending December 31,       DFLs         OLs
     -------------------------    ----------  ------------

               2000               $  574,063   $10,024,844
               2001                  293,681     4,941,260
               2002                  280,606     2,950,403
               2003                  274,060     1,938,363
               Thereafter            152,577       781,742
                                  ----------   -----------

                    Total         $1,574,987   $20,636,612
                                  ==========   ===========

                                      -27-
<PAGE>

                     CAPITAL PREFERRED YIELD FUND-III L.P.

                   NOTES TO FINANCIAL STATEMENTS, continued


5. Discounted Lease Rentals
   ------------------------

   Discounted lease rentals outstanding at December 31, 1999 bear interest at
   rates primarily ranging between 6% and 11%. Aggregate maturities of such non-
   recourse obligations are:

     Years Ending December 31,
     -------------------------

          2000                              $4,634,218
          2001                               2,195,696
          2002                               1,091,085
          2003                                 853,518
          Thereafter                           482,654
                                            ----------
                 Total                      $9,257,171
                                            ==========

6. Transactions With the General Partner and Affiliates
   ----------------------------------------------------

   Origination Fee and Evaluation Fee
   ----------------------------------

   The general partner receives a fee equal to 3.5% of the sales price of
   equipment sold to the Partnership (up to a maximum cumulative amount as
   specified in the Partnership Agreement), 1.5% of which represents
   compensation for selecting, negotiating and consummating the acquisition of
   the equipment and 2%, of which, represents reimbursement for services
   rendered in connection with evaluating the suitability of the equipment and
   the credit worthiness of the lessees. Origination and evaluation fees totaled
   approximately $415,000, $516,000 and $347,000 in 1999, 1998 and 1997,
   respectively, all of which were capitalized by the Partnership as part of the
   cost of equipment on operating leases and net investment in direct financing
   leases.

                                      -28-
<PAGE>

                     CAPITAL PREFERRED YIELD FUND-III L.P.

                   NOTES TO FINANCIAL STATEMENTS, continued

6. Transactions With the General Partner and Affiliates, continued
   ----------------------------------------------------

   Management Fees Paid to General Partner
   ---------------------------------------

   The general partner earns management fees for services performed in
   connection with managing the Partnership's equipment equal to 2% of gross
   rentals received as permitted under terms of the Partnership Agreement. The
   general partner earned approximately $349,000, $420,000, and $409,000 during
   1999, 1998 and 1997, respectively.

   Direct Services from General Partner
   ------------------------------------

   The general partner and its affiliates provide accounting, investor
   relations, billing, collecting, asset management, and other administrative
   services to the Partnership. The Partnership reimburses the general partner
   for these services performed on its behalf as permitted under the terms of
   the Partnership Agreement. The Partnership recorded approximately $136,000,
   $210,000, and $120,000 during 1999, 1998 and 1997, respectively.

   Equipment Purchases
   -------------------

   The Partnership purchased equipment from CAII, with a total purchase price of
   approximately $13,583,000, $15,381,000 and $10,426,000 (including
   approximately $6,646,000, $4,759,000 and $3,240,000 of discounted lease
   rentals) during 1999, 1998 and 1997, respectively. The Partnership purchased
   the equipment at CAII's historical cost plus reimbursement of other net
   acquisition costs, as provided for in the Partnership Agreement.

   Payables to Affiliates
   ----------------------

   Payables to affiliates of approximately $60,000 and $48,000 during 1999 and
   1998, respectively, consists of $13,000 for direct services from general
   partner, $27,000 for management fees paid to general partner and $20,000 for
   reimbursable general and administrative expenses for 1999 and $9,000 for
   direct services from general partner, $33,000 for management fees paid to
   general partner and $6,000 for reimbursable general and administrative
   expenses for 1998.

   Receivable from Affiliates
   --------------------------

   The General Partner collects and applies rental payments to the lessee's
   account with the Partnership, for those lessees who remit directly to the
   General Partner. The rental payments are then transferred to the Partnership,
   eliminating the receivable from related party balance.

                                      -29-
<PAGE>

                     CAPITAL PREFERRED YIELD FUND-III L.P.

                   NOTES TO FINANCIAL STATEMENTS, continued

7. Tax Information (Unaudited)
   ---------------------------

   The following reconciles net income for financial reporting purposes to the
   income for federal income tax purposes for the year and period ended December
   31,:

<TABLE>
<CAPTION>
                                                           1999          1998          1997
                                                      -----------   -----------   -----------
   <S>                                                   <C>           <C>           <C>
   Net income per financial statements                   $ 2,200,668   $ 1,745,560   $ 4,414,329
   Direct finance leases                                   1,875,238     2,297,748     1,900,541
   Depreciation                                           (1,555,692)   (2,401,465)   (4,277,382)
   Provision for losses                                    1,990,315     1,250,000       250,000
   Gain (loss) on sale of equipment                          550,629       362,981      (937,344)
   Other                                                    (124,300)      397,457         4,835
                                                         -----------   -----------   -----------
   Partnership income for federal income tax purposes    $ 4,936,858   $ 3,652,281   $ 1,354,979
                                                         ===========   ===========   ===========
</TABLE>

  The following reconciles partners' capital for financial reporting purposes to
  partners' capital for federal income tax purposes for the year and period
  ended December 31,:

<TABLE>
<CAPTION>
                                                            1999           1998           1997
                                                        ------------   ------------   ------------
   <S>                                                     <C>            <C>            <C>
   Partners' capital per financial statements           $ 29,535,055   $ 32,647,177   $ 36,261,569
   Commissions and offering costs                          7,184,603      7,184,603      7,184,603
   Direct finance leases                                   9,035,723      7,160,485      4,862,737
   Depreciation                                          (19,141,391)   (17,585,699)   (15,184,234)
   Provision for losses                                    3,815,314      1,825,000        575,000
   Gain (loss) on sale of equipment                              897       (549,732)      (912,713)
   Other                                                     818,080        947,953        557,231
                                                        ------------   ------------   ------------
   Partners' capital for federal income tax purposes    $ 31,248,281   $ 31,629,787   $ 33,344,193
                                                        ============   ============   ============
</TABLE>

8. Concentration of Credit Risk
   ----------------------------

   Approximately 68% of the Partnership's equipment under lease was leased to
   investment grade companies. Pursuant to the Partnership Agreement, an
   investment grade lessee is a company (i) with a net worth in excess of
   $100,000,000 (and no debt issues that are rated), or (ii) with a credit
   rating of not less than Baa as determined by Moody's Investor Services, Inc.
   or comparable credit rating as determined by another recognized credit rating
   service; or (iii) a lessee, all of whose lease payments have been
   unconditionally guaranteed or supported by a letter of credit issued by a
   company meeting one of the above requirements.

   The Partnership's cash balance is maintained with a high credit quality
   financial institution. At times, such balances may be in excess of the FDIC
   insurance limit due to the receipt of lockbox amounts that have not cleared
   the presentment bank (generally for less than two days). As the funds become
   available, they are invested in a money market mutual fund.

   The Partnership leases equipment to a significant number of lessees. No one
   lessee and its affiliates accounted for more than 10% of total revenue of
   Partnership during 1999. One lessee accounted for approximately 9% of total
   revenue of the Partnership during 1999.

                                      -30-
<PAGE>

                   CAPITAL PREFERRED YIELD FUND-III, L.P.

                  NOTES TO FINANCIAL STATEMENTS, continued

9.  Disclosures about Fair Value of Financial Instruments
    -----------------------------------------------------

    Statement of Financial Standards No. 107, Disclosures about Fair Value of
    Financial Instruments specifically excludes certain items from its
    disclosure requirements such as the Company's investment in leased assets.
    The carrying amounts at December 31, 1999 for cash and cash equivalents,
    accounts receivable, accounts payable and accrued liabilities, payable to
    affiliates, rents and sale proceeds received in advance and distributions
    payable to partners approximate their fair values due to the short maturity
    of these instruments.

    As of December 31, 1999, discounted lease rentals of approximately
    $9,257,000 had a fair value of approximately $9,088,000. The fair value was
    estimated utilizing market rates of comparable debt having similar
    maturities and credit quality as of December 31, 1999.

10. General Partner Matters (unaudited)

    As of March 31, 2000, CAII, an affiliate of the general partner, owes the
    Partnership $654,087 for rents, remarketing proceeds and other amounts
    (collectively, the "Prior Rents") collected by CAII on behalf of the
    Partnership during periods prior to February 1, 2000 (the "Prior Periods").
    According to its own records, as of March 31, 2000, CAII owes approximately
    $3.9 million to other investors and creditors (who, along with the
    Partnership, are referred to herein as the "Payees"), for Prior Rents
    collected by CAII on their behalf during the Prior Periods. CAII, which
    presently does not have the funds to repay all of the Prior Rents, is in
    negotiations with the Payees to develop a plan for repayment of the Prior
    Rents owed to all Payees over time. The Partnership is withholding
    acquisition fees and managements fees otherwise payable to the general
    partner and crediting such withheld fees (the "Fees") against the Prior
    Rents owing from CAII. The Partnership intends to continue to withhold
    future Fees until such time as it recovers all Prior Rents. A provision for
    loss of $300,000 was recorded as of December 31, 1999 to cover a portion of
    the Receivable from Affiliates balance. The General Partner believes the
    remainder is recoverable.

    The Partnership relies upon the services of CAII for origination of leases,
    administrative and accounting services and remarketing of leases and
    equipment, among other services. Should CAII be unable to develop a plan for
    repayment with it's Payees, the Partnership may be required to contract with
    another party for these services. In such event, there is no assurance that
    another provider of these services can be identified.

                                      -31-
<PAGE>

                         Independent Auditors' Report
                         ----------------------------



The Partners
Capital Preferred Yield Fund-III, L.P.:

Under date of March 31, 2000, we reported on the balance sheets of Capital
Preferred Yield Fund-III, L.P. as of December 31, 1999 and 1998, and the related
statements of income, partners' capital, and cash flows for each of the years in
the three-year period ended December 31, 1999 as contained in the Partnership's
annual report on Form 10-K for the year 1999.  In connection with our audits of
the aforementioned financial statements, we also audited the related financial
statement Schedule II, as listed in the accompanying index.  This financial
statement schedule is the responsibility of the Partnership's management.  Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

                                    /s/KPMG LLP
                                    -----------------------
                                    KPMG LLP

Denver, Colorado
March 31, 2000

                                      -32-
<PAGE>

                    CAPITAL PREFERRED YIELD FUND-III, L.P.
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
             for the years ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
COLUMN A                            COLUMN B            COLUMN C                         COLUMN D        COLUMN E
--------                            --------         --------------------------          --------        ---------
                                    Balance at       Additions        Additions                            Balance
                                    Beginning        Charged to       Charged to                           at End
Classification                      of Period         Expenses      Other Accounts     Deductions/(1)/    of Period
--------------                      ---------         --------      --------------     ---------------   ---------
<S>                                 <C>              <C>            <C>                <C>               <C>
         1999
-----------------------

Allowance for losses:
 Accounts receivable               $ 10,000        $        -          $       -          $         -      $ 10,000
 Receivable from affiliates               -           300,000                  -                    -       300,000
 Equipment on operating leases      177,572         1,690,315                  -           (1,647,142)      220,745
                                   --------        ----------          ---------          -----------      --------

                                   $ 187,572       $1,990,315          $       -          $(1,647,142)     $530,745
                                   =========       ==========          =========          ===========      ========

         1998
-----------------------

Allowance for losses:
 Accounts receivable               $      -        $   10,000          $       -          $         -      $ 10,000
 Equipment on operating leases      231,777         1,240,000                  -           (1,294,205)      177,572
                                   --------        ----------          ---------          -----------      --------

                                   $231,777        $1,250,000          $       -          $(1,294,205)     $187,572
                                   ========        ==========          =========          ===========      ========

         1997
-----------------------

Allowance for losses:
 Equipment on operating leases     $177,799        $  250,000          $       -          $  (196,022)     $231,777
                                   ========        ==========          =========          ===========      ========
</TABLE>


(1) Principally charge-offs of assets against the established allowances.



            See accompanying independent auditor's report

                                      -33-
<PAGE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         ---------------------------------------------------------------
Financial Disclosure
--------------------

None.

Item 10.  Directors and Executive Officers of the Partnership
          ---------------------------------------------------

The Partnership has no officers and directors.  The general partner manages and
controls the affairs of the Partnership and has general responsibility and
authority in all matters affecting its business.  Information concerning the
directors and executive officers of the general partner is as follows:

                      CAI Equipment Leasing IV Corporation

            Name                         Positions Held
            ----                         --------------

       John F. Olmstead       President and Director

       Richard H. Abernethy   Vice President and Director

       Joseph F. Bukofski     Chief Accounting Officer, Vice President, and
                              Director

       Mick Myers             Director


John F. Olmstead, age 56, joined CAII as Vice President in December, 1988, is a
Senior Vice President of CAI and CAII and is head of CAII's Public Equity
division.  He has served as Chairman of the Board for Neo-kam Industries, Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years.  He
has over 20 years of experience holding various positions of responsibility in
the leasing industry.  Mr. Olmstead holds a Bachelor of Science degree from
Indiana University and a Juris Doctorate degree from Indiana Law School.

Richard H. Abernethy, age 46, joined CAII in April 1992 as Equipment Valuation
Manager and currently serves as Vice President of Portfolio Management.  Mr.
Abernethy has fourteen years experience in the leasing industry, including prior
positions with Barclays Leasing Inc., from November 1986 to February 1992, and
Budd Leasing Corporation, from January 1981 to November 1986.  Mr. Abernethy
holds a Bachelor of Arts in Business Administration from the University of North
Carolina at Charlotte.

Joseph F. Bukofski, age 44, joined CAII in June 1990 as a Financial Analyst.
Mr. Bukofski is currently the Vice President and Treasurer.  Prior to becoming
Treasurer, Mr. Bukofski was Assistant Vice President and Controller.  Prior to
joining the Company, he was a geologist with Barringer Geoservices, Inc. for
eleven years. Mr. Bukofski holds a Bachelor of Science degree in Secondary
Education - Earth Science from Bloomsburg University and a Masters of Science in
Accounting from the University of Colorado.

Mick Myers, age 42, joined CAII in February 1992 as a Senior Portfolio Manager.
Currently he is Assistant Vice President of Asset Management.  Mr. Myers has
nine years experience in the leasing industry.  Previously, he has held the
position of Senior End of Lease Negotiator with ELLCO/GE Capital.  Mr. Myers
holds a Bachelor of Science degree from the University of Wyoming.

                                      -34-
<PAGE>

Item 11.  Executive Compensation
          ----------------------

No compensation was paid by the Partnership to the officers and directors of the
general partner.  See Item 13 of this Report, "Certain Relationships and Related
Transactions," which is incorporated herein by reference, for a description of
the compensation and fees paid to the general partner and its affiliates by the
Partnership during 1998.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
          --------------------------------------------------------------

  (a)     As of the date hereof, no person is known by the Partnership to be the
          beneficial owner of more than 5% of the Class A limited partner units
          of the Partnership. The Partnership has no directors or officers, and
          neither the general partner nor the Class B limited partner of the
          Partnership own any Class A limited partner units.

          CAII, an affiliate of the general partner, is the Class B limited
          partner.

          CAI Equipment Leasing IV Corp. is the general partner.

          The names and addresses of the general partner and the Class B limited
          partner are as follows:

          General Partner
          ---------------

          CAI Equipment Leasing IV Corp.
          7175 West Jefferson Avenue
          Suite 4000
          Lakewood, Colorado 80235

          Class B Limited Partner
          -----------------------

          Capital Associates International, Inc.
          7175 West Jefferson Avenue
          Suite 4000
          Lakewood, Colorado 80235

  (b)     No directors or officers of the general partner or the Class B limited
          partner owned any Class A limited partner units as of December 31,
          1999.

  (c)     The Partnership knows of no arrangements, the operation of which may
          at a subsequent date result in a change in control of the Partnership.

                                      -35-
<PAGE>

Item 13.  Certain Relationships and Related Transactions
          ----------------------------------------------

The general partner and its affiliates receive certain types of compensation,
fees or other distributions in connection with the operations of the
Partnership.

Following is a summary of the amounts paid or payable to the general partner and
its affiliates during 1999:

                        Acquisition and Operating Stages

Acquisition Fee and Acquisition Cost Reimbursement
--------------------------------------------------

The general partner receives a fee equal to 3.5% of the sales price of equipment
sold to the Partnership, 1.5% of which represents compensation for selecting,
negotiating and consummating the acquisition of the equipment and 2% of which
represents reimbursement for services rendered in connection with evaluating the
suitability of the equipment and the credit worthiness of the Lessee.
Origination and evaluation fees totaled approximately $415,000 in 1999, all of
which were capitalized by the Partnership as part of the cost of equipment on
operating leases and net investment in direct financing leases.

Management Fees
---------------

The general partner earns management fees as compensation for services rendered
in connection with managing the Partnership's equipment equal to 2% of gross
rentals received.  Such fees totaled approximately $349,000 for 1999.

                                      -36-
<PAGE>

Item 13.  Certain Relationships and Related Transactions, continued
          ----------------------------------------------

Accountable General and Administrative Expenses
-----------------------------------------------

The general partner is entitled to reimbursement of certain expenses paid on
behalf of the Partnership which are incurred in connection with the
Partnership's operations.  Such reimbursable expenses amounted to approximately
$136,000 during 1999.

Additionally, the general partner is allocated 1% of Partnership cash
distributions and net income relating to its general partner interest in the
Partnership.  Distributions and net income allocated to the general partner
totaled $52,712 and $52,712, respectively, for 1999.  Distributions and net
income allocated to the Class B limited partner totaled $52,500 and $27,305,
respectively, for 1999.

During 1999, the Partnership acquired the equipment described below from CAII:

<TABLE>
<CAPTION>
                                                                  Cost to
                                                                Partnership
                                                                 Including
                                                      Cost to    Acquisition         Debt         Annual
Lessee                     Equipment Description       CAII         Fees*           Assumed       Rents
---------                  ---------------------       ----      -----------       -------      --------
<S>                        <C>                     <C>          <C>             <C>           <C>
Ball Aerospace               Office Furniture         56,589        58,550              -        11,318
Birmingham Steel Corp        Copier                    9,450         9,777              -         2,525
E-Trade                      Office Furniture      6,814,430     7,009,981      6,194,595     1,595,616
Geico                        Servers                  74,297        76,871              -        25,648
Geico                        Computer Equipment       12,154        12,576              -         4,425
General Motors               Cameras                 379,175       392,313              -       132,536
General Motors               Forklift                180,141       186,383              -        45,492
General Motors               Lift Truck               48,437        50,115              -         9,364
General Motors               Material Handling       191,454       198,088              -        56,118
General Motors               Scrubber                583,644       603,867              -       167,614
General Motors               Sweeper                 449,030       464,589              -       135,851
General Motors               Tractor                  74,637        77,223              -        15,057
General Motors               Walkie Lift             110,212       114,031              -        36,893
Hitachi Computer Products    Cisco Routers           200,826       207,785              -        66,516
HK Systems                   Teleconferencing         41,413        42,848              -        26,262
Honeywell                    Desktops, Printers       55,285        57,200         49,421        19,899
McGraw Hill                  Computer Equipment       21,996        22,759              -         9,417
New Stevens                  Snow Groomer            120,405       124,577              -        51,312
New York Life                Collator Equip           80,000        82,772              -        17,984
</TABLE>

                                      -37-
<PAGE>

Item 13.    Certain Relationships and Related Transactions, continued
             ---------------------------------------------

Accountable General and Administrative Expenses, continued
-----------------------------------------------
<TABLE>
<CAPTION>
                                                                      Cost to
                                                                    Partnership
                                                                        Including
                                                          Cost to     Acquisition       Debt         Annual
Lessee                          Equipment Description       CAII         Fees*         Assumed       Rents
------                          ---------------------   ----------  ------------      -------        -----
<S>                           <C>                       <C>         <C>              <C>           <C>
Rental Services               Tractors, Trucks             544,227       563,085            -       116,291
Sebastiani Vineyards          Bottle Equipment             907,798       939,253            -       280,000
Security Mutual               Computer Equipment            21,267        22,004            -         6,703
Thompson Industries           Computer Equipment            13,019        13,470            -         4,675
Thomson                       Computer Equipment            32,551        33,679            -        11,689
Treasure Chest Advertising    Forklift                      20,685        21,402            -         7,171
United Airlines               Docking System                78,551        80,630            -       108,515
Williams Sonoma               POS                          547,631       566,606      401,904       166,536
Wyle Labs                     Office Furniture              26,217        27,126            -         8,793
Wyle Labs                     Servers                       16,485        17,056            -         5,194
Wyle Labs                     Thermal Cycling              407,972       422,108            -        98,048
Xerox                         Computer Equipment         1,050,787     1,087,301            -       466,260


                                                        13,170,765    13,586,025    6,645,920     3,709,722
</TABLE>


*  The lower of (a) the price for the equipment plus all costs incurred in
   maintaining the equipment (including, without limitation, the reasonable,
   necessary and actual expenses, as determined in accordance with generally
   accepted accounting principles, of storage, carrying, warehousing, repair,
   marketing, financing and taxes) from the date of acquisition thereof,
   provided that any proceeds accrued from the first basic rent date thereof and
   retained by the general partner or an affiliate thereof from leasing the
   equipment or any other arrangement with respect to the equipment shall be
   deemed a credit towards the purchase price paid by the Partnership, or (b)
   the fair market value of such equipment, as determined by an independent
   nationally recognized appraiser selected by the general partner.

                                      -38-
<PAGE>

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

       (a)
      and
       (d) The following documents are filed as part of this Report:

           1. Financial Statements: (Incorporated by reference to Item 8 of this
              Report, "Financial Statements and Supplementary Data").

           2. Financial Statement Schedule: (Incorporated by reference to Item 8
              of this Report, "Financial Statements and Supplementary Data").

     (b)   The Partnership did not file any reports on Form 8-K during the
           quarter ended December 31, 1999.

     (c)   Exhibits required to be filed.

           Exhibit                   Exhibit
           Number                      Name
          -------                    -------

            4.1*         Capital Preferred Yield Fund-III Limited Partnership
                         Agreement

            4.2*         First Amendment to Limited Partnership Agreement dated
                         June 14, 1994

            4.3*         Amended and Restated Agreement of Limited Partnership
                         of Capital Preferred Yield Fund-III, L.P.

             *           Not filed herewith. In accordance with Rule 12b-32 of
                         the General Rules and Regulations under the Securities
                         Exchange Act of 1934, reference is made to the document
                         previously filed with the Commission.

                                      -39-
<PAGE>

                                  SIGNATURES

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

Dated: ________, 2000               Capital Preferred Yield Fund-III, L.P.

                                    By:  CAI Equipment Leasing IV Corporation

                                    By:  /S/ John F. Olmstead
                                         ---------------------------
                                         John F. Olmstead
                                         President and Director

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  general
partner  of  the  Partnership  and  in the  capacities  indicated on March 30,
1999.

Signature                                      Title
---------                                      -----

/s/ John F. Olmstead
-------------------------------
John F. Olmstead                    President and Director


/s/ Richard H. Abernethy
------------------------------
Richard H. Abernethy                Vice President and Director


/s/ Joseph F. Bukofski
------------------------------
Joseph F. Bukofski                  Chief Accounting Officer, Vice President,
                                    and Director


/s/ Mick Myers
------------------------------
Mick Myers                          Director

                                      -40-