<PAGE>
 
                                                            Total # of Pages: 42


                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                  FORM 10-K/A

                                Amendment No. 1
                                ---------------
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended   September 30, 1996
                               ----------------------

                                      OR

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

     For the transition period from      None        to       None
                                    ----------------    ----------------
     Commission file number       0-11502
                            -------------------------------

                     BOETTCHER WESTERN PROPERTIES III LTD.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


                  COLORADO                                 84-0911344
---------------------------------------------   --------------------------------
(State or other jurisdiction of incorporation         (I.R.S. Employer
  or organization)                                      Identification No.)

77 West Wacker Drive, Chicago, Illinois                       60601
----------------------------------------------   -------------------------------
(Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code     (312) 574-6000
                                                   -----------------------------

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

                                          Name of each exchange on
       Title of each class                    which registered
       -------------------                ------------------------

              None                                        None
---------------------------------       ----------------------------------------


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

                     Units of Limited Partnership Interest
--------------------------------------------------------------------------------
                            (Title of Class)


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.  [_]

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 
<PAGE>
 
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. 
    X   Yes       No
  -----     -----
    
                                     INDEX

<TABLE> 
<CAPTION>  
                                     PART I                               Page
                                     ------ 
<S>            <C>                                                        <C>
               
     Item 1.   Business                                                      3
     Item 2.   Properties                                                    6
     Item 3.   Legal Proceedings                                             7
     Item 4.   Submission of Matters to a Vote of Holders                   
               of Limited Partnership Interests                              7
               
                                    PART II
                                    ------- 
 
     Item 5.   Market of the Registrant's Limited Partnership Interests 
               and Related Limited Partner Matters                           8
     Item 6.   Selected Financial Data                                       9
     Item 7.   Management's Discussion and Analysis of Financial Condition  
               and Results of Operations                                    10
     Item 8.   Financial Statements and Supplementary Data                  15
     Item 9.   Changes in and Disagreements with Accountants on Accounting  
               and Financial Disclosure                                     31
 
                                   PART III
                                   --------
 
     Item 10.  Directors and Executive Officers of the Registrant           31
     Item 11.  Executive Compensation                                       33
     Item 12.  Security Ownership of Certain Beneficial Owners and          
               Management                                                   33
     Item 13.  Certain Relationship and Related Transactions                34
 
                                    PART IV
                                    -------
 
     Item 14.  Exhibits, Financial Statement Schedules and Reports on 
               Form 8-K                                                     35
                                                                            
     SIGNATURES                                                             40
</TABLE>

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

Item 1.  BUSINESS

General
-------

Boettcher Western Properties III Ltd. (the "Partnership") was organized in March
1983 as a Colorado limited partnership. The Partnership's primary business is to
own and operate income-producing properties. At September 30, 1996, the
Partnership owned and operated one shopping center located in California
("Venetian Square Shopping Center"), which is being held for sale (the
"Remaining Property"). The Remaining Property is more fully described in Item 2
of this report.

The Partnership, as of September 30, 1996, did not directly employ any persons;
it is however, a party to a Management Agreement with Boettcher Properties, Ltd.
Under the terms of the Management Agreement, Boettcher Properties, Ltd. is
responsible for the day-to-day operations of the Partnership, and operating and
managing its investments. All regular employees rendering service on behalf of
the Partnership are employees of Boettcher Properties, Ltd. or its affiliates.
The Remaining Property is owned directly by the Partnership and is managed by an
independent, third-party property manager who performs daily property management
services.

The General Partners of the Partnership are Boettcher Properties, Ltd. and
Boettcher 1983 Associates, Ltd. (the "General Partners"), both Colorado limited
partnerships. The Managing General Partner of the Partnership is Boettcher
Properties, Ltd. (the "Managing General Partner") and the Associate General
Partner is Boettcher 1983 Associates, Ltd. (the "Associate General Partner").
With limited exceptions, the General Partners of the Partnership have exclusive
control over the business of the Partnership, which powers are exercised only by
the Managing General Partner.

For the fiscal year ended September 30, 1996, gross rents and tenant
reimbursements generated by the Partnership's income-producing properties
represented 95% of total Partnership revenue. Monthly rental income is derived
from tenant leases at the properties. Commercial leases for Venetian Square
Shopping Center contain longer lease terms, which vary from one year up to five
years for most tenants and up to twenty-five years for major anchor tenants.
Commercial leases permit the pass through by the owner of taxes, insurance and
common area operating costs to the tenants.
  
                                       3
<PAGE>
 
Competition
-----------

The Partnership faces active competition in all aspects of its business. The
Partnership competes with entities which own properties similar in type to the
one owned by the Partnership. The ability of the Partnership to compete with
these entities depends on many factors, including the location, size, condition
of its facilities and the availability of similar facilities. When comparable
space is available in a general location, the Partnership competes through
rental rates and lease terms, among other variables. Now that the Remaining
Property is held for sale, the Partnership is competing with other income-
producing properties for prospective purchasers. While no statistical
information is currently available to delineate the Partnership's competitive
position, many of its competitors are believed to have assets and revenues
greater than those of the Partnership.

Cash Reserves and Debt Maturities
---------------------------------

The Partnership is required under its Partnership Agreement to maintain cash
reserves of not less than 3% of aggregate capital contributions for normal
repairs, replacements, working capital and other contingencies. As of September
30, 1996, the Partnership had cash reserves of $1,240,077, while the required
minimum amount was $660,000. The Partnership intends to apply cash flow
generated from Partnership operations in fiscal 1997, if any, to maintain
minimum required cash reserves, including any additional reserves deemed
necessary by the Managing General Partner to cover potential remediation costs
of the petroleum contamination at Venetian Square Shopping Center discussed
below under "Other Factors" and in Note 7 to the Financial Statements contained
in Item 8 of this report. Thereafter, the Partnership intends to pay the
Managing General Partner all unpaid cash advances made to the Partnership, all
unpaid administrative reimbursements, all unpaid property management fees and
all deferred fees earned by the Managing General Partner, which total $22,961,
$8,640, $1,228 and $569,494, respectively, as of September 30, 1996.

The Managing General Partner is attempting to sell the Partnership's remaining
real estate investment in fiscal 1997. However, there can be no assurances that
the Partnership will sell the Remaining Property in 1997. The Managing General
Partner believes that the sale will provide net proceeds to the Partnership
after the payment of sales costs, closing costs and mortgages payable; however,
the sale transaction may include both cash at closing and deferred payments to
the Partnership. The ability of the Partnership to sell Venetian Square Shopping
Center may be adversely affected by the potential remediation costs of the
petroleum contamination at the property as described below under "Other
Factors". The Partnership intends to apply net sales proceeds to establish and
maintain the Partnership's minimum required cash reserves, as necessary,
including any additional reserves to cover potential remediation costs.
Thereafter, the Partnership intends to pay amounts owed to the Managing General
Partner, and to make distributions to limited partners. The Partnership has
entered into a listing agreement with unrelated real estate brokerage firm to
act as the exclusive selling agent for the Remaining Property. This investment
is classified as property held for sale at September 30, 1996.


                                       4
<PAGE>
 
Other Factors
-------------

Seasonal weather conditions do not have a material impact on the operations of
the Remaining Property, although the usage of water, gas, electricity and the
attendant expense may vary according to the particular season and geographic
location.

Federal, state and local laws and regulations, which have been enacted or
adopted regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment do not presently have a material
effect on the operations of the Remaining Property nor on the capital
expenditures, earnings or competitive position of the Partnership and no
material effect is anticipated in the future, subject to the environmental
assessment which is currently underway at Venetian Square Shopping Center and
the potential remediation costs payable by the Partnership.

Environmental site assessments have been and are currently being performed on a
parcel of land adjacent to and part of Venetian Square Shopping Center. This
parcel of land had previously been operated as a card-lock fueling station
containing underground fuel storage tanks. In fiscal 1992, these underground
fuel storage tanks were excavated and removed from this parcel of land, at which
time leakage of petroleum contaminants was discovered. The Partnership has been
advised that groundwater contamination has also occurred and the Partnership is
in the process of determining the method, cost and timing of required soil and
groundwater remediation measures. For additional discussion of this matter,
refer to Note 7 to the Financial Statements as contained in Item 8 of this
report.

Other federal, state and local laws and regulations, including requirements of
the Americans with Disabilities Act, may require that the Partnership incur
capital expenditures to ensure compliance. At this time, it is not anticipated
that these capital expenditures will materially affect the Partnership's cash
flows.

The Tax Reform Act of 1986 resulted in reduced tax benefits for purchasers of
real estate. To offset the loss of such benefits, purchasers may negotiate lower
prices when acquiring properties to achieve yields comparable to those that
resulted from the combination of cash flow and tax benefits available prior to
the Tax Reform Act of 1986. In addition, the value of tax losses allocated to
individual limited partners has been significantly reduced due to passive loss
limitations and reduced tax rates.

The business of the Partnership to date has involved only one industry segment;
accordingly, all information required by Item 101(b) of Regulation S-K is
included in the Financial Statements as contained in Item 8 of this report. The
Partnership has no foreign operations.


                                       5
<PAGE>
 
Item 2.  PROPERTIES
         ----------

At September 30, 1996, the Partnership owned and operated one shopping center,
which is being held for sale, as more fully described below:

Name and Location                General Character of Property
-----------------                -----------------------------

Venetian Square Shopping Center  3-building shopping center containing
4555 North Pershing Avenue       approximately 117,107 square feet of net
Stockton, California             rentable area on approximately 9.2 acres 
                                 of land.

As stated above, at September 30, 1996, the Partnership has classified the
Remaining Property as property held for sale.

For information regarding the indebtedness to which the Remaining Property is
subject, see Notes 3 and 6 to the Financial Statements as contained in Item 8 of
this report.

On February 29, 1996, the Partnership sold the land, related improvements and
personal property of La Risa Apartments ("La Risa") as described in more detail
in Management's Discussion and Analysis of Financial Condition and Results of
Operations as contained in Item 7 of this report and Note 2 to the Financial
Statements as contained in Item 8 of this report. 

                                       6
<PAGE>
 
       Average and weighted average occupancies and weighted average effective
       rental rates generated by the Properties in fiscal 1996, 1995, and 1994
       were as follows:

<TABLE>
<CAPTION>
                                        1st     2nd     3rd     4th
                                        Qtr     Qtr     Qtr     Qtr    Fiscal      Fiscal   Fiscal
Apartments                             1996    1996    1996    1996    1996        1995     1994
----------                             ----    ----    ----    ----    ------      ------   ------
<S>                                  <C>     <C>     <C>     <C>      <C>          <C>      <C>
La Risa                                 93%     92%     N/A     N/A      93%/(3)/     94%      96%
Los Compadres                           N/A     N/A     N/A     N/A      N/A          N/A      97%/(3)/
La Paz                                  N/A     N/A     N/A     N/A      N/A          N/A      96%/(3)/
Maryland Villa                          N/A     N/A     N/A     N/A      N/A          N/A      96%/(3)/

Weighted average
  occupancy                             93%     92%     N/A     N/A      93%/(3)/     94%      95%/(3)/

Weighted average
  effective rental
  rate per unit
  per month                          $ 425   $ 424      N/A     N/A   $ 425/(3)/   $ 436   $  500/(3)/

Commercial
----------
Venetian Square
  Shopping Center
Weighted average occupancy              91%     90%     87%     84%      88%          91%      95%
Average effective rental rate/(1)/   $8.12   $7.96   $7.76   $8.10    $7.99        $8.54   $ 8.57

SouthCenter Plaza
Weighted average occupancy              N/A     N/A     N/A     N/A      N/A          N/A      37%/(4)/
Average effective rental rate/(2)/      N/A     N/A     N/A     N/A      N/A          N/A  $12.16/(4)/
</TABLE>
/(1)/    These rates are "triple net". In addition to this base rent, tenants
         pay their pro rata share of taxes, insurance and common area
         maintenance expenses at the property.

/(2)/    These rates are "full service". In addition to this base rent, tenants
         pay only their pro rata share of taxes, insurance and common area
         maintenance expenses at the property in excess of the expenses incurred
         at the property during the tenant's initial year of occupancy.

/(3)/    These computations give effect to the sale of the Arizona Properties on
         June 6, 1994 and the sale of La Risa Apartments on February 29, 1996.

/(4)/    Averages computed through date of foreclosure.

Item 3.  LEGAL PROCEEDINGS

         The Partnership is not a party to, nor is the Remaining Property the
         subject of, any material pending legal proceedings.


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF HOLDERS OF LIMITED
         PARTNERSHIP INTERESTS
         ---------------------

         There have been no matters submitted to a vote of holders of Limited
         Partnership. Interests (the "Units") during the fiscal year which is
         covered by this report.

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

Item 5.  MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
         LIMITED PARTNER MATTERS

     At September 30, 1996, 22,000 Units were outstanding and held by
approximately 2,070 limited partners.

     The Units have limited transferability. There is no public market for the
Units and it is not expected that any will develop. There are significant
restrictions relating to the transferability of Units, including the requirement
that the Managing General Partner consent to any transfer and to any transferee
becoming a substituted limited partner, which consent may be granted or withheld
at the sole discretion of the Managing General Partner. In addition,
restrictions on transfers may be imposed by federal and state securities laws.

     On March 21, 1996, a distribution of $999,900 ($45.45/Unit) was made to
limited partners from the net proceeds of the sale of the La Risa Apartments.
The Managing General Partner intends to apply cash flow generated from
Partnership operations in fiscal 1997, if any, to maintain the Partnership's
minimum required cash reserves, as necessary, including any additional reserves
to cover potential remediation costs. Thereafter, the Partnership intends to pay
amounts owed to the Managing General Partner and make a final distribution to
the limited partners.

     The Managing General Partner is attempting to sell the Partnership's
remaining real estate investment in fiscal 1997. However, there can be no
assurances that the Partnership will sell the Remaining Property in 1997. The
Managing General Partner believes that this sale will provide net proceeds to
the Partnership after the payment of sales costs, closing costs and mortgages
payable; however, the sale transaction may include both cash at closing and
deferred payments to the Partnership. The ability of the Partnership to sell
Venetian Square Shopping Center ("Venetian") may be adversely affected by the
potential remediation costs of the petroleum contamination at the property. The
Partnership intends to apply net sales proceeds to pay all remaining liabilities
identified by the Managing General Partner arising out of or in connection with
the operations of the Partnership and the sale of Venetian, including amounts
owed to the Managing General Partner. Thereafter, all remaining cash reserves of
the Partnership will be utilized to first pay the costs of liquidation and
dissolution of the Partnership, and then to make a final distribution to limited
partners.

                                       8
<PAGE>
 
Item 6.  SELECTED FINANCIAL DATA

                     BOETTCHER WESTERN PROPERTIES III LTD.
                         SELECTED FINANCIAL DATA/(a)/

                   As of or for the year ended September 30,
<TABLE>
<CAPTION>
                                1996          1995          1994          1993          1992
                             -----------  ------------  ------------  ------------  ------------
<S>                          <C>          <C>           <C>           <C>           <C>

Total revenue                $1,631,685   $ 2,508,536   $ 4,521,349   $ 5,191,770   $ 5,446,898

Operating loss/(c)/             (85,603)     (146,895)     (492,317)   (1,391,737)   (1,156,958)

Gain (loss) on sale
  or disposition of
  real estate investments     1,329,705           -0-     1,441,887      (154,921)          -0-
                             ----------   -----------   -----------   -----------   -----------

Net earnings (loss)          $1,244,102   $  (146,895)  $   949,570   $(1,546,658)  $(1,156,958)
                             ==========   ===========   ===========   ===========   ===========

Per Unit:/(b)/
  Earnings (loss)            $    55.98   $     (6.61)  $     42.73   $    (69.60)  $    (52.06)
  Cash distribution               45.45         - 0 -        125.00         - 0 -         - 0 -

Total assets                 $6,910,619   $11,665,669   $11,895,397   $25,694,558   $26,406,983

Mortgages payable            $3,303,685   $ 7,153,781   $ 7,339,842   $18,075,625   $18,135,094
</TABLE>

/(a)/  The above selected financial data should be read in conjunction with the
       Financial Statements and related Notes as contained in Item 8 of this
       report.

/(b)/  Per Unit data is based upon the 22,000 weighted average Units outstanding
       during each fiscal year.

/(c)/  The Partnership is evaluating the remediation of petroleum contaminated
       soil and groundwater on a parcel of land adjacent to and part of the
       Venetian Square Shopping Center. The contamination resulted from a
       leaking underground storage tank which was part of a card-lock fueling
       station operated at Venetian Square Shopping Center from 1979 through
       1990. The Partnership has spent approximately $300,000 to date in
       connection with the remediation program and since fiscal 1993 has
       maintained an accrual of approximately $250,000 as a provision for
       possible additional remediation expenses. Amounts expended to date have
       been for the evaluation and monitoring of the contamination in order to
       determine the method, cost and timing of required soil and groundwater
       remediation measures to be implemented in the future. Management is
       unable at this time to estimate the amount of additional remediation
       expense that may be incurred. Due to groundwater contamination, the
       Partnership may incur significant additional remediation costs.
       Accordingly, the Financial Statements contained in Item 8 of this report
       do not include any further adjustments that reflect the results of the
       ultimate resolution of this uncertainty. For additional information,
       refer to Note 7 to the Financial Statements contained in Item 8 of this
       report.

                                       9
<PAGE>
 
Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Results of Operations

1996 as compared to 1995:

September 30, 1996 marked the close of the Partnership's thirteenth year of
operations. The Partnership currently owns and operates one shopping center
located in California (Venetian Square Shopping Center), which is being held for
sale as of September 30, 1996.

For the fiscal year ended September 30, 1996, the Partnership generated total
revenue of $1,631,685, and incurred total expenses of $1,717,288, resulting in
an operating loss of $85,603. The Partnership's fiscal 1996 operating loss
decreased $61,292 (42%) when compared with fiscal 1995. A gain on the sale of
real estate investment, LaRisa Apartments ("LaRisa"), in the amount $1,329,705,
was recorded in the second quarter of fiscal 1996 as more fully discussed in
Note 2 to the Financial Statements as contained in Item 8 of this report. Due to
the gain on sale of real estate investments, the Partnership generated net
earnings of $1,244,102. Total revenue decreased, primarily rental and other
income, and total expenses decreased in all categories, primarily due to the
sale of LaRisa. A summary of the Partnership's operations and period-to-period
comparisons is presented below.

When making period-to-period comparisons, the exclusion of LaRisa's operations
from the current and prior fiscal year's results allows for a more meaningful
analysis of the operations of the Partnership's remaining investment. For
comparison purposes only, LaRisa's results of operations have been excluded in
both fiscal 1996 and 1995 in the table below.

<TABLE>
<CAPTION>

                                             September 30
                                            (In Thousands)
                                            --------------
                                 Pro         Pro       Amount
                                Forma       Forma        of        %
                                1996        1995       Change    Change
                                -----       -----      ------    ------
<S>                            <C>          <C>        <C>       <C>
Total revenue                  $1,111       1,218       (107)      (9%)
Total expenses                  1,179       1,324        145       11%
                               ------       -----       ----

Operating loss                 $  (68)       (106)        38
                               ======       =====       ====
</TABLE>

Based upon the pro forma amounts presented above, total revenue generated by the
Partnership, excluding LaRisa, amounted to $1,110,096, representing a decrease
of $107,929 (9%) compared with fiscal 1995. The Partnership's remaining property
generated rental income of $823,790 in fiscal 1996, which represents a decrease
of $86,809 (10%) when compared with fiscal 1995. Venetian Square Shopping Center
achieved an average occupancy of 88% and an average effective rental rate per
square foot of $7.99, representing decreases of 3% and $.55, respectively, when
compared with fiscal 1995. For additional information on the average occupancies
and average effective rental rates for the Partnership's Properties, refer to
the table provided in Item 2 of this

                                      10
<PAGE>

report. Tenant reimbursement income generated by Venetian Square Shopping Center
decreased $41,459 (15%) in fiscal 1996 when compared with fiscal 1995 due to
increased vacancies in the current fiscal year. Other income increased $20,339
(56%) in fiscal 1996 when compared with fiscal 1995 primarily as a result of
increased interest earned by the Partnership due to the maintenance of larger
cash reserve balances.

Based upon the pro forma amounts provided above, total expenses, excluding
LaRisa incurred by the Partnership amounted to $1,179,189 in fiscal 1996, a
decrease of $144,983 (11%) when compared with fiscal 1995. The largest component
of this decrease is the $55,540 decrease in environmental expense associated
with the remediation of petroleum contamination at Venetian Square Shopping
Center as more fully discussed below and in Note 7 to the Financial Statements
contained in Item 8 of this report. Property tax expense decreased $22,211 (22%)
in fiscal 1996 primarily the result of a successful appeal related to the
property's assessed value and subsequent reduction in property tax assessments
at Venetian. Fees and reimbursements to the Managing General Partner decreased
$53,363 (29%) in fiscal 1996 when compared with fiscal 1995. This decrease is
the result of the elimination of the accrual of deferred acquisition fees
related to LaRisa beginning February 29, 1996. Repairs and maintenance decreased
$11,644 (9%) in fiscal 1996. This decrease is primarily the result of
underground water leak repairs and parking lot repairs done in fiscal 1995 at
Venetian Square Shopping Center. Other administrative expense increased $15,862
(10%) in fiscal 1996 when compared to fiscal 1995, primarily the result of the
write off of approximately $20,000 of past due rents deemed uncollectible.

1995 as compared to 1994:

For the fiscal year ended September 30, 1995, the Partnership generated total
revenue of $2,508,536, and incurred total expenses of $2,655,431, resulting in
an operating loss of $146,895. The Partnership's fiscal 1995 operating loss
decreased $345,422 (70%) when compared with fiscal 1994. Due to the gain on sale
of Los Compadres, La Paz and Maryland Villa Apartments (the "Arizona
Properties"), the Partnership generated net earnings of $949,570 in fiscal 1994.
Total revenue decreased, primarily rental and other income, and total expenses
decreased in all categories, primarily due to the sale of the Arizona
Properties. A summary of the Partnership's operations and period-to-period
comparisons is presented below.

When making period-to-period comparisons, the exclusion of the Arizona
Properties and SouthCenter Plaza's operations from the prior fiscal year's
results allows for a more meaningful analysis of the operations of the
Partnership's remaining investments. For comparison purposes only, the Arizona
Properties and SouthCenter Plaza's results of operations have been excluded from
fiscal 1994 results of operations in the table below.
<TABLE>
<CAPTION>
                                         Pro    Amount
                               Actual   Forma     of        %
                                1995     1994   Change   Change
                               ------   ------  -------  -------
<S>                            <C>      <C>     <C>      <C>
Total revenue                  $2,509    2,493      16       1%
Total expenses                  2,656    2,814    (158)     (6)%
                               ------    -----    ----

Operating loss                 $ (147)    (321)    174
                               ======    =====    ====
</TABLE>

                                      11
<PAGE>

Based upon the actual and pro forma amounts presented above, total revenue
generated by the Partnership, excluding the Arizona Properties and SouthCenter
Plaza, amounted to $2,508,536 in fiscal 1995, representing an increase of
$15,761 (1%) compared with fiscal 1994. The Partnership's properties generated
rental income of $2,145,948 in fiscal 1995, which represents a decrease of
$8,055 when compared with fiscal 1994. La Risa Apartments achieved a weighted
average occupancy of 94% and a weighted average effective rental rate per unit
per month of $436, representing a decrease of 2% and an increase of $11,
respectively, when compared with fiscal 1994. Rental income from Venetian Square
Shopping Center decreased $37,803 (4%) in fiscal 1995 when compared with fiscal
1994. At Venetian Square Shopping Center, average occupancy decreased 4% in
fiscal 1995 and the average effective rental rate decreased $.03 when compared
with fiscal 1994. For additional information on the average occupancies and
average effective rental rates for the Partnership's Properties, refer to the
table provided in Item 2 as contained in this report. Other income increased
$19,220 (27%) in fiscal 1995 when compared with fiscal 1994, primarily the
result of increased interest earned by the Partnership.

Based upon the actual and pro forma amounts provided above, total expenses,
incurred by the Partnership amounted to $2,655,431 in fiscal 1995, a decrease of
$158,270 (6%) when compared with fiscal 1994. The largest component of this
decrease is the $113,308 (38%) decrease in fees and reimbursements to the
managing general partner in fiscal 1995 when compared with fiscal 1994. This
decrease is primarily the result of the elimination of the accrual of deferred
acquisition fees related to the Arizona Properties in June 1994. Property tax
expense decreased $15,296 (6%) in fiscal 1995 when compared to fiscal 1994,
primarily due to lower taxes assessed in 1995 on La Risa Apartments. Repairs and
maintenance expense decreased $21,003 (7%) in fiscal 1995 when compared to
fiscal 1994 mainly due to roof and parking lot repairs completed at Venetian
Square Shopping Center in fiscal 1994. Environmental expense was $72,136 for
fiscal 1995, an increase of $24,405 (51%) over fiscal 1994, representing costs
associated with the continued evaluation of the soil and groundwater remediation
at Venetian Square Shopping Center.

Liquidity and Capital Resources

Combined cash and cash equivalent balances, which represent Partnership
reserves, were $1,240,077 at September 30, 1996, representing an increase of
$403,937 when compared with fiscal 1995 year-end balances. Net cash used by
operating activities in fiscal 1996 amounted to $616,410. The most significant
change in assets and liabilities in fiscal 1996 relates to a decrease in payable
to managing general partner relating to operations of $914,384. This decrease
represents the payment of past due fees and reimbursements to the Managing
General Partner in fiscal 1996. At September 30, 1996 the payable to managing
general partner totaled $602,323. Other significant changes in assets and
liabilities included accounts receivable and other assets, property taxes
payable, interest payable, tenant security deposits and accounts payable and
accrued expenses, all of which decreased as a result of the payment of all
liabilities related to LaRisa.

Net cash provided by investing activities in fiscal 1996 amounted to $5,880,938
primarily the result of proceeds from the sale of LaRisa in the amount of
$6,053,468 reduced by additions to real estate investments of $113,257 and
deferred leasing costs of $59,273.

                                      12
<PAGE>

The Partnership's fiscal 1996 deferred leasing costs include costs related to
tenant finish and lease commissions associated with new tenants and the renewal
of existing tenants at Venetian Square Shopping Center.

Net cash used by financing activities amounted to $4,860,591 in fiscal 1996,
primarily comprised of reductions in mortgage principal of $3,852,733 and a
distribution to limited partners of $999,900. The reduction in mortgage
principal is primarily the payoff of the loan balance secured by LaRisa. The
distribution of $999,900 ($45.45/unit) was made to limited partners in the
second quarter of fiscal 1996.

The Partnership is required under its Partnership Agreement to maintain cash
reserves of not less than 3% of aggregate capital contributions (or $660,000)
for normal repairs, replacements, working capital and other contingencies. As of
September 30, 1996, the Partnership had $1,240,077 in cash reserves. The
Partnership intends to apply cash flow generated from Partnership operations in
fiscal 1997, if any, to maintain minimum required cash reserves, including any
additional reserves deemed necessary by the Managing General Partner to cover
potential remediation costs of the petroleum contamination at Venetian Square
Shopping Center as discussed below. Thereafter, the Partnership intends to pay
the Managing General Partner all unpaid cash advances made to the Partnership,
all unpaid administrative reimbursements, all unpaid property management fees
and all deferred fees earned by the Managing General Partner, which total
$22,961, $8,640, $1,228 and $569,494 respectively, as of September 30, 1996.

To the knowledge of the Managing General Partner, the Remaining Property is in
good physical condition. In fiscal 1997, other than tenant finish costs
associated with ongoing additional leasing efforts at Venetian Square Shopping
Center, there are no other material expenditures planned at the Partnership's
Remaining Property in fiscal 1997.

The Managing General Partner is attempting to sell the Partnership's remaining
real estate investment in fiscal 1997. However, there can be no assurances that
the Partnership will sell the Remaining Property in 1997. The Partnership has
entered into a listing agreement with an unrelated real estate brokerage firm to
act as exclusive selling agent for the Remaining Property. The Managing General
Partner believes that this sale will provide net proceeds to the Partnership
after the payment of sales costs, closing costs and mortgages payable; however,
this sales transaction may include both cash at closing and deferred payments to
the Partnership. The ability of the Partnership to sell Venetian Square Shopping
Center may be adversely affected by the potential remediation costs of the
petroleum contamination at the property. The Partnership intends to apply net
sales proceeds to pay all remaining liabilities identified by the Managing
General Partner arising out of or in connection with the operations of the
Partnership and the sale of Venetian, including amounts owed to the Managing
General Partner. Thereafter, all remaining cash reserves of the Partnership will
be utilized to first pay the costs of liquidation and dissolution of the
Partnership and then to make a final distribution to limited partners.

On February 29, 1996 the Partnership sold the land, related improvements and
personal property of LaRisa Apartments ("LaRisa"). The purchaser, ALT Affordable
Housing Service, Inc. is not affiliated with the Partnership, its Managing
General Partner or any affiliate, director, officer or associate of the
foregoing, and the sales price was determined by arm's length negotiations.

                                      13
<PAGE>
 
The net proceeds to the Partnership, before proration of operating income and
expenses related to the property, were as follows:

<TABLE>
<CAPTION>

<S>                                                        <C>            <C>
Sales Price                                                               $ 6,440,000

   Less:
       Costs of sale:
          Sales commissions                                  (223,453)
          Closing costs (title fees, legal and other)         (74,400)
       Tenant security deposit liability                      (33,040)
       Mortgage payoff                                     (3,692,414)     (4,023,307)
                                                                          -----------

                                                                          $ 2,416,693
                                                                          ===========
Net Proceeds

The net proceeds were utilized as follows:
Distribution to limited partners ($45.45/unit)                            $   999,900
Partial repayment of cash advances, reimbursement and
 deferred fees to the Managing General Partner                              1,000,000
Addition to Partnership cash reserves                                         416,793
                                                                          -----------
                                                                          $ 2,416,693
                                                                          ===========
</TABLE>

The Partnership recorded a net gain on sale of real estate investment of
$1,329,705 related to this transaction, resulting from the excess of the net
sales proceeds over the Partnership's net carrying value of La Risa.

In October 1995, the Partnership entered into an agreement with Great West Life
Assurance Company (Great West) to extend the maturity date of the first mortgage
payable secured by Venetian Square Shopping Center to October 1, 1997. Under the
agreement, the Partnership paid an extension fee of $20,000. The interest rate
on the loan was increased from 9 1/2% to 10 1/2% and the monthly principal and
interest payment was increased from $37,683 to $39,098.

The Partnership is evaluating the remediation of petroleum contaminated soil and
groundwater on a parcel of land adjacent to and part of the Venetian Square
Shopping Center. The contamination resulted from a leaking underground storage
tank which was part of a card-lock fueling station operated on the site. The
Partnership has been advised that groundwater contamination has also occurred
and the Partnership is in the process of determining the method, cost and timing
of required soil and groundwater remediation measures. The Partnership has spent
approximately $300,000 to date in connection with the remediation program and
since fiscal 1993 has maintained an accrual of approximately $250,000 as a
provision for possible additional remediation expenses. Management is unable at
this time to estimate the extent of additional expenses that may be incurred.
Due to groundwater contamination, the Partnership may incur significant
additional remediation costs. Accordingly, the Financial Statements contained in
Item 8 of this report do not include any further adjustments that reflect the
results of the ultimate resolution of this uncertainty. See Note 7 to the
Financial Statements contained in Item 8 of this report for a more detailed
discussion of this situation.

                                      14
<PAGE>
 
Recent Accounting Pronouncements

In March of 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, effective for fiscal years beginning after December 15,1995.
Statement No. 121 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Partnership will
adopt Statement No. 121 effective January 1, 1996. The effect of such adoption
is not expected to be significant.

                                      15
<PAGE>
 
Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


         The following Financial Statements of the Partnership are included
         herein:
<TABLE>
<CAPTION>
<S>                                                       <C>
         Independent Auditors' Report                     17
 
         Balance Sheets - September 30, 1996 and 1995     18
 
         Statements of Operations -
         Years ended September 30, 1996, 1995 and 1994    19
 
         Statements of Partners' Capital (Deficit)
         Years ended September 30, 1996, 1995 and 1994    20
 
         Statements of Cash Flows -
         Years ended September 30, 1996, 1995 and 1994    21
 
         Notes to Financial Statements                    22
 
</TABLE>
                                      16
<PAGE>
 
                         Independent Auditors' Report
                         ----------------------------

The Partners
Boettcher Western Properties III Ltd.:

We have audited the accompanying balance sheets of Boettcher Western Properties
III Ltd. (a limited partnership) as of September 30, 1996 and 1995, and the
related statements of operations, partners' capital (deficit), and cash flows
for each of the years in the three-year period ended September 30, 1996. 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 Boettcher Western Properties
III Ltd. as of September 30, 1996 and 1995, and the results of its operations
and its cash flows for each of the years in the three-year period ended
September 30, 1996, in conformity with generally accepted accounting principles.


                                       KPMG Peat Marwick LLP


Denver, Colorado
December 16, 1996

                                      17
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                                 Balance Sheets
                          September 30, 1996 and 1995
<TABLE>
<CAPTION>
 
   Assets                                                    1996           1995
   ------                                                 -----------    -----------
<S>                                                       <C>            <C>
Real estate investments, at gross cost
   Properties held for sale                               $ 8,771,101    $16,346,743
   Less discount on related debt                             (778,407)    (1,192,518)
                                                          -----------    -----------
                                                            7,992,694     15,154,225
   Less accumulated depreciation                           (2,599,948)    (4,833,753)
                                                          -----------    -----------
                                                            5,392,746     10,320,472
 
Cash and cash equivalents at cost,
   which approximates market value                          1,240,077        836,140
Accounts receivable and other assets                           90,146        187,545
Property tax and other escrow deposits                              -        111,511
Debt issuance costs, net of accumulated
   amortization of $33,446 and $154,874, respectively          13,637         35,647
Deferred leasing costs, net of accumulated
   amortization of $464,022 and $427,988, respectively        174,013        174,354
                                                          -----------    -----------
                                                          $ 6,910,619    $11,665,669
                                                          ===========    ===========
 
   Liabilities and Partners' Capital
   ---------------------------------
Mortgages payable, net of unamortized debt
   discount of $4,525 and $7,162, respectively            $ 3,303,685    $ 7,153,781
Payable to managing general partner                           602,323      1,527,391
Accounts payable and accrued expenses                         296,557        322,420
Property taxes payable                                         21,238        140,902
Tenants' deposits                                              39,339         70,533
Unearned rental income                                          5,556         19,728
Accrued interest payable                                          490         33,685
                                                          -----------    -----------
    Total liabilities                                       4,269,188      9,268,440

 Commitments and contingencies
 
Partners' capital (deficit):
   General partners                                          (113,869)      (126,310)
   Limited partners                                         2,755,300      2,523,539
                                                          -----------    -----------
   Total partners' capital                                  2,641,431      2,397,229
                                                          -----------    -----------
                                                          $ 6,910,619    $11,665,669
                                                          ===========    ===========
</TABLE>
See accompanying notes to financial statements.

                                       18
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)
                           Statements of Operations
                 Years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
 
                                              1996         1995         1994
                                           ----------   ----------   ---------- 
<S>                                        <C>          <C>          <C>
Revenue:
Rental income                              $1,323,274   $2,145,948   $4,086,966
Tenant reimbursements for
  common area charges,
    insurance and taxes                       229,628      271,087      266,507
Other income                                   78,783       91,501      167,876
                                            ---------    ---------    ---------
                                            1,631,685    2,508,536    4,521,349
                                            ---------    ---------    ---------
Expenses:
Interest, including amortization
  of debt discount and debt
    issuance costs                            526,180      807,298    1,573,953
Depreciation                                  317,221      451,174      743,200
Property taxes                                143,570      255,633      405,541
Fees and reimbursements to
  managing general partner                    133,530      186,893      300,201
Other management fees                          72,928      108,667      186,873
Salaries of on-site property
  managers                                     62,888      156,975      325,533
Repairs and maintenance                       170,148      260,913      544,863
Utilities                                      71,245      121,150      487,701
Other administrative                          202,982      234,592      398,069
Environmental costs                            16,596       72,136       47,732
                                            ---------    ---------    ---------
 
                                            1,717,288    2,655,431    5,013,666
                                            ---------    ---------    ---------
 
  Operating loss                              (85,603)    (146,895)    (492,317)
 
Gain on sale of real estate investments     1,329,705            -    1,441,887
                                            ---------    ---------    ---------
 
  Net earnings (loss)                      $1,244,102   $ (146,895)  $  949,570
                                            =========    =========    =========
 
Net earnings (loss)
 per limited partnership unit                  $55.98       $(6.61)      $42.73
                                            =========    =========    =========
 
Weighted average number of limited
 partnership units outstanding                 22,000       22,000       22,000
                                            =========    =========    =========
</TABLE>
See accompanying notes to financial statements.

                                      19
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                   Statements of Partners' Capital (Deficit)
                 Years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
 
                                                                         Total
                                             General      Limited       Partners'
                                             partners     partners       capital
                                            ----------  -----------   ------------
<S>                                         <C>         <C>           <C>
Capital (deficit) at
     October 1, 1993                        $(134,337)  $ 4,478,891   $ 4,344,554
 
Distribution to limited partners                    -    (2,750,000)   (2,750,000)
 
Net earnings                                    9,496       940,074       949,570
                                             --------    ----------    ----------
 
Capital (deficit) at
     September 30, 1994                      (124,841)    2,668,965     2,544,124
 
Net loss                                       (1,469)     (145,426)     (146,895)
                                             --------    ----------    ----------
 
Capital (deficit) at
     September 30, 1995                      (126,310)    2,523,539     2,397,229
 
Distribution to limited partners                    -      (999,900)     (999,900)
 
Net earnings                                   12,441     1,231,661     1,244,102
                                             --------    ----------    ----------
 
Capital (deficit) at September 30, 1996     $(113,869)  $ 2,755,300   $ 2,641,431
                                             ========    ==========    ==========
</TABLE>
See accompanying notes to financial statements.

                                      20
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                           Statements of Cash Flows
                 Years ended September 30, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                                            1996              1995               1994
                                                                            ----              ----               ----
<S>                                                                     <C>                <C>               <C>
Cash flows from operating activities:
  Net earnings (loss)                                                   $ 1,244,102        $(146,895)       $    949,570
    Adjustments to reconcile
    net earnings (loss)
    to net cash provided (used) by
    operating activities:
      Depreciation and amortization                                         398,755          566,109           1,011,424
      Gain on sale of real estate
      investments                                                        (1,329,705)               -          (1,441,887)
    Change in operating assets and liabilities:
      (Increase) decrease in accounts receivable and other assets            97,399           42,186             (26,670)
      (Increase) decrease in property tax and
        other escrow deposits                                               111,511          (23,193)             (2,513)
    Increase (decrease) in payable to
      managing general partner
      relating to operations                                               (914,384)          92,977            (618,152)
    Decrease in accounts payable
      and accrued expenses                                                  (25,863)         (13,307)           (135,110)
    Decrease in property taxes payable                                     (119,664)            (344)            (74,205)
    Decrease in tenants' deposits                                           (31,194)          (7,177)            (36,041)
    Decrease in unearned rental income                                      (14,172)          (2,949)            (23,025)
    Decrease in accrued interest payable                                    (33,195)            (157)               (488)
                                                                        -----------        ---------        ------------
Net cash provided (used) by
  operating activities                                                     (616,410)         507,250            (397,097)
                                                                        -----------        ---------        ------------

Cash flows from investing activities:
    Additions to real estate investments                                   (113,257)        (113,549)           (196,960)
    Deferred leasing costs                                                  (59,273)         (12,724)           (167,729)
    Net proceeds from sale of real
      estate investments                                                  6,053,468                -          11,658,327
    Cash loss relating to foreclosing of
      SouthCenter Plaza                                                           -                -             (11,674)
                                                                        -----------        ---------        ------------
Net cash provided (used) by investing activities                          5,880,938         (126,273)         11,281,964
                                                                        -----------        ---------        ------------

Cash flows from financing activities:
    Advances from (payments to)
      managing general partner                                              (10,684)          33,645             (30,900)
    Payments of mortgage principal                                       (3,852,733)        (194,912)         (7,762,052)
    (Increase) decrease in debt issuance costs                                2,726          (78,398)           (128,594)
    Distributions to limited partners                                      (999,900)               -          (2,750,000)
                                                                        -----------        ---------        ------------
Net cash provided (used) by
  financing activities                                                   (4,860,591)        (239,665)        (10,671,546)
                                                                        -----------        ---------        ------------

Net increase in cash and equivalents                                        403,937          141,312             213,321

Cash and cash equivalents at beginning of year                              836,140          694,828             481,507
                                                                        -----------        ---------        ------------
Cash and cash equivalents at end of year                                $ 1,240,077        $ 836,140        $    694,828
                                                                        ===========        =========        ============

Supplemental disclosure of cash flow information:
    Interest paid in cash during the year                               $   537,454        $ 736,630        $  1,349,719
                                                                        ===========        =========        ============
</TABLE>
See accompanying notes to financial statements.



                                      21

<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                         Notes to Financial Statements
                       September 30, 1996, 1995 and 1994

--------------------------------------------------------------------------------

(1)  Significant Accounting Principles
     ---------------------------------

     Organization and Allocation of Income and Losses
     ------------------------------------------------
     Boettcher Western Properties III Ltd. (the Partnership) is a limited
     partnership formed on March 18, 1983 for the purpose of investing in
     improved and unimproved real property.  Limited Partnership Interests
     (Units) were sold through a public offering and currently 22,000 Units at
     $1,000 per Unit are outstanding.

     The managing general partner of the Partnership is Boettcher Properties,
     Ltd. (BPL), and the associate general partner is Boettcher 1983 Associates,
     Ltd.

     The Partnership Agreement provides for the net operating income of the
     Partnership to be allocated as follows:  (i) to the limited partners to the
     extent necessary to satisfy the 8% Current Distribution Preference, as
     defined (an amount equal to 8% of the daily average aggregate adjusted
     capital contributions of the limited partners) and (ii) 1% of the remainder
     to the General Partners and 99% to the limited partners.  Net operating
     losses are allocated 1% to the General Partners and 99% to the limited
     partners.

     The Partnership Agreement provides for net capital income from the sale or
     other disposition of Partnership properties to be allocated on a cumulative
     basis as follows:  (i) 1% to the General Partner and 99% to the limited
     partners to the extent of depreciation deductions taken from the inception
     of the Partnership, (ii) to the limited partners to the extent necessary to
     satisfy the Net Proceeds Distribution Preference, as defined (an amount
     equal to the sum of limited partner capital contributions not yet returned
     and any unsatisfied 8% current Distribution Preference from prior periods)
     and (iii) 25% of the remainder to the General Partners and 75% to the
     limited partners.  Net capital loss is allocated 1% to the General Partners
     and 99% to the limited partners.

     Environmental Remediation Liabilities
     -------------------------------------
     Liabilities for loss contingencies, including environmental remediation
     costs, arising from claims, assessments, litigation, fines and penalties,
     and other sources are recorded when it is probable that a liability has
     been incurred and the amount of the assessment and/or remediation can be
     reasonably estimated.  The costs of site clean-up are recorded in the
     amount of the cash payments made or for future estimated costs for that
     site when fixed or reliably determinable based upon information derived
     from the remediation plan for that site.  Recoveries from third parties
     which are probable of realization are separately recorded, and are not
     offset against the related environmental liability.

     In October 1996, the American Institute of Certified Public Accountants
     issued Statement of Position ("SOP") 96-1, Environmental Remediation
     Liabilities.  SOP 96-1 will be adopted by the Partnership during fiscal
     1997 and will require, among other things, environmental remediation
     liabilities to be accrued when the criteria of SFAS No. 5, Accounting for
     Contingencies, have been met.  The SOP also provides guidance with 


                                      22
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                         Notes to Financial Statements
                       September 30, 1996, 1995 and 1994

--------------------------------------------------------------------------------

     respect to the measurement of the remediation liabilities. Such accounting
     is consistent with the Partnership's current method of accounting for
     environmental remediation costs and therefore, adoption of this new
     Statement will not have a material impact on the Partnership's financial
     position, results of operations, or liquidity.

     Deferred Leasing Costs
     ----------------------
     Costs associated with the leasing of the Partnership's shopping center are
     deferred and amortized over the life of the related leases.  These costs
     are comprised of lease commissions and construction costs related to the
     buildout of tenant space.

     Financial Instruments
     ---------------------
     The fair value of the Partnership's financial instruments approximate their
     carrying values due to the short maturities of those instruments or due to
     the interest rates of those instruments approximating interest rates for
     similar issues.

     Income Taxes
     ------------
     No provision has been made for federal income taxes, as the taxable income
     (loss) is reported by the partners rather than the Partnership.  The
     Partnership reports certain transactions differently for tax and financial
     statement purposes, primarily depreciation and debt discount.

     A reconciliation of net earnings (loss) per the accompanying financial
     statements and Partnership's tax return is shown in the table below.
     Results of operations for the year ended September 30, 1996 as shown in the
     financial statements is actual.  However, the Partnership's tax return for
     December 31, 1996 has not been prepared; therefore, the reconciling items
     for 1996 are estimates by management.

<TABLE>
<CAPTION>
                                                       1996        1995          1994
                                                   -----------  -----------   ----------
                                                                (unaudited)
<S>                                                <C>           <C>          <C>
Net earnings (loss) per financial statements        $1,244,102   $ (146,895)  $  949,570
Fiscal to calendar year net difference                  96,949        6,343      143,901
Tax depreciation in excess of depreciation
  for financial statement purposes                    (225,000)    (288,639)    (655,164)
Debt discount amortization not deducted for
  tax purposes                                           3,000        2,594       64,851
Rental revenue reported in different years
  for tax and financial statement purposes              (2,000)      14,573       (2,520)
Environmental costs not deducted for
  tax purposes                                              -0-          -0-     (11,030)
Difference in net gain on sale of real estate
  investments for tax and financial statements       2,000,000    1,233,006    3,370,263
                                                    ----------   ----------   ----------
Net earnings (loss) for income tax purposes         $3,117,051   $  820,982    3,859,871
                                                    ==========   ==========   ==========
</TABLE>

                                       23
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                         Notes to Financial Statements
                       September 30, 1996, 1995 and 1994

--------------------------------------------------------------------------------

     Real Estate Investments
     -----------------------

     Properties held for sale are recorded at the lower of cost or fair value
     based upon independent appraised values less estimated selling costs.

     Buildings and improvements are depreciated using the straight-line method
     over an estimated useful life of 30 years.  Equipment and furnishings are
     depreciated using the straight-line method over an estimated useful life of
     5 years.  Renewals and betterment's are capitalized, and repairs and
     maintenance are charged to operations as incurred.

     Impairment of Long-Lived Assets
     -------------------------------
     In March of 1995, the Financial Accounting Standards Board ("FASB") issued
     Statement No. 121, effective for fiscal years beginning after December
     15,1995.  Statement No. 121 requires impairment losses to be recorded on
     long-lived assets used in operations when indicators of impairment are
     present and the undiscounted cash flows estimated to be generated by those
     assets are less than the assets' carrying amount.  Statement No. 121 also
     addresses the accounting for long-lived assets that are expected to be
     disposed of.  The Partnership will adopt Statement No. 121 effective with
     its fiscal year beginning October 1, 1996.

     Cash and Cash Equivalents
     -------------------------
     For purposes of the Statement of Cash Flows, cash and cash equivalents
     include highly liquid debt instruments purchased with an original maturity
     of three months or less.  Cash and cash equivalents are comprised of the
     following as of September 30:

<TABLE>
<CAPTION>
                                           1996                 1995
                                        ----------            --------
     <S>                                <C>                   <C>
     Money market fund                  $1,120,644            $721,050
     Operating cash                        119,433             115,090
                                        ----------            --------
     Cash and cash equivalents          $1,240,077            $836,140
                                        ==========            ========
</TABLE>

     Debt Issuance Costs and Debt Discount
     -------------------------------------
     Costs incurred in arranging financing, such as loan origination fees,
     commitment fees and extension fees, are deferred and amortized using the
     level-interest-yield method over the term of the related debt or the
     extension period.

     Debt discount is amortized to interest expense using the level-interest-
     yield method over the term of the related debt.

     Use of Estimates
     ----------------
     Management of the Partnership has made a number of estimates and
     assumptions relating to the reporting of assets and liabilities and the
     disclosure of contingent assets and liabilities to prepare these financial
     statements in conformity with generally accepted accounting principles.
     Actual results could differ from those estimates.

 

                                      24
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                         Notes to Financial Statements
                       September 30, 1996, 1995 and 1994

--------------------------------------------------------------------------------

     Reclassification
     ----------------

     Certain prior year amounts have been reclassified to conform with fiscal
     1996 financial statement presentation.

(2)  Real Estate Investments

     Mortgages assumed in connection with the acquisition of the Partnership's
     properties were discounted using an equivalent market rate of interest as
     of the date of acquisition. For financial statement purposes, the resulting
     discount is deducted from the original cost basis of the related real
     estate investment property, thereby resulting in a reduction of
     depreciation expense over the life of the assets.

     As of September 30, 1996, the fair value of the Partnership's properties
     held for sale exceeds cost, based upon independent appraised values or
     preliminary offers to purchase the properties less estimated selling costs.

     The cost of the Partnership's real estate investments and related
     accumulated depreciation, debt discount and allowance for loss are as
     follows:

                               September 30, 1996
                               ------------------
<TABLE>
<CAPTION>
 
       Property              Land and    Buildings and
     held for sale         improvements  improvements      Total
     -------------         ------------  -------------  -----------
<S>                        <C>           <C>            <C>
 
     Venetian Square       $1,802,853     $ 6,968,248   $ 8,771,101
 
     Less discount on
       related debt          (167,901)       (610,506)     (778,407)
                           ----------     -----------   -----------
                            1,634,952       6,357,742     7,992,694
     Less accumulated
       depreciation           (43,591)     (2,556,357)   (2,599,948)
                           ----------     -----------   -----------
                           $1,591,361     $ 3,801,385   $ 5,392,746
                           ==========     ===========   ===========
 
</TABLE>
                               September 30, 1995
                               ------------------
<TABLE>
<CAPTION>
 
                           Land and     Buildings and  Equipment and               Less discount   Property balance,
                         improvements   improvements    furnishings     Total     on related debt   net of discount
                         -------------  -------------  -------------  ----------  ---------------  -----------------
<S>                      <C>            <C>            <C>            <C>         <C>              <C> 
     La Risa Apts          $1,620,095     5,277,131       761,940      7,659,166       (414,111)        7,245,055
     Venetian Square        1,802,853     6,884,724             -      8,687,577       (778,407)        7,909,170
                           ----------    ----------    ----------     ----------     ----------        ----------
                            3,422,948    12,161,855       761,940     16,346,743     (1,192,518)       15,154,225
                           ----------    ----------    ----------     ----------     ==========        ==========
     Less discount on
       related debt          (266,170)     (915,373)      (10,975)    (1,192,518)
                           ----------    ----------    ----------     ----------
                            3,156,778    11,246,482       750,965     15,154,225
                           ==========    ==========    ==========     ==========
     Less accumulated
       depreciation           (42,470)   (4,277,520)     (513,763)    (4,833,753)
                           ----------    ----------    ----------     ----------
                           $3,114,308     6,968,962       237,202     10,320,472
                           ==========    ==========    ==========     ==========
 
</TABLE>
                                       25
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                         Notes to Financial Statements
                       September 30, 1996, 1995 and 1994

--------------------------------------------------------------------------------

     Sale of Real Estate Investment
     ------------------------------

     On February 29, 1996 the Partnership sold the land, related improvements
     and personal property of La Risa Apartments ("La Risa"). The purchaser, ALT
     Affordable Housing Service, Inc. is not affiliated with the Partnership,
     its Managing General Partner or any affiliate, director, officer or
     associate of the foregoing, and the sales price was determined by arm's
     length negotiations.

     The net proceeds to the Partnership, before proration of operating income
     and expenses related to the property, were as follows:
<TABLE>
<CAPTION>
 
<S>                                                             <C>            <C>
     Sales Price                                                               $ 6,440,000
          Less:
             Costs of sale:
                Sales commissions                                 (223,453)
                Closing costs (title fees, legal and other)        (74,400)
             Tenant security deposit liability                     (33,040)
             Mortgage payoff                                    (3,692,414)     (4,023,307)
                                                                               -----------
 
     Net Proceeds                                                              $ 2,416,693
                                                                               ===========
 
     The net proceeds were utilized as follows:
 
     Distribution to limited partners ($45.45/unit)                            $   999,900
 
     Partial repayment of cash advances, reimbursement and
      deferred fees to the Managing General Partner                              1,000,000
 
     Addition to Partnership cash reserves                                         416,793
                                                                               -----------
                                                                               $ 2,416,693
                                                                               ===========
</TABLE>

     The Partnership recorded a net gain on sale of real estate investment
     of$1,329,705 related to this transaction, resulting from the excess of the
     net sales proceeds over the Partnership's net carrying value of La Risa.

                                       26
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                         Notes to Financial Statements
                       September 30, 1996, 1995 and 1994

--------------------------------------------------------------------------------

(3)  Mortgages Payable

     Mortgages payable at September 30 are secured by real estate investment
     properties and are comprised of the following:
<TABLE>
<CAPTION>

1996:
-----
                                 Unamortized           Balance
                                    debt               net of     Interest        Monthly         Due
     Property         Principal   discount            discount      rate          payment         date
-------------------   ---------  -----------          ---------   --------        -------         ----
<S>                  <C>         <C>                  <C>         <C>             <C>             <C>
 Venetian Square
   First             $3,285,221           -           3,285,221     10.50%         39,098         10/97 /(e)/
   Second                22,989      (4,525)             18,464      6.75% /(c)/    1,062 /(d)/    4/98
                     ----------      ------           ---------
                     $3,308,210      (4,525)          3,303,685
                     ==========      ======           =========

1995:
-----
                                  Unamortized          Balance
                                      debt             net of     Interest        Monthly         Due
Property              Principal     discount          discount      rate          payment         date
--------              ---------   ----------          ---------   --------        -------         ----
LaRisa               $3,682,141           -           3,682,141    10.625%         35,698         1/96 /(b)/

Venetian Square
  First               3,445,069           -           3,445,069     10.50%        39,098        10/97 /(e)/
  Second                 33,733      (7,162) /(a)/       26,571      6.75% /(c)/   1,144 /(d)/   4/98
                     ----------      ------           ---------
                     $7,160,943      (7,162)          7,153,781
                     ==========      ======           =========
</TABLE>
All mortgages payable are secured solely by the respective properties and are
nonrecourse to the Partnership.

(a)  Discount was based on market interest rate at the time of purchase of
     12.5%.
(b)  The Partnership extended the mortgage payable to January 1, 1996. See
     note 6 for additional information.
(c)  Average rate of bond issue.
(d)  Paid semiannually in April and December.
(e)  The Partnership extended the mortgage payable to October 1, 1997. See note
     6 for additional information.

The fair value of the mortgages attributable to the Partnership is estimated to
be approximated by its carrying value.

                                      27
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                         Notes to Financial Statements
                       September 30, 1996, 1995 and 1994

--------------------------------------------------------------------------------

     Aggregate maturities of principal payments for the five fiscal years ending
     September 30, 2001 and thereafter are as follows:

<TABLE> 
<CAPTION> 

     <S>                   <C> 
     1997                  $  171,173
     1998                   3,137,037
     1999                           -
     2000                           -
     2001                           -
     Thereafter                     -
                           ----------
                           $3,308,210
                           ==========
</TABLE> 

     For additional discussion of the Partnership's mortgages payable refer to
     note 6.

(4)  Transactions with Related Parties
     ---------------------------------

     BPL is the Managing Agent of the Partnership and is paid an annual fee for
     its services.  The annual fee is comprised of a property management fee and
     a deferred acquisition fee.  The property management fee is equal to 5% of
     gross receipts from the Properties, less management fees paid to others.
     The property management fee earned by BPL amounted to $6,255, $15,734 and
     $38,635 for the years ended September 30, 1996, 1995, and 1994,
     respectively.  The deferred acquisition fee is an annual fee equal to the
     sum of 2% of average daily invested capital plus 1/2 of 1% of average daily
     liquid capital, as defined.  The deferred acquisition fee is payable for a
     maximum of 15 years and is limited in the aggregate to payments having a
     discounted value equal to 14% of gross limited partner capital
     contributions.  Payments made over the 15-year period will be discounted at
     10% per year from the date of payment to May 2, 1983 in determining whether
     the limit has been reached. Payments are limited in the aggregate to
     $3,080,000.  Since inception, the total discounted deferred acquisition fee
     earned by the Managing General Partner is approximately $2,329,000.  The
     annual deferred acquisition fee earned by BPL amounted to $104,335,
     $140,364 and $230,978 for the years ended September 30, 1996, 1995, and
     1994, respectively.

     The Partnership also reimburses BPL for its allocable share of salaries of
     nonmanagement and nonsupervisory personnel providing accounting, investor
     reporting and communications, and legal services to the Partnership and
     allowable expenses related to the maintenance and repair of data processing
     equipment used for or by the Partnership.  The amount due to BPL for such
     reimbursements for the years ended September 30, 1996, 1995, and 1994
     amounted to $22,940, $30,795 and $30,588, respectively.


                                      28
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                         Notes to Financial Statements
                       September 30, 1996, 1995 and 1994

--------------------------------------------------------------------------------

(5)  Future Rental Income
     -------------------- 

     Aggregate base rental income relating to long-term noncancelable leases for
     the Venetian Square Shopping Center for the five fiscal years ending
     September 30, 2001 and thereafter is as follows:

<TABLE>
<CAPTION>
 
     <S>                   <C>
     1997                  $  781,920
     1998                     626,347
     1999                     528,910
     2000                     469,263
     2001                     431,272
     Thereafter             1,015,220
                           ----------
                           $3,852,932
                           ==========
</TABLE>

(6)  Liquidity and Debt Maturities
     -----------------------------

     The Partnership is required under its Partnership Agreement to maintain
     cash reserves of not less than 3% of aggregate capital contributions for
     normal repairs, replacements, working capital and other contingencies.  As
     of September 30, 1996, the Partnership had cash reserves of $1,240,077,
     while the required minimum amount was $660,000.

     During fiscal 1996, the payable to managing general partner decreased
     $925,068 to a total of $602,323 as of September 30, 1996.  This decrease is
     the result of the accrual of fees and reimbursements earned by the Managing
     General Partner in fiscal 1996 and cash advances received from the Managing
     General Partner during fiscal 1996 totaling $133,530 and $141,402,
     respectively, and payments to the Managing General Partner of $1,200,000,
     primarily from the proceeds of the sale of LaRisa Apartments.  The Managing
     General Partner intends to apply cash flow generated from Partnership
     operations in fiscal 1997, if any, to maintain the minimum required cash
     reserves, as necessary, including any additional reserves to cover
     remediation costs at Venetian Square Shopping Center.  Thereafter, the
     Partnership intends to pay the Managing General Partner all unpaid cash
     advances made to the Partnership, all unpaid administrative reimbursements
     and all deferred fees earned by the Managing General Partner.

     The Managing General Partner is attempting to sell the Partnership's
     remaining real estate investment in fiscal 1997.  However, there can be no
     assurances that the Partnership will sell such Property in 1997.  As of
     September 30, 1996 and 1995, the remaining real estate investments are
     classified as properties held for sale.  The Partnership has entered into a
     listing agreement with an unrelated real estate brokerage firm to act as
     the exclusive selling agent for the Remaining Property.  The Managing
     General Partner believes that this sale will provide net proceeds to the
     Partnership after the payment of sales costs, closing costs and mortgages
     payable; however, this sale transaction may include both cash at closing
     and deferred payments to the Partnership.  The ability of the Partnership
     to sell 


                                      29
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                         Notes to Financial Statements
                       September 30, 1996, 1995 and 1994

--------------------------------------------------------------------------------

     Venetian Square Shopping Center may be adversely affected by the potential
     remediation costs of the petroleum contamination of the property. The
     Partnership intends to apply net sales proceeds to pay all remaining
     liabilities identified by the Managing General Partner arising out of or in
     connection with the operations of the Partnership and the sale of Venetian,
     including amounts owed to the Managing General Partner. Thereafter, all
     remaining cash reserves of the Partnership will be utilized to first pay
     the costs of liquidation and dissolution of the Partnership and then to
     make a final distribution to limited partners.

     On October 24, 1995, the Partnership entered into a letter agreement with
     Great West Life Assurance Company (Great West) to extend the maturity date
     of the first mortgage payable secured by Venetian Square Shopping Center to
     October 1, 1997.  Under the agreement, the Partnership was obligated to pay
     a $20,000 fee, the interest rate was increased to 10.5% and the monthly
     payment was increased to $39,098 effective October 1, 1995.

(7)  Environmental Remediation Costs
     -------------------------------

     From approximately 1979 through 1990 a card-lock fueling station had been
     operated on a parcel of land adjacent to and a part of Venetian Square
     Shopping Center. In 1990, operation of the fueling station ceased, and in
     fiscal 1991 the Partnership determined that it would be permanently closed.
     In compliance with the California and San Joaquin County environmental
     regulatory requirements, the Partnership contracted with an environmental
     engineering firm to perform Phase I and Phase II environmental site
     assessments on this specific parcel of land. The results of those site
     assessments suggested that the site may contain petroleum contaminants. In
     fiscal 1992, the Partnership contracted for the excavation and removal of
     the three underground fuel storage tanks located on this parcel of land.
     Upon excavation and removal of those underground fuel storage tanks,
     leakage of petroleum contaminants was discovered through performance of
     soil and groundwater tests. The Partnership retained California legal
     counsel and contracted with an environmental engineering firm (EEF) to
     perform further site analysis and to determine the proximate cause and
     extent of any contaminants. In the first quarter of fiscal 1993, the
     Partnership received the Preliminary Site Assessment report (the PSA) from
     the EEF detailing the results of its Phase II soil and groundwater sampling
     and analysis, as well as the EEF's recommendation for further action. In
     working with the San Joaquin County Public Health Services/Environmental
     Health Division (San Joaquin), the Partnership received approval to proceed
     with quarterly groundwater monitoring of the site for a term of one year
     which was completed as of December 31, 1993. An Evaluation of Remedial
     Alternatives For Petroleum Hydrocarbon Impacted Soil (the Report) was
     submitted to San Joaquin for further review and comments. San Joaquin
     notified the Partnership that the remedial alternative consisting primarily
     of soil vapor extraction complies with regulatory requirements and
     requested that the Partnership submit a work plan to the regulatory


                                      30
<PAGE>
 
                     BOETTCHER WESTERN PROPERTIES III LTD.
                            (A Limited Partnership)

                         Notes to Financial Statements
                       September 30, 1996, 1995 and 1994

--------------------------------------------------------------------------------

      agency which will include the proposed actions and proposed schedule for
      implementation and operation of the soil vapor extraction system. However,
      the Partnership has been advised that groundwater contamination has also
      occurred and the Partnership is in the process of determining the method,
      cost and timing of required soil and groundwater remediation measures. The
      Partnership has spent approximately $300,000 to date in connection with
      the remediation program and since fiscal 1993 has maintained an accrual of
      approximately $250,000 as a provision for possible additional remediation
      expenses. Management is unable at this time to estimate the full extent of
      additional expenses that may be incurred. Due to groundwater
      contamination, the Partnership may incur significant additional
      remediation costs. The estimate of costs and their timing of payment could
      change as a result of (1) changes to a remediation plan required by the
      State Environmental Agency, (2) changes in technology available to treat
      the site, (3) unforeseen circumstances existing at the site and (4)
      differences between actual inflation rates and rates assumed in preparing
      the estimate. As a result of these factors, it is not possible for the
      Partnership to reasonably estimate the amount by which remediation costs
      may exceed amounts that the Partnership has accrued. The ultimate
      resolution of this matter and its impact on the Partnership's financial
      statements is uncertain.



                                      31
<PAGE>
 
Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         ---------------------------------------------------------------
         FINANCIAL DISCLOSURE
         --------------------

     There have been no changes in accountants or disagreements with accountants
on any matter of accounting principles or practices on financial statement
disclosure or auditing scope or procedure.


                                    PART III
                                    --------

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The Partnership does not have directors or executive officers.  The general
partner of the Partnership's Managing General Partner and Associate General
Partner is BPL Holdings, Inc. (BPL Holdings), a Delaware corporation.  During
fiscal 1995, the ultimate parent company of BPL Holdings (Kemper Securities
Holdings, Inc.) experienced a change in ownership, whereby it became a wholly-
owned subsidiary of EVEREN Capital Corporation and changed its name to EVEREN
Securities Holdings, Inc. (ESHI).  EVEREN Securities, Inc. is a wholly-owned
subsidiary of ESHI.  These changes had no impact on the day-to-day operations
of BPL Holdings.   The following is a list of the directors and officers of BPL
Holdings.

                       Present Position and Principal Occupation and Affiliation
Name and Age           During the Last 5 years or More
-------------          ---------------------------------------------------------

Janet L. Reali         Director, President and Principal Executive Officer of
                       BPL Holdings, Inc.
Age:  45               Ms. Reali was elected Executive Vice President and
                       Secretary of EVEREN Capital Corporation in May 1995.
                       Since December 1993 she has been Executive Vice
                       President, Corporate Counsel and Corporate Secretary of
                       EVEREN Securities, Inc. She was became a Director and the
                       President of BPL Holdings, Inc. in May 1995. She was
                       Senior Vice President and Associate General Counsel of
                       EVEREN Securities, Inc. from July 1991 to December 1993.
                       Before joining EVEREN Securities, Inc. she was a partner
                       in the Chicago law firm of Keck, Mahin & Cate.

Stanley R. Fallis      Director of BPL Holdings, Inc.
Age: 55                Mr. Fallis graduated from the University of Idaho with a
                       BS degree in accounting. Mr. Fallis also obtained an MBA
                       degree from the University of Utah. Mr. Fallis is a
                       Certified Public Accountant and practiced public
                       accounting for six years. Mr. Fallis has been associated
                       with Boettcher & Co. for 18 years and is currently Senior
                       Executive Vice President and Chief Financial Officer as
                       well as Director of Administration of EVEREN Securities,
                       Inc.

                                      32
<PAGE>
 
Daniel D. Williams     Director and Vice President of BPL Holdings, Inc.
Age: 45                Mr. Williams became a Director and Vice President of BPL
                       Holdings, Inc. in May 1995. Mr. Williams was elected
                       Senior Executive Vice President, Treasurer and Chief
                       Financial Officer of EVEREN Capital Corporation in May
                       1995. Since April 1995 he has been Senior Executive Vice
                       President and Chief Financial Officer of EVEREN
                       Securities, Inc. From January 1994 to April 1995, Mr.
                       Williams was Executive Vice President and Director of
                       Finance and Administration and from January 1991 to
                       January 1994 he was Senior Vice President and Director of
                       Accounting of EVEREN Securities, Inc. Prior thereto, he
                       was Executive Vice President, Treasurer and Chief
                       Financial Officer of Boettcher & Co.

Kelly J. Stradinger    Vice President and Secretary of BPL Holdings, Inc.
Age: 37                Mr. Stradinger joined BPL in 1983 as Assistant Controller
                       for the syndicated public real estate partnerships. Mr.
                       Stradinger is currently in charge of asset management for
                       all syndicated partnerships where BPL or an affiliate is
                       the general partner. He is also a Vice President of
                       EVEREN Securities, Inc. and Director of Leasing for the
                       facilities management department. Mr. Stradinger
                       graduated from Western Michigan University with a
                       Bachelor of Business Administration in Accounting and
                       successfully completed the Certified Public Accountant
                       exam.

Thomas M. Mansheim     Director and Treasurer of BPL Holdings, Inc. (Principal 
Age: 39                Financial and Accounting Officer of the Partnership)
                       Mr. Mansheim joined BPL in 1984 and is currently a Senior
                       Vice President with EVEREN Securities, Inc. He became a
                       Director and the Treasurer of BPL Holdings, Inc. Mr.
                       Mansheim is a Certified Public Accountant and from 1980
                       to 1984 was employed with KPMG Peat Marwick. Mr. Mansheim
                       graduated from the University of Colorado with a Bachelor
                       of Science degree in business administration.

There is no family relationship among the officers or directors of BPL Holdings
or any of its affiliates.


                                      33
<PAGE>
 
Item 11.  EXECUTIVE COMPENSATION

     The Partnership, as an entity, does not have any directors or executive
officers. The information required by Item 402 of Regulation S-K relating to
amounts owed by the Partnership to the Managing General Partner and its
affiliates for services rendered during the fiscal year ended September 30, 1996
is presented below. Reference is also made to Note 4 to Financial Statements as
contained in Item 8 of this report for a description of related parties.
<TABLE>
<CAPTION>
 
                                                                                   Total
                          Capacities in Which             Cash         Deferral     Fees
Name of Entity          Compensation was Earned           Paid /(a)/   of Fees     Earned
--------------          -----------------------           ----         --------    ------
<S>                    <C>                               <C>           <C>        <C>
Boettcher
 Properties, Ltd.      Deferred Acquisition Fee          $     -        104,335   104,335
 
Boettcher
 Properties, Ltd.      Property Management Fee           $ 5,027          1,228     6,255
 
Boettcher              Reimbursement of direct general
 Properties, Ltd.       and administrative expenses      $14,300          8,640    22,940
</TABLE>
(a)  During the fiscal year ended September 30, 1996, the Partnership made cash
     payments to the Managing General Partner totaling $1,200,000 which were
     applied as follows:
<TABLE>
<CAPTION>

                                    Current         Prior
                                      Year          Years         Total
                                    -------      ----------    ----------
<S>                                 <C>          <C>           <C>
Deferred acquisition fee            $     -      $  990,406    $  990,406
Property management fee               5,027          15,033        20,060
Reimbursement of direct general
 and administrative expenses         14,300          23,148        37,448
Repayment of cash advances          118,441          33,645       152,086
                                   --------      ----------    ----------
                                   $137,768      $1,062,232    $1,200,000
                                   ========      ==========    ==========
</TABLE>

     No form of non-cash remuneration was paid by the Partnership. See Item 13
below with respect to a description of certain transactions of the General
Partners and their affiliates with the Partnership.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     To the knowledge of the Partnership, no person or group owns of record or
beneficially more than 5% of the outstanding Units.

     The Partnership has no directors or executive officers. To the knowledge of
the Partnership, no directors or officers of the Managing General Partner or its
affiliates own any Units. There exists no arrangement, known to the Partnership,
the operation of which may at a subsequent date result in a change in control of
the Partnership.

                                      34
<PAGE>
 
Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

     The Partnership has no directors or executive officers. The information
required by Item 404 of Regulation S-K is set forth in Item 11. Executive
Compensation as contained in this report.

     The Partnership has a Management Agreement with the Managing General
Partner pursuant to which the Managing General Partner is responsible for
performing the day-to-day investment and administrative operations of the
Partnership and supervising the management and operation of the Partnership's
properties. For such services and for services rendered in connection with the
acquisition of the Partnership's properties, the Managing General Partner is
entitled to receive annual fees comprised of a Deferred Acquisition Fee and a
Property Management Fee as more fully discussed in Note 4 to the Financial
Statements as contained in Item 8 of this report. The Managing General Partner
earns such fees for services provided to the Partnership pursuant to the
Management Agreement and not by reason of its Partnership interest. The Managing
General Partner earned a Deferred Acquisition Fee of $104,335 and a Property
Management Fee of $6,255 for the fiscal year ended September 30, 1996.

     Pursuant to the Partnership Agreement, the Managing General Partner may be
reimbursed by the Partnership for certain of its costs, including reimbursements
for its allocable share of salaries of nonmanagement and nonsupervisory
personnel providing accounting, investor reporting and communications and legal
services to the Partnership, and the maintenance and repair of data processing
equipment used for or by the Partnership. Pursuant to such provision, for
services provided during the fiscal year ended September 30, 1996, the Managing
General Partner is entitled to receive reimbursements aggregating $22,940.

     The Partnership Agreement provides for the net operating income or loss of
the Partnership to be allocated as follows: (i) to the limited partners to the
extent necessary to satisfy the 8% Current Distribution Preference, as defined
(an amount equal to 8% of the daily average aggregate adjusted capital
contributions of the limited partners) and (ii) 1% of the remainder to the
General Partners and 99% to the limited partners. Net operating losses are
allocated 1% to the General Partners and 99% to the limited partners.

     The Partnership Agreement provides for net capital income from the sale or
other disposition of Partnership properties to be allocated on a cumulative
basis as follows: (i) 1% to the General Partners and 99% to the limited partners
to the extent of depreciation deductions taken from the inception of the
partnership, (ii) to the limited partners to the extent necessary to satisfy the
Net Proceeds Distribution Preference, as defined (an amount equal to the sum of
limited partner capital contributions not yet returned and any unsatisfied 8%
current Distribution Preference from prior periods) and (iii) 25% of the
remainder to the General Partners and 75% to the limited partners. Net capital
loss is allocated 1% to the General Partners and 99% to the limited partners.

                                      35
<PAGE>
 
                                    PART IV
                                    -------

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

          (a)  (1)  Financial Statements

                    The following Financial Statements of the Partnership are
                    included herein:

                    Independent Auditors' Report

                    Balance Sheets - September 30, 1996 and 1995

                    Statements of Operations
                    Years ended September 30, 1996, 1995 and 1994

                    Statements of Partners' Capital (Deficit)
                    Years ended September 30, 1996, 1995 and 1994

                    Statements of Cash Flows
                    Years ended September 30, 1996, 1995 and 1994

                    Notes to Financial Statements

               (2)  Financial Statement Schedule

                    Independent Auditor's Report

                    Schedule-III Real Estate and Accumulated Depreciation as of
                    September 30, 1996-incorporated by reference to the
                    Registrant's Form 10-K for the year ended September 30, 1996
                    filed previously with the Commission.

                    Schedules, other than the one listed, are omitted for the
                    reason that they are inapplicable or equivalent information
                    has been included elsewhere herein.

          (b)  Reports on Form 8-K

               No reports on Form 8-K were filed by the Registrant during the
               last quarter of the fiscal year covered by this report.

                                      36
<PAGE>
 
     (c)  Exhibits

          Number    Exhibit
          ------    -------
          4         Limited Partnership Agreement of Registrant/(1)/

          10.1      Management Agreement/(1)/

          10.2      La Risa Apartments Purchase and Sale Agreement/(2)/

          10.3      Venetian Square Shopping Center Purchase and Sale Agreement
                    /(2)/

          10.4      Southcenter Office Building Purchase and Sale Agreement
                    /(2)/

          10.5      La Paz Apartments Purchase and Sale Agreement/(3)/

          10.6      Maryland Villa Apartments Purchase and Sale Agreement/(3)/

          10.7      Los Compadres Apartments Purchase and Sale Agreement/(3)/

          10.8      Loan Extension Agreement for Los Compadres Apartments dated
                    August 27, 1993/(5)/

          10.9      Letter Agreement for Loan Extension for Los Compadres
                    Apartments dated as of December 17, 1993/(5)/

          10.10     Loan Extension Agreement for La Paz Apartments dated August
                    27, 1993/(5)/

          10.11     Letter Agreement for Loan Extension for La Paz Apartments
                    dated as of December 17, 1993/(5)/

          10.12     Loan Extension Agreement for Maryland Villa Apartments dated
                    August 27, 1993/(5)/

          10.13     Letter Agreement for Loan Extension for Maryland Villa
                    Apartments dated as of December 17, 1993/(5)/

          10.14     Los Compadres Apartments Purchase and Sale Agreement dated
                    January 11, 1994/(6)/

          10.15     La Paz Apartments Purchase and Sale Agreement dated January
                    11, 1994/(6)/

          10.16     Maryland Villa Apartments Purchase and Sale Agreement dated
                    January 11, 1994 /(6)/

                                      37
<PAGE>
 
     (c)  Exhibits (continued)

          Number    Exhibit
          ------    -------

          10.17     First Amendment to Purchase and Sale Agreements for Los
                    Compadres, La Paz and Maryland Villa Apartments dated
                    February 18, 1994 /(6)/

          10.18     Loan extension agreement for Venetian Square Shopping Center
                    dated October 24, 1995 /(8)/

          27        Financial Data Schedule

          28.1      Complaint for Judicial Foreclosure of Mortgage Dated May 27,
                    1993 /(4)/

          28.2      Motion for Appointment of Receiver Dated May 27, 1993 /(4)/

          28.3      Objection to Order to Show Cause Dated June 3, 1993 /(4)/

          28.4      Order Appointing Receiver in Aid of Foreclosure Dated
                    June 7, 1993 /(4)/

          28.5      Motion for Order of Default, Order of Summary Judgment, and
                    Entry of Judgment of Foreclosure of Mortgage Dated August
                    10, 1993 /(5)/

          28.6      Second Extension and Modification Agreement dated December
                    28, 1994 /(7)/
 
          /(1)/     Incorporated by reference to Exhibit No. 3.1 and Exhibit 10
                    to Amendment No. 2 to Form S-11 Registration Statement filed
                    May 2, 1983 - File No. 2-82570.

          /(2)/     Incorporated by reference to Registrant's Reports on Form
                    8-K dated October 18, 1983, December 9, 1983 and April 27,
                    1984, respectively.

          /(3)/     Incorporated by reference to Registrant's Report on Form 8-K
                    dated October 16, 1984.

          /(4)/     Incorporated by reference to Registrant's Report on Form 8-K
                    dated June 7, 1993.

          /(5)/     Incorporated by reference to Registrant's Report on Form
                    10-K dated September 30, 1993.

          /(6)/     Incorporated by reference to Registrant's Report on Form 8-K
                    dated February 18, 1994.

          /(7)/     Incorporated by reference to Registrant's Report on Form
                    10-Q dated February 13, 1995.

          /(8)/     Incorporated by reference to Registrant's Report of Form
                    10-Q dated February 14, 1996.

                                      38
<PAGE>
 
                                  SIGNATURES

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

                                         BOETTCHER WESTERN PROPERTIES III LTD.
                                                   (Registrant)

                                         By:  Boettcher Properties, Ltd.,
                                               Managing General Partner

                                              By:  BPL Holdings, Inc.,
                                                    General Partner

                                                   By:  /s/ Thomas M. Mansheim
                                                        ----------------------
                                                        Treasurer

                                                        Dated:  May 16, 1997
                                                                ------------

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons (constituting a majority
of the Directors of the corporate general partner of the Registrant's Managing
General Partner) on the 16th day of May, 1997 in the capacities indicated below.

Name                                    Capacities
----                                    ----------

JANET L. REALI                          Director and President of BPL Holdings,
                                        Inc.; Principal Executive Officer of the
                                        Partnership


By:  /s/ Janet L. Reali                 Dated: May 16, 1997
     ---------------------                     ------------
     Janet L. Reali


DANIEL D. WILLIAMS                      Director and Vice President of BPL
                                        Holdings, Inc.


By:  /s/ Daniel D. Williams             Dated:  May 16, 1997
     ----------------------                     ------------
     Daniel D. Williams


THOMAS M. MANSHEIM                      Director and Treasurer of BPL Holdings,
                                        Inc.; Principal Financial and Accounting
                                        Officer of the Partnership

By:  /s/ Thomas M. Mansheim             Dated:  May 16, 1997
     ----------------------                     ------------
     Thomas M. Mansheim

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