##### Table of Contents



---

---

FORM 10-QSBQUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-QSB

(Mark One)



|[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2002



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

For the transition period from __________ to __________

Commission file number 0-10673

REAL ESTATE ASSOCIATES LIMITED III
(A California Limited Partnership)

|                                                                         |  |                                                
|------------------------------------------------------------------------ |  | -----------------------------------------------
|California
(State or other jurisdiction of
incorporation or organization |  | 95-3547611
(I.R.S. Employer
Identification No.)

9090 Wilshire Blvd., Suite 201,
Beverly Hills, California 90211
(Address of principal executive offices)

(310) 278-2191
(Issuers telephone number)

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



---

---



---

TABLE OF CONTENTS



|                           |                                                                                               |                                            |  |  |  |  |  | 
|-------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|                           |                                                                                               | BALANCE SHEET                             
|                           |                                                                                               | STATEMENTS OF OPERATIONS                  
|                           |                                                                                               | STATEMENT OF PARTNERS EQUITY (DEFICIENCY)
|                           |                                                                                               | STATEMENTS OF CASH FLOWS                  
|                           |                                                                                               | NOTES TO FINANCIAL STATEMENTS             
|                           | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART II. OTHER INFORMATION
|                           | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                           | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

INDEX TO FORM 10-QSB

FOR THE QUARTER ENDED MARCH 31, 2002

|         |  |                       |  |            |  |                                                                                       |    |                                                                               |    |  |   | 
|-------- |  | --------------------- |  | ---------- |  | ------------------------------------------------------------------------------------- | -- | ----------------------------------------------------------------------------- | -- |  | - | 
|        
|        
|        
|        
|        
|        
|        
|        
|PART I.  |  | FINANCIAL INFORMATION |  |            |  |                                                                                      
|        
|        
|        
|        
|        
|        
|        
|        
|         |  |                       |  | Item 1.    |  | Financial Statements                                                                  |    |                                                                               |    | 
|        
|        
|        
|        
|        
|        
|        
|        
|         |  |                       |  |            |  |                                                                                       |    | Balance Sheet,
March 31, 2002                                                 |    |  | 1 | 
|        
|        
|        
|        
|        
|        
|        
|        
|         |  |                       |  |            |  |                                                                                       |    | Statements of Operations,
Three Months Ended March 31, 2002 and 2001          |    |  | 2 | 
|        
|        
|        
|        
|        
|        
|        
|        
|         |  |                       |  |            |  |                                                                                       |    | Statement of Partners Equity (Deficiency),
Three Months Ended March 31, 2002 |    |  | 3 | 
|         |  |                       |  |            |  |                                                                                       |    | Statements of Cash Flows,
Three Months Ended March 31, 2002 and 2001          |    |  | 4 | 
|        
|        
|        
|        
|        
|        
|        
|        
|         |  |                       |  |            |  |                                                                                       |    | Notes to Financial Statements                                                 |    |  | 5 | 
|        
|        
|        
|        
|        
|        
|        
|        
|         |  |                       |  | Item 2.    |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations |    |                                                                               | 11 | 
|        
|        
|        
|        
|        
|        
|        
|        
|PART II. |  | OTHER INFORMATION     |  |            | 
|        
|        
|        
|        
|        
|        
|        
|        
|         |  |                       |  | Item 1.    |  | Legal Proceedings                                                                     |    |                                                                               | 13 | 
|        
|        
|        
|        
|        
|        
|        
|        
|         |  |                       |  | Item 6.    |  | Exhibits and Reports on Form 8-K                                                      |    |                                                                               | 14 | 
|        
|        
|        
|        
|        
|        
|        
|        
|         |  |                       |  | Signatures |  |                                                                                       | 15 |                                                                              



---



##### Table of Contents






REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

BALANCE SHEET

MARCH 31, 2002
(Unaudited)

ASSETS

|                                              |                  |                                                |              |                                        |        |           |           | 
|--------------------------------------------- | ---------------- | ---------------------------------------------- | ------------ | -------------------------------------- | ------ | --------- | --------- | 
|INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)  |                  | $                                              | 255,379      |                                       
|CASH AND CASH EQUIVALENTS (Note 1)            |                  |                                                | 2,124,216    |                                       
|                                              |                  |                                                |              |                                       
|                                              |                  |                                                | TOTAL ASSETS |                                        | $      | 2,379,595 |          
|                                              |                  |                                                |              |                                       
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|LIABILITIES AND PARTNERS EQUITY             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|                                             
|LIABILITIES:                                  |                  |                                                |              |                                       
|                                              |                  | Accounts payable (Note 2)                      |              | $                                      | 74,316 |          
|                                              |                  | Fees and expenses due general partner (Note 3) |              |                                        | 4,750  |          
|                                              |                  |                                                |              |                                       
|                                              |                  |                                                | 79,066       |                                       
|COMMITMENTS AND CONTINGENCIES (Notes 3 and 4) |                  |                                                |              |                                       
|PARTNERS EQUITY (DEFICIENCY):                |                  |                                                |              |                                       
|                                              | General partners |                                                |              | (145,971                               | )     
|                                              | Limited partners |                                                |              | 2,446,500                              |       
|                                              |                  |                                                |              |                                       
|                                              |                  |                                                | 2,300,529    |                                       
|                                              |                  |                                                |              |                                       
|                                              |                  |                                                |              | TOTAL LIABILITIES AND PARTNERS
EQUITY |        | $         | 2,379,595 | 
|                                              |                  |                                                |              |                                       

The accompanying notes are integral part of these financial statements.



1



---



##### Table of Contents






REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Unaudited)

|                                                                                               |                                            |                          |          |        |         |      |        |        |        | 
|---------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------ | -------- | ------ | ------- | ---- | ------ | ------ | ------ | 
|                                                                                               |                                            |                          |          | 2002   |         | 2001
|                                                                                               |                                            |                          |          |        |         |     
|INTEREST AND OTHER INCOME                                                                      |                                            | $                        | 7,354    |        |         | $    | 69,078 |       
|                                                                                               |                                            |                          |          |        |         |      |        |       
|OPERATING EXPENSES:                                                                            |                                            |                          |          |        |         |      |        |       
|                                                                                               | Legal and accounting                       |                          |          | 33,142 |         |      |        | 16,300 |       
|                                                                                               | Management fees - general partner (Note 3) |                          |          | 32,323 |         |      |        | 32,323 |       
|                                                                                               | Administrative (Note 3)                    |                          |          | 39,915 |         |      |        | 10,362 |       
|                                                                                               |                                            |                          |          |        |         |      |        |       
|                                                                                               |                                            | Total operating expenses |          |        | 105,380 |      |        |        | 58,985 | 
|                                                                                               |                                            |                          |          |        |         |      |        |       
|(LOSS) INCOME FROM OPERATIONS                                                                  |                                            |                          | (98,026  | )      |         |      | 10,093 |       
|DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2)                          |                                            |                          | 33,903   |        |         |      | 21,925 |       
|EQUITY IN (LOSS) INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) |                                            |                          | (154,621 | )      |         |      | 53,000 |       
|                                                                                               |                                            |                          |          |        |         |      |        |       
|NET (LOSS) INCOME                                                                              |                                            | $                        | (218,744 | )      |         | $    | 85,018 |       
|                                                                                               |                                            |                          |          |        |         |      |        |       
|NET (LOSS) INCOME PER LIMITED PARTNERSHIP
INTEREST (Note 1)                                    |                                            | $                        | (19      | )      |         | $    | 7      |       
|                                                                                               |                                            |                          |          |        |         |      |        |       

The accompanying notes are integral part of these financial statements.



2



---



##### Table of Contents






REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

STATEMENT OF PARTNERS EQUITY (DEFICIENCY)
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(Unaudited)

|                                    |                                                    |   |          |        |          |   |           |          |   |   |           |          |  
|----------------------------------- | -------------------------------------------------- | - | -------- | ------ | -------- | - | --------- | -------- | - | - | --------- | -------- | -
|                                    |                                                    |   | General  |        | Limited  |   |           |          |  
|                                    |                                                    |   | Partners |        | Partners |   | Total    
|                                    |                                                    |   |          |        |          |   |          
|PARTNERSHIP INTERESTS               |                                                    |   |          |        |          |   | 11,456    |          |   |   |           |         
|                                    |                                                    |   |          |        |          |   |           |          |   |   |           |         
|EQUITY (DEFICIENCY),                |                                                    | $ | (143,784 | )      |          | $ | 2,663,057 |          |   | $ | 2,519,273 |         
|                                    | January 1, 2002                                    |   |          |        |          |   |           |          |   |   |           |          |  
|                                    | Net loss for the three months
ended March 31, 2002 |   |          | (2,187 | )        |   |           | (216,557 | ) |   |           | (218,744 | )
|                                    |                                                    |   |          |        |          |   |           |          |   |   |           |         
|EQUITY (DEFICIENCY),
March 31, 2002 |                                                    | $ | (145,971 | )      |          | $ | 2,446,500 |          |   | $ | 2,300,529 |         
|                                    |                                                    |   |          |        |          |   |           |          |   |   |           |         

The accompanying notes are integral part of these financial statements.



3



---



##### Table of Contents






REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Unaudited)

|                                                     |                                                                                                    |                                                                                       |                                                     |          |         |         |           |        |         |        | 
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------- | -------- | ------- | ------- | --------- | ------ | ------- | ------ | 
|                                                     |                                                                                                    |                                                                                       |                                                     |          | 2002    |         | 2001     
|                                                     |                                                                                                    |                                                                                       |                                                     |          |         |         |          
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                                    |                                                                                       |                                                     |          |         |         |           |       
|                                                     | Net (loss) income                                                                                  |                                                                                       | $                                                   | (218,744 | )       |         | $         | 85,018 |        
|                                                     | Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities: |                                                                                       |                                                     |          |         |         |           |        |        
|                                                     |                                                                                                    | Equity in (loss) income of limited partnerships and
amortization of acquisition costs |                                                     |          | 154,621 |         |           |        | (53,000 | )     
|                                                     |                                                                                                    | Decrease in interest and other payables                                               |                                                     |          |        |         |           |        | (7,365  | )     
|                                                     |                                                                                                    | Increase in accounts payables                                                         |                                                     |          | 9,858   |         |           |        |         |       
|                                                     |                                                                                                    | Increase in fees and expenses due general partner                                     |                                                     |          | 250     |         |           |        |        |       
|                                                     |                                                                                                    |                                                                                       |                                                     |          |         |         |           |       
|                                                     |                                                                                                    |                                                                                       | Net cash (used in) provided by operating activities |          |         | (54,015 | )         |        |         | 24,653 | 
|                                                     |                                                                                                    |                                                                                       |                                                     |          |         |         |           |       
|NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS |                                                                                                    |                                                                                       | (54,015                                             | )        |         |         | 24,653    |       
|CASH AND CASH EQUIVALENTS, beginning of period       |                                                                                                    |                                                                                       | 2,178,231                                           |          |         |         | 5,655,763 |       
|                                                     |                                                                                                    |                                                                                       |                                                     |          |         |         |           |       
|CASH AND CASH EQUIVALENTS, end of period             |                                                                                                    | $                                                                                     | 2,124,216                                           |          |         | $       | 5,680,416 |       
|                                                     |                                                                                                    |                                                                                       |                                                     |          |         |         |           |       

The accompanying notes are integral part of these financial statements.



4



---



##### Table of Contents






REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual audited
financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements and
related notes thereto contained in the Real Estate Associates Limited III
(the Partnership) annual report for the year ended December 31, 2001.
Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim period presented are not necessarily indicative of the results for
the entire year.

In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position as
of March 31, 2002 and the results of operations and changes in cash flows
for the three months then ended.

The general partners have a 1 percent interest in profits and losses of
the Partnership. The limited partners have the remaining 99 percent
interest which is allocated in proportion to their respective individual
investments. National Partnership Investments Corp. (NAPICO) is the
managing general partner of the Partnership. Prior to March 11, 2002,
Casden Properties Inc. owned a 95.25% economic interest in NAPICO, with
the balance owned by Casden Investment Corporation (CIC). CIC, which is
wholly owned by Alan I. Casden, owned 95% of the voting common stock of
NAPICO prior to March 11, 2002.

On December 3, 2001, Casden Properties Inc., entered into a merger
agreement and certain other transaction documents with Apartment
Investment and Management Company, a Maryland corporation (AIMCO) and
certain of its subsidiaries, pursuant to which, on March 11, 2002, AIMCO
acquired Casden Properties Inc. and its subsidiaries, including NAPICO.

Basis of Presentation

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

Recent Accounting Pronouncements

In July 2001, Statement of Financial Accounting Standards Number (SFAS
No.) 141, Business Combinations and SFAS No. 142, Goodwill and Other
Intangible Assets were issued. SFAS No. 141 was effective immediately
and SFAS 142 was effective January 2002. In June 2001, SFAS No. 143,
Accounting for Asset Retirement Obligations was issued. In August 2001,
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets was issued. The new standards are not expected to have a
significant impact on the Partnerships financial statements.



5



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates

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

Method of Accounting for Investment in Limited Partnerships

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

Net (Loss) Income Per Limited Partnership Interest

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

Cash and Cash Equivalents

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

Income Taxes

No provision has been made for income taxes in the accompanying financial
statements since such taxes, if any, are the liability of the individual
partners

Impairment of Long-Lived Assets

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



6



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS

As of March 31, 2002, the Partnership holds limited partnership interests
in 12 limited partnerships. The limited partnerships as of March 31, 2002
own residential low income rental projects consisting of 1,181 apartment
units. The mortgage loans of these projects are payable to or insured by
various governmental agencies.

The Partnership, as a limited partner, is entitled to between 94.9 percent
and 99 percent of the profits and losses of the limited partnerships it
has invested in directly. The Partnership is also entitled to 99.9
percent of the profits and losses of REA. REA holds a 99 percent interest
in the limited partnership in which it has invested.

Equity in losses of limited partnerships is recognized in the financial
statements until the limited partnership investment account is reduced to
a zero balance. Losses incurred after the limited partnership investment
account is reduced to zero are not recognized. The cumulative amount of
the unrecognized equity in losses of certain limited partnerships was in
the aggregate approximately $18,378,000 as of March 31, 2002.

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

The following is a summary of the investment in limited partnerships for
the three months ended March 31, 2002:

|                                         |  |   |          |  
|---------------------------------------- |  | - | -------- | -
|Balance, beginning of period             |  | $ | 410,000  |  
|Amortization of acquisitions costs       |  |   | (555     | )
|Equity in income of limited partnerships |  |   | (154,066 | )
|                                         |  |   |          |  
|Balance, end of period                   |  | $ | 255,379  |  
|                                         |  |   |          |  



7



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)

The following are unaudited combined estimated statements of operations
for the three months ended March 31, 2002 and 2001 for the limited
partnerships in which the Partnership has investments:

|         |                  |   |                |           |                |   |           |           | 
|-------- | ---------------- | - | -------------- | --------- | -------------- | - | --------- | --------- | 
|         |                  |   | Three months   |           | Three months  
|         |                  |   | ended          |           | ended         
|         |                  |   | March 31, 2002 |           | March 31, 2001
|         |                  |   |                |           |               
|Revenues |                  |   |                |           |                |   |           |          
|         | Rental and other |   | $              | 1,681,000 |                |   | $         | 1,646,000 | 
|         |                  |   |                |           |                |   |           |          
|Expenses |                  |   |                |           |                |   |           |          
|         | Depreciation     |   |                | 273,000   |                |   |           | 320,000   | 
|         | Interest         |   |                | 367,000   |                |   |           | 450,000   | 
|         | Operating        |   |                | 1,384,000 |                |   |           | 1,003,000 | 
|         |                  |   |                |           |                |   |           |          
|         |                  |   | 2,024,000      |           |                |   | 1,773,000 |          
|         |                  |   |                |           |                |   |           |          
|Net loss |                  | $ | (343,000       | )         |                | $ | (127,000  | )        
|         |                  |   |                |           |                |   |           |          

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



8



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)

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

NOTE 3 - MANAGEMENT FEE AND EXPENSES DUE TO GENERAL PARTNER

Under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to NAPICO for an annual
management fee approximately equal to .4 percent of the invested assets.
Invested assets are defined as the costs of acquiring project interests,
including the proportionate amount of the mortgage loans related to the
Partnerships interests in the capital accounts of the respective
partnership. The management fee incurred for the three months ended March
31, 2002 and 2001 was $32,323.

The Partnership reimburses NAPICO for certain expenses. The reimbursement
paid to NAPICO was approximately $3,561 and $3,600 for the three months
ended March 31, 2002 and 2001, respectively, and is included in
administrative expenses.

NOTE 4 - CONTINGENCIES

On August 27, 1998, two investors holding an aggregate of eight units of
limited partnership interests in the Partnership and two investors holding
an aggregate of five units of limited partnership interest in Real Estate
Associates Limited VI (another affiliated partnership in which NAPICO is
the managing general partner) commenced an action in the United States
District Court for the Central District of California against the
Partnership, NAPICO and certain other affiliated entities. The complaint
alleges that the defendants breached their fiduciary duty to the limited
partners of certain
NAPICO managed partnerships and made materially false and misleading
statements in the consent solicitation statements sent to the limited
partners of such partnerships relating to approval of the transfer of
partnership interests in limited partnerships, owning certain of the
properties, to affiliates of Casden Properties Inc., organized by an
affiliate of NAPICO. The plaintiffs seek equitable relief, as well as
compensatory damages and litigation related costs. On August 4, 1999, one
investor holding one unit of limited partnership interest in Housing
Programs Limited (another affiliated partnership in which NAPICO is the
managing general partner) commenced a virtually identical action in the
United States District Court for the Central District of California
against the Partnership, NAPICO and certain other affiliated entities.
The second action has been subsumed in the first action, which has been
certified as a class action. On August 21, 2001, plaintiffs filed a
supplemental complaint, which added new claims, including for a recission
of the transfer of partnership interests and an accounting. Trial is
scheduled for July 16, 2002. The managing general partner of such NAPICO
managed partnerships and the other defendants believe that the plaintiffs
claims are without merit and intend to contest the actions vigorously.



9



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

NOTES TO FINANCIAL STATEMENTS (Continued)

MARCH 31, 2002

NOTE 4 - CONTINGENCIES (Continued)

The managing general partner of the Partnership is involved in various
lawsuits arising from transactions in the ordinary course of business. In
the opinion of management and the corporate general partner, the claims
will not result in any material liability to the Partnership.

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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



10



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

MARCH 31, 2002






|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Liquidity and Capital Resources

The Partnerships primary sources of funds include interest income earned
from investing available cash and distributions from limited partnerships
in which the Partnership has invested. It is not expected that any of the
local limited partnerships in which the Partnership has invested will
generate cash flow sufficient to provide for distributions to limited
partners in any material amount. The Partnership made a distribution to
investors in March 12, 1999, primarily using proceeds from the disposition
of its investments in certain limited partnerships. In addition, the
Partnership made a distribution to investors in 2001, from cash on hand.

Results of Operations

Partnership revenues consist primarily of interest income earned on
certificates of deposit and other temporary investment of funds not
required for investment in local partnerships.

Operating expenses consist primarily of recurring general and
administrative expenses and professional fees for services rendered to the
Partnership. In addition, an annual Partnership management fee in an
amount equal to .4 percent of investment assets is payable to the managing
general partner.

The Partnership accounts for its investments in the local limited
partnerships on the equity method, thereby adjusting its investment
balance by its proportionate share of the income or loss of the local
limited partnerships. Losses incurred after the limited partnership
investment account is reduced to zero are not recognized in accordance
with the equity accounting method.

Distributions received from limited partnerships are recognized as return
of capital until the investment balance has been reduced to zero or to a
negative amount equal to future capital contributions required.
Subsequent distributions received are recognized as income. Overall
distributions from limited partnerships continue to be favorable. This
primarily is due, to improved operating results at several of the
properties.

Except for certificates of deposit and money market funds, the
Partnerships investments are entirely interests in other limited
partnerships owning government assisted projects. Funds temporarily not
required for such investments in projects are invested in certificate of
deposit and money market funds which provide substantial amounts of
interest as reflected in the statement of operations. These investments
are converted to cash to meet obligations as they arise. The Partnership
intends to continue investing available funds in this manner.

Under recent adopted law and policy, the United States Department of Housing
and Urban Development (HUD) has determined not to renew the Housing
Assistance Payment (HAP) Contracts on a long term basis on the existing
terms. In connection with renewals of the HAP Contracts under such new law and
policy, the amount of rental assistance payments under renewed HAP Contracts
will be based on market rentals instead of above market rentals, which was
generally the case under existing HAP Contracts. The payments under the
renewed HAP Contracts may not



11



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

MARCH 31, 2002



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
|------- | -------------------------------------------------------------------------------------------------

Results of Operations (Continued)

be in an amount that would provide sufficient cash flow to permit owners
of properties subject to HAP Contracts to meet the debt service
requirements of existing loans insured by the Federal Housing
Administration of HUD (FHA) unless such mortgage loans are restructured.
In order to address the reduction in payments under HAP Contracts as a
result of this new policy, the Multi-family Assisted Housing Reform and
Affordability Act of 1997 (MAHRAA) provides for the restructuring of
mortgage loans insured by the FHA with respect to properties subject to
the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be
restructured into a first mortgage loan which will be amortized on a
current basis and a low interest second mortgage loan payable to FHA which
will only be payable on maturity of the first mortgage loan. This
restructuring results in a reduction in annual debt service payable by the
owner of the FHA-insured mortgage loan and is expected to result in an
insurance payment from FHA to the holder of the FHA-insured loan due to
the reduction in the principal amount. MAHRAA also phases out
project-based subsidies on selected properties serving families not
located in rental markets with limited supply, converting such subsidies
to a tenant-based subsidy.

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



12



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

MARCH 31, 2002




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

On August 27, 1998, two investors holding an aggregate of eight units of
limited partnership interests in the Partnership and two investors holding an
aggregate of five units of limited partnership interest in Real Estate
Associates Limited VI (another affiliated partnership in which NAPICO is the
managing general partner) commenced an action in the United States District
Court for the Central District of California against the Partnership, NAPICO
and certain other affiliated entities. The complaint alleges that the
defendants breached their fiduciary duty to the limited partners of certain
NAPICO managed partnerships and made materially false and misleading statements
in the consent solicitation statements sent to the limited partners of such
partnerships relating to approval of the transfer of partnership interests in
limited partnerships, owning certain of the properties, to affiliates of Casden
Properties Inc., organized by an affiliate of NAPICO. The plaintiffs seek
equitable relief, as well as compensatory damages and litigation related costs.
On August 4, 1999, one investor holding one unit of limited partnership
interest in Housing Programs Limited (another affiliated partnership in which
NAPICO is the managing general partner) commenced a virtually identical action
in the United States District Court for the Central District of California
against the Partnership, NAPICO and certain other affiliated entities. The
second action has been subsumed in the first action, which has been certified
as a class action. On August 21, 2001, plaintiffs filed a supplemental
complaint, which added new claims, including for a recission of the transfer of
partnership interests and an accounting. Trial is scheduled for July 16, 2002.

The Partnership and NAPICO filed a lawsuit in 2001 against certain defendants
for damages, injunctive and declaratory relief for a materially false and
misleading proxy solicitation. Defendants disseminated the proxy solicitation
to the limited partners of the Partnership seeking their consent to (i) remove
the general partners of the Partnership, (ii) elect a new general partner,
(iii) analyze the possible disposition of the Partnership assets, (iv)
distribute the Partnerships cash reserves, (v) investigate alleged claims
against the general partners of the Partnership and (vi) reduce management
fees. The complaint contains causes of action for violations of securities
regulations. The action has been stayed pending the outcome of the proxy
solicitation. The proxy solicitation terminated March 31, 2002. The outcome
of the proxy solicitation has no yet been finalized, however, the managing
general partner does not believe it will result in any material changes.

Plaintiff, who is a limited partner in the Partnership filed a lawsuit in 2001,
which claims that NAPICO and other defendants (1) have refused to provide the
plaintiff with access to the books and records of the Partnership, and (2) have
breached their fiduciary duties and the partnership agreement by failing to
provide such access and by failing to act in the best interest of the
Partnership. The defendants have, however, provided their books and records to
plaintiff pursuant to a protective order. Plaintiff has failed to quantify its
purported damages. Trial is schedule for August 13, 2002.

The managing general partner of such NAPICO managed partnerships and the other
defendants believe that the plaintiffs claims are without merit and intend to
contest the actions vigorously.

The managing general partner is involved in various lawsuits. None of these
are related to REAL III.



13



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

MARCH 31, 2002




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | No exhibits are required per the provision of Item 6 of
regulation S-B and no reports on Form 8-K were filed during the
quarter ended March 31, 2002.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



14



---



##### Table of Contents



REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)

MARCH 31, 2002




SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

| |                                                                      |                                                        
| | -------------------------------------------------------------------- | -------------------------------------------------------
| | REAL ESTATE ASSOCIATES LIMITED III(a California limited partnership)
|
| | By:                                                                  | National Partnership Investments Corp.,
General Partner
|
| | By:                                                                  | /s/   Peter Kompaniez                                  
| |                                                                     
| | Peter Kompaniez
President                                           
|
| | Date:                                                                | May 15, 2002                                           
| |                                                                     
|
| | By:                                                                  | /s/   Brian H. Shuman                                  
| |                                                                     
| | Brian H. Shuman
Chief Financial Officer                             
|
| | Date:                                                                | May 15, 2002                                           
| |                                                                     



15