<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                Annual Report Pursuant to Section 13 or 15(d) of
                         Securities Exchange Act of 1934

                                                                Commission  File
For the year ended December 31, 1998                             Number  2-81033
                   -----------------                                     -------


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
       (Exact name of small business issuer as specified in its charter)

        Maryland                                               04-2782016
-----------------------                               --------------------------
(State of Organization)                               (I.R.S. Employer I.D. No.)

5 Cambridge Center, 9th Floor, Cambridge, Massachusetts           02142
--------------------------------------------------------------------------------
      (Address of principal executive offices)                 (Zip  Code)

Registrant's telephone number including area code:               (617) 234-3000
                                                                 --------------


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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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-KSB or any amendment to
this Form 10-KSB. [ ]

Registrant's revenues for its most recent fiscal year were $1,292,000.

No market exists for the limited partnership interests of the Registrant, and
therefore, no aggregate market value can be computed.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


<PAGE>



                                     PART I

Item 1.  Description of Business.

Development

         Winthrop Residential Associates III ("WRA III"), a limited partnership,
was originally organized under the Uniform Limited Partnership Act of the State
of Maryland on June 28, 1982, for the purpose of investing, as a limited
partner, in other limited partnerships which would develop, manage, own, operate
and otherwise deal with apartment complexes which would be assisted by federal,
state and local government agencies ("Local Limited Partnerships") pursuant to
programs which would not significantly restrict distributions to owners or the
rates of return on investments in such complexes. On December 15, 1982, WRA III
elected to comply with and be governed by the Maryland Revised Uniform Limited
Partnership Act (the "Act") and filed its Agreement and Certificate of Limited
Partnership (the "Partnership Agreement") with the Maryland State Department of
Assessments and Taxation. In accordance with, and upon filing its certificate of
Limited Partnership pursuant to, the Act, WRA III changed its name to Winthrop
Residential Associates III, A Limited Partnership (the "Partnership").

         The General Partners of the Partnership are Two Winthrop Properties,
Inc. ("Two Winthrop") and Linnaeus-Oxford Associates Limited Partnership
("Linnaeus-Oxford"). The Initial Limited Partner is WFC Realty Co., Inc.
("WFC"). Two Winthrop and WFC are Massachusetts corporations which are wholly
owned subsidiaries of First Winthrop Corporation ("First Winthrop"), a Delaware
corporation, which in turn is wholly-owned by Winthrop Financial Associates, A
Limited Partnership ("WFA"), a Maryland limited partnership. Linnaeus-Oxford is
a Massachusetts limited partnership. Two Winthrop is the Partnership's Managing
General Partner. See "Employees" below.

         In 1983, the Partnership sold, pursuant to a Registration Statement
filed with the Securities and Exchange Commission, 25,000 Units of limited
partnership interest ("Units") at a purchase price of $1,000 per Unit (an
aggregate of $25,000,000). Capital contributions net of selling commissions,
sales and registration costs, were utilized to purchase investments in Local
Limited Partnerships and temporary short-term investments.

         The Partnership invests as a limited partner in other limited
partnerships that own, operate and otherwise deal with apartment properties with
original financing insured by the U.S. Department of Housing and Urban
Development ("HUD").


                                       2
<PAGE>

Local Limited Partnerships

         The Partnership initially acquired equity interests in the form of
limited partnership interests in 12 Local Limited Partnerships owning and
operating apartment properties. The Partnership continues to hold an interest in
7 Local Limited Partnerships. In addition, the Partnership reduced its residual
interest in two Local Limited Partnerships, those owning Maple Manor and The
Groves, during 1988 to 50%. See Item 2, "Description of Properties" for
information relating to the Local Limited Partnerships' properties.

Defaults

         The Partnership holds limited partnership interests in Local Limited
Partnerships which own apartment properties, all of which were originally
financed with HUD-insured first mortgages. If a Local Limited Partnership
defaults on a HUD-insured mortgage, the mortgagee can assign the defaulted
mortgage to HUD and recover the principal owed on its first mortgage from HUD.
HUD, in its discretion, may then either (i) negotiate a workout agreement with
the Local Limited Partnership, (ii) sell the mortgage to another lender, or
(iii) pursue its right to transfer the ownership of the property from the Local
Limited Partnership to HUD or a new lender if HUD sells its mortgage
(collectively, the "Lender") through a foreclosure action. The objective of a
workout agreement between an owner and the Lender is to secure the Lender`s
sanction of a plan which, over time, will cure any mortgage delinquencies. While
a workout agreement is effective and its terms are being met, the Lender agrees
not to pursue any remedies available to it as a result of the default. If the
owner does default under the terms of the workout agreement or if the Lender
concludes that a property in default lacks the ability to generate sufficient
revenue to cure its default, it may pursue its right to assume ownership of the
property through foreclosure.

         Dunhaven Apartments, Section 2 Phase 2 - The loan encumbering this
property is currently in default. The Partnership was unable to successfully
complete negotiations with the general partner of the Local Limited Partnership
pursuant to which the Partnership, or an affiliate of the Partnership, would be
appointed as general partner of the Local Limited Partnership and the
Partnership, or its affiliate, would have satisfied the default on the loan. On
February 27, 1998 and November 18, 1998, the Partnership received a notice of
foreclosure from HUD. The current default is approximately $138,000. It is
currently anticipated that the property will be lost through foreclosure in
1999.

         Clear Creek - The loan encumbering Clear Creek was in default and was
operating under a Provisional Workout Agreement 


                                       3
<PAGE>

with HUD. HUD sold the mortgage and under the terms of the Agreement, the new
lender had the option to terminate such agreement on November 1, 1996. In order
to reinstate the loan to current status and to protect the Partnership's
interest in the property, in October 1996 the Partnership loaned approximately
$412,000 to the Local Limited Partnership which owns Clear Creek. In connection
with this loan, the interests of the general partners in the Local Limited
Partnership owning Clear Creek were converted into Class B Limited Partner
interests and an affiliate of the Partnership was appointed as the general
partner of Clear Creek, Ltd.

Employees

         The Partnership does not have any employees. Services are performed for
the Partnership by the Managing General Partner, and agents retained by it.

         On December 16, 1997, the Managing General Partner and certain of its
affiliates entered into a Services Agreement with Coordinated Services of
Valdosta, LLC ("Coordinated Services"), the general partner of the Local Limited
Partnerships which own The Groves and Maple Manor Apartments, pursuant to which
Coordinated Services was retained to provide asset management and investor
services to the Partnership and certain affiliated partnerships. As a result of
this agreement, Coordinated Services has the right to direct the day to day
affairs of the Partnership, including, without limitation, reviewing and
analyzing potential sale, refinancing or restructuring proposals by Local
Limited Partnerships, preparation of all Partnership reports, maintaining
Partnership records and maintaining bank accounts of the Partnership.
Coordinated Services is not permitted, however, without the consent of the
Managing General Partner, or as otherwise required under the terms of the
Partnership's Agreement of Limited Partnership (the "Partnership Agreement") to,
among other things, cause the Partnership to consent to a sale of an asset or
cause the Partnership to file for bankruptcy. As compensation for providing
these services, the Managing General Partner and its affiliates assigned to
Coordinated Services all of their right to receive fees from the Partnership as
provided in the Partnership Agreement. See "Item 12., Certain Relationships and
Related Transactions."


                                       4
<PAGE>

Item 2.  Description of Properties.

         The following table sets forth certain information regarding the
properties owned by the seven Local Limited Partnerships in which the
Partnership has retained an interest and which continue to own apartment
properties as of March 15, 1999:

<TABLE>
<CAPTION>
                                             Date of                  Number of
Property Name              Location          Acquisition(1)           Units
-------------              --------          --------------           ---------
<S>                        <C>               <C>                      <C>
Clear Creek Landing        Houston, TX          4-28-83                 200
Apartments

Village Square             Manassas, VA         4-28-83                 285
Apartments

Dunhaven Apartments,       Baltimore, MD        6-24-83                  72
Section 2, Phase 1

Dunhaven Apartments,       Baltimore, MD        6-24-83                  72
Section 2, Phase 2

The Groves Apartments      North Augusta, SC    7-29-83                 132

Autumn Chase               Mobile, AL           9-19-83                 120
Apartments

Maple Manor                Fayetteville, AR    10-30-83                 128
Apartments

</TABLE>


--------------------
(1) Represents the date on which the Partnership made its initial investment in
the Local Limited Partnership

         The following table sets forth information relating to the first
mortgage encumbering each of the Local Limited Partnership's properties:


                      Principal                                        Principal
                     Balance at                                        Balance
                    December 31,   Interest   Period       Maturity    Due at
Property                1998         Rate    Amortized       Date      Maturity
--------            ------------   --------  ---------     ---------   ---------

Clear Creek          $2,532,585      7.5%    36 years      10/1/2018     (1)

Village Square       $6,753,859      7.5%    38 years       9/1/2020     (1)

Dunhaven
 Apartments,
 Section 2, Phase 1  $2,090,149      7.5%    36 years       2/1/2022     (1)

Dunhaven
 Apartments,
 Section 2, Phase 2  $2,516,765      7.5%    40 years       2/1/2022     (1)

The Groves           $1,907,472      7.5%    36 years       2/1/2019     (1)
 Apartments

Autumn Chase         $3,072,516      7.5%    40 years      11/1/2024     (1)

Maple Manor          $1,843,556      7.08%   10 years       7/1/2008  $1,630,000

(1)  Loan is a self-amortizing loan.

      On June 16, 1998, Fayettville Apartments Limited Partnership, one of the
Local Limited Partnerships in which the Partnership 


                                       5
<PAGE>

has an equity interest, refinanced its mortgage. The new mortgage in the amount
of $1,850,000 replaced indebtedness of approximately $1,217,000. The mortgage
bears interest at 7.08%, requires monthly payments of approximately $12,000 and
matures on July 1, 2008, with a balloon payment of approximately $1,630,000.
During September 1998, the Local Limited Partnership distributed $250,000 of
refinancing proceeds to the Partnership. The Partnership distributed the
proceeds during the first quarter of 1999.

      The following table sets forth the Partnership's ownership interest in
each of the Local Limited Partnerships:

       Local Limited Partnership             Ownership Interest
       -------------------------             ------------------

Clear Creek Landing Apartments                       88.5%
Village Square Apartments                            50%
Dunhaven Apartments,
 Section 2, Phase 1                                  95%
Dunhaven Apartments,
 Section 2, Phase 2                                  92%
The Groves Apartments                                50%
Autumn Chase Apartments                              99%
Maple Manor Apartments                               50%

      The following chart provides comparative data for each property owned by
the Local Limited Partnerships regarding occupancy rates and average market
rental rates per apartment unit, for the last two years, where that data is
available to the Partnership:

                                                               Average Monthly 
                                     Average Monthly               Rental
                                      Occupancy Rate            Rate per Unit
                                      --------------            -------------
           Property                 1998         1997          1998         1997
           --------                 ----         ----          ----         ----

Clear Creek Landing                  92%         90.1%         $518         $496
Village Square                       94%         93.4%         $679         $672
Dunhaven  Apartments, Section        96%         89.6%         $577         $565
2, Phase 1
Dunhaven  Apartments, Section        73%         83.6%         $593         $569
2, Phase 2
The Groves                           88%         83.7%         $433         $395
Autumn Chase                         95%         96.6%         $454         $450
Maple Manor                          92%         96.3%         $679         $358


                                       6
<PAGE>

         Set forth below is a table showing the gross carrying value and
accumulated depreciation and federal tax basis of each of the Partnership's
properties as of December 31, 1998 (in thousands):

<TABLE>
<CAPTION>
           Property               Gross                                                            Federal
                                Carrying       Accumulated                                           Tax
                                  Value        Depreciation              Rate           Method      Basis
                                  -----        ------------              ----           ------      -----
<S>                              <C>             <C>                   <C>              <C>        <C>
Clear Creek Landing              $4,974          $(2,884)              3-25 yrs.           S/L      $  500
Village Square                    8,993           (6,470)              5-39 yrs.           S/L       2,157
Dunhaven  Apartments,             2,235           (1,524)              5-33.3 yrs.       S/L,DD        728
Section  2, Phase 1

Dunhaven  Apartments,             2,487           (1,431)              5-33.3 yrs.       S/L,DD      1,106
Section 2, Phase 2
The Groves                        3,361           (2,038)              10-25 yrs.          S/L         167
Autumn Chase                      3,460           (1,953)              7-30 yrs.           S/L         305
Maple Manor                       2,810           (1,662)              10-25 yrs.          S/L         164

</TABLE>

Item 3.  Legal Proceedings.

         The Partnership is not a party, nor to the Partnership's knowledge are
any of the Local Limited Partnerships, subject to any material pending legal
proceedings.

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

         No matter was submitted to a vote of security holders during the period
covered by this report.


                                       7
<PAGE>

                                     PART II

Item 5.  Market for the Registrant's Common Stock and Related
         Stockholders Matters.

         The Partnership is a partnership and thus has no common stock. There is
no active market for the Units. Trading in the Units is sporadic and occurs
solely through private transactions.

         As of March 15, 1999, there were 2,206 holders of the 25,000 Units.

         The Partnership Agreement requires that if the Partnership has Cash
Available for Distribution it be distributed quarterly to the Partners in
specified proportions. The Partnership Agreement defines Cash Available for
Distribution as Cash Flow less cash designated by the Managing General Partner
to be held for restoration or creation of reserves. Cash Flow, in turn, is
defined as cash derived from the Local Limited Partnerships (but excluding sale
or refinancing proceeds) and all cash derived from Partnership operations, less
cash used to pay operating expenses of the Partnership. During the years ended
December 31, 1998 and 1997, the Partnership has made the following cash
distributions with respect to the Units to holders thereof as of the dates set
forth below in the amounts set forth opposite such dates:

                                         Amount of
                                       Distribution
                                         Per Unit
        Distribution with                --------
           Respect to
          Quarter Ended            1998             1997
          -------------            ----             ----

March 31                            1.00            1.00
June 30                             1.00            1.00
September 30                        1.00            1.00
December 31                        11.04            1.00


                                       8
<PAGE>

Item 6.  Management's Discussion and Analysis or Plan of Operation

         The matters discussed in this Form 10-KSB contain certain
forward-looking statements and involve risks and uncertainties (including
changing market conditions, competitive and regulatory matters, etc.) detailed
in the disclosure contained in this Form 10-KSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's liquidity, capital resources and results of
operations, including forward-looking statements pertaining to such matters,
does not take into account the effects of any changes to the Partnership's
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.

         This Item should be read in conjunction with the financial statements
and other items contained elsewhere in the report.

         Liquidity and Capital Resources

         As of December 31, 1998, the Partnership retained an equity interest in
six Local Limited Partnerships, each of which owns a single apartment complex.
The Partnership also owns an 88.5% interest in a partnership in which an
affiliate of the Partnership's general partner became the sole general partner
in October 1996. The Partnership's primary sources of income are distributions
from the Local Limited Partnerships and rental income from Clear Creek
Apartments. The Partnership requires cash to pay the operating expenses of Clear
Creek, for general and administrative expenses and to make capital contributions
and/or loans to any of the Local Limited Partnerships which the Managing General
Partner deems to be in the Partnership's best interest.

         To date, all cash requirements have been satisfied by interest income
earned on short-term investments, rental income from Clear Creek and cash
distributed to the Partnership by the Local Limited Partnerships. If the
Partnership funds any operating deficits, it will use monies from its operating
reserves. As of December 31, 1998, the Partnership had cash and cash equivalents
of $1,723,000, as compared to $1,484,000 at December 31, 1997. The Managing
General Partner's current policy is to maintain a reserve balance sufficient to
provide the Partnership the flexibility to preserve its economic interest in the
Local Limited Partnerships. Therefore, a lack of cash distributed by the Local
Limited Partnerships to the Partnership in the future should not deplete the
reserves, though it may restrict the Partnership from making distributions. The


                                       9
<PAGE>


Partnership did not fund any operating deficits to Local Limited Partnerships in
1998 and 1997.

         The level of liquidity based on cash and cash equivalents experienced a
$239,000 increase at December 31, 1998, as compared to December 31, 1997. The
Partnership's $250,000 distribution received from a Local Limited Partnership,
$137,000 of cash provided by operating activities and an increase in accrued
interest on the subordinated loan of $14,000 (financing activity) was partially
offset by $53,000 of mortgage principal payments and $109,000 of cash
distributed to partners (financing activities). On June 16, 1998, Fayetteville
Apartments Limited partnership, ("Fayetteville"), refinanced its mortgage.
During September 1998, Fayetteville distributed $250,000 of refinancing proceeds
to the Partnership. The Partnership distributed the proceeds of the $250,000
distribution received from Fayetteville during the first quarter of 1999. The
Local Limited Partnership owning Village Square Apartments is currently seeking
to refinance the mortgage encumbering its property. If the Local Limited
Partnership is successful refinancing this mortgage, it is expected that cash
distributions to the Partnership will increase. There can be no assurance,
however, that a refinancing will be consummated or, if consummated, that cash
distributions will increase.

         The Partnership is not obligated to provide any additional funds to the
Local Limited Partnerships to fund operating deficits. The Partnership
determines on a case by case basis whether to fund any operating deficits. If a
Local Limited Partnership sustains continuing operating deficits and has no
other sources of funding, it is likely that it will eventually default on its
mortgage obligations and risk a foreclosure on its property by the lender. If a
foreclosure were to occur, the Local Limited Partnership would lose its
investment in the property and would incur a tax liability due to the recapture
of tax benefits taken in prior years. The Partnership, as an owner of the Local
Limited Partnership, would share these consequences in proportion to its
ownership interest in the Local Limited Partnership.

         The loan encumbering Dunhaven Apartments Phase II, ("Dunhaven") is in
default and is held by the U.S. Department of Housing and Urban Development. The
Partnership was unable to reach an agreement with the general partner of the
Local Limited Partnership which holds title to Dunhaven pursuant to which the
Partnership, or an affiliate of the Partnership, would have been appointed as
general partner of the Dunhaven Local Limited Partnership and the Partnership,
or its affiliate, would satisfy the default on the loan. At December 31, 1998,
the Managing General Partner estimates the default to be approximately $138,000.
The Partnership has received notice from the Department 


                                       10
<PAGE>

of Housing and Urban Development of their intent to proceed with foreclosure
action on the mortgage for Dunhaven. The Partnership's investment in this Local
Limited Partnership had previously been written down to zero.

         Clear Creek currently has two housing assistance contracts with the
Department of Housing and Urban Development which account for approximately 20%
of the units in the apartment complex. These contracts expire in 1999. There is
an uncertainty as to whether these contracts will be renewed, however, if they
are not renewed alternative programs could be available. Based upon current
market conditions of apartment rentals, if the contracts are not renewed and
alternative programs are not available, the Partnership does not expect that
this will have a significant impact on rental operations.

         During 1998, Partnership distributions (paid or accrued) aggregated
$351,000 ($14.04 per Unit) to its limited partners and $8,000 to the general
partners.

         On December 16, 1997, the Managing General Partner and certain of its
affiliates entered into a Services Agreement with Coordinated Services of
Valdosta, LLC ("Coordinated Services") pursuant to which Coordinated Services
was retained to provide asset management and investor services to the
Partnership and certain affiliated partnerships. As a result of this agreement,
Coordinated Services has the right to direct the day to day affairs of the
Partnership, including, without limitation, reviewing and analyzing potential
sale, refinancing or restructuring proposals by Local Limited Partnerships,
preparation of all Partnership reports, maintaining Partnership records and
maintaining bank accounts of the Partnership. Coordinated Services is not
permitted, however, without the consent of the Managing General Partner, or as
otherwise required under the terms of the Partnership's Agreement of Limited
Partnership (the "Partnership Agreement") to, among other things, cause the
Partnership to consent to a sale of an asset or cause the Partnership to file
for bankruptcy. As compensation for providing these services, the Managing
General Partner and its affiliates assigned to Coordinated Services all of their
right to receive fees from the Partnership as provided in the Partnership
Agreement.

Results of Operations

         The Partnership's net loss for the year ended December 31, 1998 was
$52,000, as compared to net income of $439,000 for the year ended December 31,
1997. The decline is primarily due to a decrease in Local Limited Partnership
cash distributions of $471,000. The Local Limited Partnership owning Village
Square Apartments and Dunhaven Apartments, Section II - Phase I 


                                       11
<PAGE>

distributed $115,000 and $14,000, respectively, in 1998. During 1997, the Local
Limited Partnership owning Village Square Apartments distributed $600,000. All
other items of income and expense remained relatively constant.

Year 2000

         The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Registrant
is dependent upon the General Partner and its affiliates and Coordinated
Services for management and administrative services. Any computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

         During the first half of 1998, Coordinated Services, the General
Partner and its affiliates completed their assessment of the various computer
software and hardware used in connection with the management of the Registrant.
This review indicated that significantly all of the computer programs used by
Coordinated Services, the General Partner and its affiliates are off-the-shelf
"packaged" computer programs which are easily upgraded to be Year 2000
compliant. In addition, to the extent that custom programs are utilized by
Coordinated Services, the General Partner and its affiliates, such custom
programs are Year 2000 compliant.

         Following the completion of its assessment of the computer software and
hardware, Coordinated Services, the General Partner and its affiliates began
upgrading those systems which required upgrading. To date, significantly all of
these systems have been upgraded. The Registrant has to date not borne, nor is
it expected that the Registrant will bear any significant cost, in connection
with the upgrade of those systems to requiring remediation. It is expected that
all systems will be remediated, tested and implemented during the first half of
1999.

         To date, neither Coordinated Services no the General Partner are aware
of any external agent, including local general partners, with a Year 2000 issue
that would materially impact the Registrant's results of operations, liquidity
or capital resources. However, Coordinated Services and the General Partner have
no means of ensuring that external agents will be Year 2000 compliant. The
General Partner does not believe that the inability of external agents to
complete their Year 2000 resolution process in a timely manner will have a
material impact 


                                       12
<PAGE>

on the financial position or results of operations of the Registrant. However,
the effect of non-compliance by external agents is not readily determinable.


                                       13
<PAGE>

Item 7.  Financial Statements

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP

                        CONSOLIDATED FINANCIAL STATEMENTS

                          YEAR ENDED DECEMBER 31, 1998

                                      INDEX

                                                                           Page
                                                                           ----

Independent Auditors' Report..............................................F - 2

Financial Statements:

Consolidated Balance Sheets as of December 31, 1998 and 1997..............F - 3

Consolidated Statements of Income for the Years Ended
     December 31, 1998 and 1997...........................................F - 4

Consolidated Statements of Partners' Capital for the Years Ended
     December 31, 1998 and 1997...........................................F - 5

Consolidated Statements of Cash Flows for the Years Ended
     December 31, 1998 and 1997...........................................F - 6

Notes to Consolidated Financial Statements................................F - 7


                                      F - 1


<PAGE>



                          Independent Auditors' Report

To the Partners
Winthrop Residential Associates III, a Limited Partnership

We have audited the accompanying consolidated balance sheets of Winthrop
Residential Associates III, a Limited Partnership (a Maryland limited
partnership) and its subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, partners' capital and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the financial statements of certain Local Limited Partnerships,
the investments in which are reflected in the accompanying financial statements
using the equity method of accounting and were written down to zero (see Note
1). Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for those Local Limited Partnerships, is based solely on the reports of other
auditors.

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

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Winthrop Residential
Associates III, a Limited Partnership, and its subsidiary as of December 31,
1998 and 1997, and the consolidated results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.

                                                    Certified Public Accountants

New York, New York
March 18, 1999

                                      F - 2


<PAGE>



           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP

                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Unit Data)


<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                              ---------------------------------------------
                                                                                     1998                     1997
                                                                              --------------------    ---------------------
<S>                                                                           <C>                     <C>
ASSETS

Investments in Local Limited Partnerships                                     $                76      $               374
Cash and Cash Equivalents                                                                   1,723                    1,484
Other Assets                                                                                   98                       60
Real Estate, net                                                                            2,090                    2,268
                                                                              --------------------    ---------------------
      Total Assets                                                            $             3,987      $             4,186
                                                                              ====================    =====================

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

Accounts Payable and Accrued Expenses                                         $               108      $               107
Distribution Payable                                                                          277                       27
Mortgage Payable                                                                            2,533                    2,586
Accrued Interest - Subordinated Loan Payable                                                   60                       46
Subordinated Loan Payable                                                                     133                      133
                                                                              --------------------    ---------------------
      Total Liabilities                                                                     3,111                    2,899
                                                                              --------------------    ---------------------

Partners' Capital:

Limited Partners -
      Units of Limited Partnership Interest,
      $1,000 stated value per unit; 25,005
      units authorized, issued and outstanding                                              2,189                    2,588
General Partners' deficit                                                                  (1,313)                  (1,301)
                                                                              --------------------    ---------------------
      Total Partners' Capital                                                                 876                    1,287
                                                                              --------------------    ---------------------
      Total Liabilities and Partners' Capital                                 $             3,987      $             4,186
                                                                              ====================    =====================


                See notes to consolidated financial statements.

                                      F - 3

<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                        CONSOLIDATED STATEMENTS OF INCOME
                        (In Thousands, Except Unit Data)

                                                                                        YEARS ENDED DECEMBER 31,
                                                                              ---------------------------------------------
                                                                                     1998                     1997
                                                                              --------------------    ---------------------


Income:

Rental Income                                                                 $             1,106     $              1,069
Income from Local Limited Partnerships
  cash distributions                                                                          129                      600
Equity in loss of Local Limited Partnerships                                                  (44)                     (12)
Interest                                                                                       65                       60
Other                                                                                          36                       34
                                                                              --------------------    ---------------------

      Total Income                                                                          1,292                    1,751
                                                                              --------------------    ---------------------

Expenses:

Operating                                                                                     859                      840
Interest                                                                                      205                      211
Depreciation and Amortization                                                                 182                      182
General and Administrative                                                                     98                       79
                                                                              --------------------    ---------------------
      Total Expenses                                                                        1,344                    1,312
                                                                              --------------------    ---------------------
Net (Loss) Income                                                             $               (52)    $                439
                                                                              ====================    =====================
Net (loss) income allocated to General Partners                               $                (4)    $                 33
                                                                              ====================    =====================
Net (loss) income allocated to Limited Partners                               $               (48)    $                406
                                                                              ====================    =====================
Net (Loss) Income per Unit of Limited Partnership Interest                    $             (1.92)    $              16.24
                                                                              ====================    =====================
Distributions per Unit of Limited Partnership Interest                        $             14.04     $               4.00
                                                                              ====================    =====================

</TABLE>


                 See notes to consolidated financial statements.

                                      F - 4


<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP

                 CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
                        (In Thousands, Except Unit Data)


<TABLE>
<CAPTION>
                                      Units of
                                      Limited       General      Limited
                                    Partnership    Partners'     Partners'      Total
                                      Interest     Deficit       Capital       Capital
                                    -----------    ---------     ---------     -------
<S>                                 <C>            <C>           <C>           <C>

Balance - January 1, 1997             25,005      $  (1,326)     $  2,282      $   956

   Net Income                              -             33           406          439
   Distributions                           -             (8)         (100)        (108)
                                      ------      ---------      --------      -------

Balance - December 31, 1997           25,005      $  (1,301)     $  2,588      $ 1,287

   Net Income                              -             (4)          (48)         (52)
   Distributions                           -             (8)         (351)        (359)
                                      ------      ---------      --------      -------

Balance - December 31, 1998           25,005      $  (1,313)     $  2,189      $   876
                                      ======      =========      ========      =======

</TABLE>




                 See notes to consolidated financial statements.

                                      F - 5

<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                        (In Thousands, Except Unit Data)

<TABLE>
<CAPTION>
                                                                                        YEARS ENDED DECEMBER 31,
                                                                              ---------------------------------------------
                                                                                     1998                     1997
                                                                              --------------------    ---------------------
<S>                                                                           <C>                     <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                                                             $               (52)    $                439
Adjustments to reconcile net (loss) income to net cash provided
  by operating activities:

      Depreciation                                                                            178                      178
      Amortization                                                                              4                        4
      Equity in loss of Local Limited Partnerships                                             44                       12

Changes in assets and liabilities:

      (Increase) decrease in other assets                                                     (38)                       4
      Increase in accounts payable and
         accrued expenses                                                                       1                       12
                                                                              --------------------    ---------------------
Net cash provided by operating activities                                                     137                      649
                                                                              --------------------    ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:

      Distributions received from Local Limited Partnership                                   250                        -
                                                                              --------------------    ---------------------
      Cash provided by investing activities                                                   250                        -
                                                                              --------------------    ---------------------

CASH FLOWS FROM FINANCING ACTIVITIES:

      Mortgage principal payments                                                             (53)                     (50)
      Distributions to partners                                                              (109)                    (108)
      Increase in accrued interest payable on subordinated loan                                14                       13
                                                                              --------------------    ---------------------
Net cash used in financing activities                                                        (148)                    (145)
                                                                              --------------------    ---------------------
Net increase in cash and cash equivalents                                                     239                      504

Cash and Cash Equivalents, Beginning of Year                                                1,484                      980
                                                                              --------------------    ---------------------
Cash and Cash Equivalents, End of Year                                        $             1,723     $              1,484
                                                                              ====================    =====================
Supplemental Disclosure of Cash Flow Information

      Cash paid for interest                                                  $               192     $                198
                                                                              ====================    =====================
Supplemental Disclosure of Non-Cash Financing
      and Investing Activities

      Accrued Distributions to Partners                                       $               277     $                 27
                                                                              ====================    =====================
</TABLE>

                See notes to consolidated financial statements.

                                      F - 6

<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Organization

     Winthrop Residential Associates III, A Limited Partnership (the
     "Partnership"), was organized on June 28, 1982 under the Uniform Limited
     Partnership Act of the State of Maryland to invest in limited partnerships
     (the "Local Limited Partnerships") which develop, manage, operate and
     otherwise deal in government assisted apartment complexes and which do not
     significantly restrict distributions to owners or the rate of return on
     investments in such properties. The Partnership has investments in six
     Local Limited Partnerships each owning an apartment complex. Additionally,
     the Partnership owns an 88.5% limited partnership interest in Clear Creek
     Ltd. ("Clear Creek") a partnership in which an affiliate of the Partnership
     became the Managing General Partner in October 1996.

     The Partnership was capitalized with $25,000,000 of contributions
     representing 25,000 investor limited partnership units. The offering closed
     in July, 1983. The general partners and the initial limited partner (5
     units) contributed $8,000. At December 31, 1998 and 1997, there were 25,005
     limited partnership units issued and outstanding.

     Consolidation

     The consolidated financial statements include all of the accounts of the
     Partnership and Clear Creek. All significant intercompany transactions and
     balances have been eliminated. Losses of Clear Creek have not been
     allocated to its minority interests since there is no obligation on the
     part of the minority partners to fund such losses.

     Real Estate

     Real estate is stated at cost, less accumulated depreciation. The
     Partnership records impairment losses on long-lived assets used in
     operations when events and circumstances indicate that the assets might be
     impaired and the undiscounted cash flows estimated to be generated by those
     assets are less than the carrying amounts of those assets.

     Cash and Cash Equivalents

     The Partnership considers all highly liquid investments with an original
     maturity of three months or less at the time of purchase to be cash
     equivalents. The carrying amount of cash and cash equivalents approximates
     its fair value due to its short term nature.

                                      F - 7


<PAGE>



           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997
                                   (Continued)

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Uses of Estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the amounts in the financial statements and
     accompanying notes. Actual results could differ from those estimates.

     Investments in Local Limited Partnerships

     The Partnership accounts for its investment in each Local Limited
     Partnership using the equity method. Under the equity method of accounting,
     the investment cost is subsequently adjusted by the Partnership's share of
     the Local Limited Partnership's results of operations and by distributions
     received. Costs relating to the acquisition and selection of the investment
     in the Local Limited Partnerships are capitalized to the investment account
     and amortized over the life of the investment. Costs in excess of the
     Partnership's initial basis in the net assets of the Local Limited
     Partnership are amortized over the estimated useful lives of the underlying
     assets. Equity in loss of Local Limited Partnerships and amortization of
     investment costs and costs in excess of initial basis are not recognized to
     the extent that the investment balance would become negative since the
     Partnership is not obligated to advance funds to the Local Limited
     Partnerships.

     Depreciation

     Depreciation is computed by the straight-line method over an estimated
     useful life of 25 years for buildings and improvements and 3 to 5 years for
     furnishings.

     Net Income Per Limited Partnership Unit

     The net income per limited partnership unit is computed by dividing net
     income allocated to the limited partners by the 25,005 units outstanding.

     Income Taxes

     Taxable income or loss of the Partnership is reported in the income tax
     returns of its partners. Accordingly, no provision for income taxes is made
     in the financial statements of the Partnership.

                                      F - 8


<PAGE>



           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

                                   (Continued)

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Concentration of Credit Risk

     Principally all of the Partnership's cash and cash equivalents consist of
     certificates of deposit held by banks with original maturity dates of three
     months or less.

     Segment Reporting

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
     "Disclosures about Segments of an Enterprise and Related Information,"
     which is effective for years beginning after December 15, 1997. SFAS 131
     established standards for the way that public business enterprises report
     information about operating segments in annual financial statements and
     requires that those enterprises report selected information about operating
     segments in interim financial reports. It also establishes standards for
     related disclosures about products and services, geographic areas, and
     major customers. The Partnership has one reportable segment, residential
     real estate. The Partnership evaluates performances based on net operating
     income, which is income before depreciation, amortization, interest and
     non-operating items.

2.   ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS

     In accordance with the partnership agreement, profits and losses and cash
     available for distribution not arising from a sale or refinancing are
     allocated 7.5% to the general partners and 92.5% to the limited partners.
     Distributions of proceeds arising from a sale or refinancing are allocated
     first to the limited partners to the extent of their Adjusted Capital
     Contribution (as defined) and then in accordance with the partnership
     agreement.

3.   TRANSACTIONS WITH RELATED PARTIES

     Two Winthrop Properties, Inc. ("Two Winthrop" or the "Managing General
     Partner"), is a wholly owned subsidiary of First Winthrop Corporation
     ("First Winthrop"), which in turn is controlled by Winthrop Financial
     Associates, A Limited Partnership ("WFA"). A subsidiary of First Winthrop
     is one of the general partners in a Local Limited Partnership.

     On December 16, 1997, the Managing General Partner and certain of its
     affiliates entered into a Services Agreement with Coordinated Services of
     Valdosta, LLC ("Coordinated Services") pursuant to which Coordinated
     Services was retained to provide asset management and investor services to
     the Partnership and certain affiliated partnerships. As a result of this
     agreement, Coordinated Services has the right to direct the day to day
     affairs of the Partnership. Coordinated Services is not permitted, however,
     without the consent of the Managing General Partner, or as otherwise
     required under the terms of the Partnership's Agreement of Limited
     Partnership (the "Partnership Agreement") to, among other things, cause the
     Partnership to consent to a sale of an asset or cause the Partnership to
     file for bankruptcy. As compensation for providing these services, the
     Managing General Partner and its affiliates assigned to Coordinated
     Services all of their rights to receive fees from the Partnership, as
     provided in the Partnership Agreement. Coordinated Services, which is a
     related party

                                      F - 9


<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

                                   (Continued)

3.   TRANSACTIONS WITH RELATED PARTIES (Continued)

     for financial reporting purposes only, is affiliated with the general
     partner and managing agent of certain Local Limited Partnerships, in which
     the Partnership has invested. For the years ended December 31, 1998 and
     1997, respectively, affiliates of Coordinated Services received $243,000
     and $221,000 in fees and expense reimbursements for managing these Local
     Limited Partnerships.

     An affiliate of the Managing General Partner received approximately $42,000
     and $64,000 in management fees from a Local Limited Partnership during 1998
     and 1997, respectively. Coordinated Services was entitled to receive 25% or
     approximately $13,000 for 1998 and 1997, respectively, of the Clear Creek
     management fee for supervisory services.

4.   MORTGAGE PAYABLE

     The mortgage, which is secured by Clear Creek, bears interest at 7.5% per
     annum, requires monthly payments of approximately $20,000 and matures in
     October 2018.

     Principal payments on the mortgage note are due as follows:

                               1999                     $     58,000
                               2000                           62,000
                               2001                           67,000
                               2002                           72,000
                               2003                           78,000
                               Thereafter                  2,196,000
                                                        ------------
                                                        $  2,533,000
                                                        =============

     The estimated fair value of the Partnership's debt approximates its
carrying amount.

5.   SUBORDINATED LOAN PAYABLE

     The subordinated loan, in the amount of $133,000, is due to the former
     general partner of Clear Creek who also manages the property. The
     subordinated loan, accrues interest at 10% and is due upon sale of the
     property.

6.   REAL ESTATE

     Real estate is comprised of the following:

<TABLE>
<CAPTION>
                                                               December 31,
                                                 -----------------------------------------
                                                        1998                  1997
                                                 -------------------   -------------------
<S>                                              <C>                   <C>
              Land                               $          500,000    $          500,000
              Buildings and Improvements                  4,457,000             4,457,000
              Furnishings                                    17,000                17,000
                                                 -------------------   -------------------
                                                          4,974,000             4,974,000
              Accumulated Depreciation                  (2,884,000)           (2,706,000)
                                                 -------------------   -------------------
                                                 $        2,090,000    $        2,268,000
                                                 ===================   ===================
</TABLE>


                                     F - 10


<PAGE>



           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

                                   (Continued)


7.   INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS

     As of December 31, 1998, the Partnership has Limited Partnership equity
     interests in six Local Limited Partnerships each owning one apartment
     complex. Such interests are summarized as follows:

<TABLE>
<CAPTION>
                                    Local Limited Partnership                                         Percentage Ownership
      ---------------------------------------------------------------------------------------     ------------------------------
      <S>                                                                                         <C>

      Village Square Associates                                                                                50
      Walther Limited Partnership (Dunhaven Apartments Phase I)                                                95
      Walkinit Limited Partnership (Dunhaven Apartments Phase II)                                              92
      Savannah River Associates Limited Partnership (the Groves Apartments)                                    50
      Autumn Chase, Ltd.                                                                                       99
      Fayetteville Apartments Limited Partnership (Maple Manor Apartments)                                     50

     In addition, the Partnership also holds an 88.5% limited partnership
     interest in Clear Creek, which was accounted for as a Local Limited
     Partnership prior to consolidation in October 1996. Clear Creek currently
     has two housing assistance contracts with the Department of Housing and
     Urban Development which account for approximately 20% of the units in the
     apartment complex. These contracts expire in 1999.

     On June 16, 1998, Fayetteville Apartments Limited Partnership,
     ("Fayetteville") refinanced its mortgage. During September 1998,
     Fayetteville distributed $250,000 of refinancing proceeds to the
     Partnership. The

     Partnership distributed the proceeds during the first quarter of 1999.

     The above Local Limited Partnerships have outstanding mortgages, as of
     December 31, 1998, totaling $18,184,000, which are secured by the Local
     Limited Partnerships' real property, security interests, liens and
     endorsements common to first mortgage loans.

     During 1998 and 1997, the Partnership made no additional capital
     contributions in the Local Limited Partnerships.

     The loan encumbering Dunhaven Apartments Phase II, ("Dunhaven") is in
     default. The Partnership was unable to reach an agreement with the general
     partner of the Local Limited Partnership which holds title to Dunhaven
     pursuant to which the Partnership, or an affiliate of the Partnership,
     would have been appointed as general partner of the Dunhaven Local Limited
     Partnership and the Partnership, or its affiliate, would satisfy the
     default on the loan. The Partnership has received notice form the
     Department of Housing and Urban Development of their intent to proceed with
     foreclosure action on the mortgage for Dunhaven. The Partnership's
     investment in this Local Limited Partnership had previously been written
     down to zero.

</TABLE>

                                     F - 11


<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

                                   (Continued)

7.    INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS (Continued)

      The combined balance sheets of the Local Limited Partnerships, are as
follows (in thousands):


<TABLE>
<CAPTION>
                                                                                                       DECEMBER 31,
                                                                                       ---------------------------------------------
                                                                                               1998                    1997
                                                                                       ---------------------    --------------------
<S>                                                                                    <C>                      <C>
      ASSETS

      Real estate, at cost:
      Land                                                                             $              1,365     $             1,365
      Buildings, net of accumulated depreciation
         of $15,088 and $14,361, in 1998
         and 1997, respectively                                                                       6,892                   7,564
      Cash and cash equivalents                                                                       1,052                     615
      Other assets, net of accumulated amortization
         of $375 and $354 in 1998 and
         1997, respectively                                                                           1,502                   1,346
                                                                                       ---------------------    --------------------
         Total Assets                                                                  $             10,811     $            10,890
                                                                                       =====================    ====================

      LIABILITIES AND PARTNERS' DEFICIT

      Liabilities:

         Notes payable                                                                 $                541     $               540
         Loans payable                                                                                   28                      33
         Mortgage notes payable                                                                      18,184                  17,806
         Accounts payable and accrued expenses                                                          572                     569
                                                                                       ---------------------    --------------------
         Total Liabilities                                                                           19,325                  18,948
                                                                                       ---------------------    --------------------

      Partners' Deficit:
         Winthrop Residential Associates III                                                         (4,338)                 (3,972)
         Other partners                                                                              (4,176)                 (4,086)
                                                                                       ---------------------    --------------------
         Total Deficit                                                                               (8,514)                 (8,058)
                                                                                       ---------------------    --------------------
         Total Liabilities and Partners' Deficit                                       $             10,811     $            10,890
                                                                                       =====================    ====================

</TABLE>



                                     F - 12

<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

                                   (Continued)

7.    INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS (Continued)

      The combined statements of operations of the Local Limited Partnerships,
      are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                 YEARS ENDED DECEMBER 31,
                                                                                       ---------------------------------------------
                                                                                               1998                    1997
                                                                                       ---------------------    --------------------
<S>                                                                                    <C>                      <C>
         Income:
           Rental income                                                               $              4,681     $             4,516
           Other income                                                                                 167                     264
                                                                                       ---------------------    --------------------
           Total Income                                                                               4,848                   4,780
                                                                                       ---------------------    --------------------

         Expenses:
           Interest                                                                                   1,369                   1,392
           Depreciation and amortization                                                                760                     796
           Taxes and insurance                                                                          450                     384
           Management and administration fees                                                           269                     255
           Repairs, maintenance and utilities                                                         1,054                   1,096
           General and administrative                                                                   672                     565
                                                                                       ---------------------    --------------------
           Total Expenses                                                                             4,574                   4,488
                                                                                       ---------------------    --------------------

         Net income                                                                    $                274     $               292
                                                                                       =====================    ====================
         Net income allocated to
         Winthrop Residential Associates III                                           $                  -     $                33
                                                                                       =====================    ====================
         Net income allocated to
         other partners                                                                $                274     $               259
                                                                                       =====================    ====================

</TABLE>



                                     F - 13

<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997

                                   (Continued)

8.   TAXABLE INCOME (LOSS)

     The Partnership's taxable income (loss) differs from its net income for
     financial reporting purposes, as follows
     (in thousands):

<TABLE>
<CAPTION>
                                                                                        1998                     1997
                                                                                ---------------------    ----------------------
<S>                                                                             <C>                      <C>
      Net (loss) income for financial reporting purposes                        $                (52)    $                 439

         Amortization of capitalized costs and
         costs in excess of the Partnership's initial
         basis in the net assets of the Local Limited
         Partnerships                                                                              4                         4

         Differences in equity in Local Limited
         Partnership's income/loss for financial
         reporting and tax reporting purposes                                                    353                       133

         Income from Local Limited Partnership cash
         Distributions                                                                          (129)                     (600)
                                                                                ---------------------    ----------------------
      Taxable income (loss)                                                     $                176     $                 (24)
                                                                                =====================    ======================

</TABLE>


                                     F - 14

<PAGE>

Item 8.  Changes in and Disagreements on Accounting and
                  Financial Disclosure.

         There were no disagreements with Imowitz Koenig & Co., LLP regarding
the 1998 or 1997 audits of the Partnership's financial statements.


                                       29
<PAGE>

                                    PART III


Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act.

         The Partnership has no officers or directors. Two Winthrop Properties,
Inc., the managing partner of the Partnership (the "Managing General Partner"),
manages and controls substantially all of the Partnership's affairs and has
general responsibility and ultimate authority in all matters affecting its
business. As of March 1, 1999, the names of the directors and executive officers
of the Managing General Partner and the position held by each of them, are as
follows:

                                                      Has Served as
                            Position Held with the     a Director or
Name                       Managing General Partner   Officer Since
----                       ------------------------   -------------

Michael L. Ashner          Chief Executive Officer         1-96
                           and Director

Thomas C. Staples          Chief Financial Officer         1-99

Peter Braverman            Executive Vice President        1-96
                           and Director

Patrick J. Foye            Vice President - Residential    10-98
                           and Director

Carolyn Tiffany            Chief Operating Officer         10-95
                           and Clerk

         Michael L. Ashner, age 46, has been the Chief Executive Officer of
Winthrop Financial Associates, A Limited Partnership ("WFA") and the Managing
General Partner since January 15, 1996. From June 1994 until January 1996, Mr.
Ashner was a Director, President and Co-chairman of National Property Investors,
Inc., a real estate investment company ("NPI"). Mr. Ashner was also a Director
and executive officer of NPI Property Management Corporation ("NPI Management")
from April 1984 until January 1996. In addition, since 1981 Mr. Ashner has been
President of Exeter Capital Corporation, a firm which has organized and
administered real estate limited partnerships.

         Thomas C. Staples, age 43, has been the Chief Financial Officer of WFA
since January 1, 1999. From March 1996 through December 1998, Mr. Staples was
Vice President/Corporate Controller of WFA. From May 1994 through February 1996,
Mr. 


                                       30
<PAGE>

Staples was the Controller of the Residential Division of Winthrop
Management.

         Peter Braverman, age 47, has been a Vice President of WFA and the
Managing General Partner since January 1996. From June 1995 until January 1996,
Mr. Braverman was a Vice President of NPI and NPI Management. From June 1991
until March 1994, Mr. Braverman was President of the Braverman Group, a firm
specializing in management consulting for the real estate and construction
industries. From 1988 to 1991, Mr. Braverman was a Vice President and Assistant
Secretary of Fischbach Corporation, a publicly traded, international real estate
and construction firm.

         Patrick J. Foye, age 41, has been Vice President-Residential and
Director of the Managing General Partner since October 1, 1998. Mr. Foye has
served as Executive Vice President of Apartment Investment and Management
Company ("AIMCO") since May 1998. Prior to joining AIMCO, Mr. Foye was a partner
in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998
and was Managing Partner of the firm's Brussels, Budapest and Moscow offices
from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island
Power Authority and serves as a member of the New York State Privatization
Council. He received a B.A. from Fordham College and a J.D. from Fordham
University Law School.

         Carolyn Tiffany, age 32, has been employed with WFA since January 1993.
From 1993 to September 1995, Ms. Tiffany was a Senior Analyst and Associate in
WFA's accounting and asset management departments. From October 1995 to present
Ms. Tiffany was a Vice President in the asset management and investor
relations departments of WFA from October 1995 to December 1997, at which time
she became the Chief Operating Officer of WFA.

         One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of the following
limited partnerships which either have a class of securities registered pursuant
to Section 12(g) of the Securities and Exchange Act of 1934, or are subject to
the reporting requirements of Section 15(d) of such Act: Winthrop Partners 79
Limited Partnership; Winthrop Partners 80 Limited Partnership; Winthrop Partners
81 Limited Partnership; Winthrop Residential Associates I, A Limited
Partnership; Winthrop Residential Associates II, A Limited Partnership; 1626 New
York Associates Limited Partnership; 1999 Broadway Associates Limited
Partnership; Nantucket Island Associates Limited Partnership; One Financial
Place Limited Partnership; Presidential Associates I Limited Partnership;
Riverside Park Associates Limited Partnership; Springhill Lake Investors Limited
Partnership; 


                                       31
<PAGE>

Twelve AMH Associates Limited Partnership; Winthrop California Investors Limited
Partnership; Winthrop Growth Investors I Limited Partnership; Winthrop Interim
Partners I, A Limited Partnership; Southeastern Income Properties Limited
Partnership; and Southeastern Income Properties II Limited Partnership.

         Except as indicated above, neither the Partnership nor the Managing
General Partner has any significant employees within the meaning of Item 401(b)
of Regulation S-B. There are no family relationships among the officers and
directors of the Managing General Partner.

         Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Partnership under Rule 16a-3(e) during the Partnership's most
recent fiscal year and Forms 5 and amendments thereto furnished to the
Partnership with respect to its most recent fiscal year, the Partnership is not
aware of any director, officer or beneficial owner of more than ten percent of
the units of limited partnership interest in the Partnership that failed to file
on a timely basis, as disclosed in the above Forms, reports required by section
16(a) of the Exchange Act during the most recent fiscal year or prior fiscal
years.

         Effective December 16, 1997, the Managing General Partner and certain
of its affiliates entered into an agreement with Coordinated Services of
Valdosta, LLC ("Coordinated Services") to provide for the daily asset and
property management services and investor services for the Partnership. See
"Item 11, Security Ownership of Certain Beneficial Owners and Management."
Coordinated Services of Valdosta LLC is a Georgia limited liability corporation
with headquarters in Valdosta, Georgia. Founded in 1997, its managing member is
Investor Service Group, Inc., a Georgia Corporation. The principals of Investor
Service Group are Mary T. Johnson and James L. Dewar, Jr.

         Mary T. Johnson is the Manager of Coordinated Services. Ms. Johnson is
also Executive Vice President of Dewar Realty, Inc. and Dewar Properties, Inc.
Ms. Johnson is a graduate of Valdosta State University and is a licensed Georgia
Real Estate Broker. Ms. Johnson has 21 years of experience in property
management, asset management, investor services, and development of apartment
and assisted living properties. Ms. Johnson is currently responsible for the
asset management of over 150 investor partnerships and property management of
over 50 apartment communities.

         James L. Dewar, Jr. is the founder of Dewar Realty, Inc. and Dewar
Properties, Inc. Mr. Dewar is a graduate of the University of Georgia and is a
licensed Georgia Real Estate Broker. Mr. 


                                       32
<PAGE>

Dewar has 32 years experience in real estate construction, property management
and development of apartment and assisted living properties. Mr. Dewar has
produced over $100 million in conventional and government funded family and
elderly apartment communities.

Item 10. Executive Compensation.

         The Partnership is not required to and did not pay any compensation to
the officers or directors of the Managing General Partner. The Managing General
Partner does not presently pay any compensation to any of its officers or
directors. (See Item 13, "Certain Relationships and Related Transactions.")

Item 11. Security Ownership of Certain Beneficial Owners and
         Management.

         (a)  Security ownership of certain beneficial owners.

         The General Partners own all the outstanding general partnership
interests. No person or group is known by the Partnership to be the beneficial
owner of more than 5% of the outstanding Units at March 15, 1999. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited.

         Under the Partnership Agreement, the right to manage the business of
the Partnership is vested in the General Partners and is generally to be
exercised only by the Managing General Partners, although approval of
Linnaeus-Oxford is required as to all investments in Local Limited Partnerships
and in connection with any votes or consents arising out of the ownership of a
Local Limited Partnership interest.

         (b) Security ownership of management.

         As of March 15, 1999, WFC Realty Co., Inc. owns 95 Units, which is less
than 1%. None of the officers, directors or the general partner of the General
Partners own any Units.

         (c) Changes in control.

         There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the Partnership.
On December 16, 1997, the Managing General Partner and certain of its affiliates
entered into a Services Agreement with Coordinated Services of Valdosta, LLC
("Coordinated Services") pursuant to which Coordinated Services was retained to
provide asset management and investor services to the Partnership and certain
affiliated partnerships. 


                                       33
<PAGE>

As a result of this agreement, Coordinated Services has the right to direct the
day to day affairs of the Partnership, including, without limitation, reviewing
and analyzing potential sale, refinancing or restructuring proposals by Local
Limited Partnerships, preparation of all Partnership reports, maintaining
Partnership records and maintaining bank accounts of the Partnership.
Coordinated Services is not permitted, however, without the consent of the
Managing General Partner, or as otherwise required under the terms of the
Partnership's Agreement of Limited Partnership (the "Partnership Agreement") to,
among other things cause the Partnership to consent to a sale of an asset or
cause the Partnership to file for bankruptcy. As compensation for providing
these services, the Managing General Partner and its affiliates assigned to
Coordinated Services all of their right to receive fees from the Partnership as
provided in the Partnership Agreement. An affiliate of Coordinated Services is
the general partner of the Local Limited Partnerships which own The Groves and
Maple Manor Apartments.

Item 12. Certain Relationships and Related Transactions.

         For the years ended December 31, 1998 and 1997, the Partnership
allocated taxable income (loss) to the General Partners of $13,215 and ($1,789),
respectively. For the years ended December 31, 1998, and 1997, the Partnership
paid or accrued cash distributions to the General Partners of $8,110 and $8,110,
respectively. For the year ended December 31, 1998 and 1997, Village Square paid
$41,600 and $64,200, respectively, of property management fees to an affiliate
of the Managing General Partner. The management at this property was transferred
to an unaffiliated third party during the second quarter of 1998.

Item 13. Exhibits and Reports on Form 8-K.

(a)      Exhibits:

                  The Exhibits listed on the accompanying Index to Exhibits are
                  filed as part of this Annual Report and incorporated in this
                  Annual Report as set forth in said Index.

(b)      Reports on Form 8-K - None


                                       34
<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, there unto duly authorized as of this 13th day of
April, 1999.

                                         WINTHROP RESIDENTIAL ASSOCIATES III,
                                         A LIMITED PARTNERSHIP

                                         By:      TWO WINTHROP PROPERTIES, INC.

                                                  By: /s/ Michael L. Ashner
                                                      ---------------------
                                                       Michael L. Ashner
                                                       Chief Executive Officer

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

Signature/Name                    Title                         Date
--------------                    -----                         ----

/s/ Michael L. Ashner      Chief Executive                  April 13, 1999
-------------------        Officer and Director
Michael L. Ashner          

/s/ Thomas Staples         Chief Financial Officer          April 13, 1999
-------------------
Thomas Staples

/s/ Peter Braverman        Executive Vice                   April 13, 1999
-------------------        President and Director
Michael L. Ashner          


                                       35
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number                            Title of Document                                       Page
------                            -----------------                                       ----
<S>      <C>                                                                              <C>
3.A.     Agreement and Certificate of Limited Partnership of Winthrop
         Residential Associates III, A Limited Partnership, dated as of June 28,
         1982 (incorporated herein by reference to the Partnership's
         Registration Statement on Form S-11, File No. 2-81033).

3.B.     Twelfth Amendment dated as of January 24, 1984 to the Agreement and
         Certificate of Limited Partnership (incorporated herein by reference to
         the Partnership's Annual Report on Form 10-K filed March 30, 1984, File
         No. 2-81033).

  4.     Agreement and Certificate of Limited Partnership of Winthrop 
         Residential Associates III, A Limited Partnership, dated as of June 28,
         1982 (incorporated herein by reference to the Partnership's Annual
         Report on Form 10-K for the year ended December 31, 1995)

10A.     Sales Agency Agreement between Winthrop Residential Associates III, A
         Limited Partnership and Winthrop Securities Co., Inc. (incorporated
         herein by reference to the Registrant's Registration Statement on Form
         S-11, File No. 2-81033).

10B.     Escrow Deposit Agreement among Winthrop Residential Associates III, A
         Limited Partnership, Winthrop Securities Co., Inc. and United States
         Trust Company (incorporated herein by reference to the Registrant's
         Registration Statement on Form S-11, File No. 2-81033).

10C.     Services Agreement, dated December 16, 1997, by and between First                37 
         Winthrop Corporation, Winthrop Financial Co., Inc., WFC Realty Co.,
         Inc., WFC Realty Saugus, Inc., Winthrop Properties, Inc., Winthrop
         Metro Equities Corporation, Winthrop Lisbon Realty, Inc. and Northwood
         Realty Co., Inc. and Coordinated Services of Valdosta, LLC
         (incorporated by reference to the Registrant's Annual Report on Form
         10KSB for the year ended December 31, 1998.

</TABLE>

                                       36
<PAGE>

16.      Letter dated September 19, 1996 from Arthur Andersen LLP (incorporated
         by referenced to the Partnership's Current Report on Form 8-K dated
         September 19, 1996).

27.      Financial Data Schedule

99,      Supplementary Information required pursuant to Section 9.4 of the
         Partnership Agreement.


                                       37