<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                 ------------
                                   FORM 10-Q

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

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

For Quarter Ended September 30, 1999              Commission File Number 0-14052


                   NEW ENGLAND LIFE PENSION PROPERTIES III;
                       A REAL ESTATE LIMITED PARTNERSHIP
            (Exact name of registrant as specified in its charter)


        Massachusetts                                     04-2847256
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

     225 Franklin Street, 25th Fl.
     Boston, Massachusetts                                  02110
(Address of principal executive offices)                 (Zip Code)

              Registrant's telephone number, including area code:
                                (617) 261-9000


-------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report

     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 twelve (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
<PAGE>

                   NEW ENGLAND LIFE PENSION PROPERTIES III;
                       A REAL ESTATE LIMITED PARTNERSHIP

                                   FORM 10-Q

                     FOR QUARTER ENDED SEPTEMBER 30, 1999

                                    PART I

                             FINANCIAL INFORMATION
                             ---------------------
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

BALANCE SHEETS

<TABLE>
<CAPTION>
                                                  September 30, 1999     December 31, 1998
                                                      (Unaudited)            (Audited)
                                                  ------------------     -----------------
<S>                                               <C>                    <C>
ASSETS

Real estate investments:
   Property, net                                       6,108,389               6,156,334
   Property held for disposition,
   net                                                        --               1,197,305
                                                      ----------              ----------
                                                       6,108,389               7,353,639

Cash and cash equivalents                              1,556,725               1,952,504
                                                      ----------              ----------
                                                      $7,665,114              $9,306,143
                                                      ==========              ==========

LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                                      $  114,614              $   87,947
Accrued management fee                                    53,583                  21,939
                                                      ----------              ----------
Total liabilities                                        168,197                 109,886
                                                      ----------              ----------

Partners' capital:
    Limited partners ($194.42 and $231.54
      per unit, respectively; 75,000 units
      authorized, 68,414 units issued and
      outstanding)                                     7,488,305               9,196,048
    General partners                                       8,612                     209
                                                      ----------              ----------
Total partners' capital                                7,496,917               9,196,257
                                                      ----------              ----------

                                                      $7,665,114              $9,306,143
                                                      ==========              ==========
</TABLE>

          (See accompanying notes to unaudited financial statements)
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE>
<CAPTION>
                                  Three Months Ended   Nine Months Ended    Three Months Ended   Nine Months Ended
                                  September 30, 1999   September 30, 1999   September 30, 1998   September 30, 1998
                                  ------------------   ------------------   ------------------   ------------------
<S>                               <C>                  <C>                  <C>                  <C>
Investment Activity

Property rentals                            $299,269           $  893,709           $  297,369           $  945,316
Property operating expenses                  (42,444)            (205,828)             (65,705)            (205,613)
Depreciation and amortization                (56,037)            (179,727)             (73,660)            (225,082)
                                            --------           ----------           ----------           ----------
                                             200,788              508,154              158,004              514,621

Joint venture earnings                            --                   --               45,257              597,936
Amortization                                      --                   --                   --               (3,138)
                                            --------           ----------           ----------           ----------
  Total real estate operations               200,788              508,154              203,261            1,109,419

Gain on sale of Joint Venture                     --            1,509,931            5,869,421            5,869,421
                                            --------           ----------           ----------           ----------
  Total real estate activity                 200,788            2,018,085            6,072,682            6,978,840

Interest on cash equivalents
  and short-term investments                  10,256               72,221               74,588              140,698
                                            --------           ----------           ----------           ----------
  Total investment activity                  211,044            2,090,306            6,147,270            7,119,538
                                            --------           ----------           ----------           ----------
Portfolio Expenses

General and administrative                    38,166              183,418               55,018              163,306
Management fee                                53,583              124,799               36,565              127,875
                                            --------           ----------           ----------           ----------
                                              91,749              308,217               91,583              291,181
                                            --------           ----------           ----------           ----------
</TABLE>
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

<TABLE>
<S>                                         <C>                <C>                  <C>                  <C>
Net Income                                  $119,295           $1,782,089           $6,055,687           $6,828,357
                                            ========           ==========           ==========           ==========

Net income per limited partnership
  unit                                      $   1.73           $    25.79           $    87.63           $    98.81
                                            ========           ==========           ==========           ==========

Cash distributions per
  limited partnership unit                  $   2.19           $    50.75           $   254.68           $   268.04
                                            ========           ==========           ==========           ==========

Number of limited partnership
  units outstanding during the period         68,414               68,414               68,414               68,414
                                            ========           ==========           ==========           ==========
</TABLE>

          (See accompanying notes to unaudited financial statements)
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)

<TABLE>
<CAPTION>
                                   Three Months Ended      Nine Months Ended      Three Months Ended        Nine Months Ended
                                   September 30, 1999      September 30, 1999     September 30, 1998        September 30, 1998
                                   ------------------      ------------------     ------------------        ------------------

                                  General     Limited     General     Limited    General      Limited     General     Limited
                                  Partners    Partners    Partners    Partners   Partners     Partners    Partners    Partners
                                  --------   ----------   --------  -----------  --------   ------------  --------   -----------
<S>                               <C>        <C>          <C>       <C>          <C>        <C>           <C>       <C>
Balance at
beginning of
period                            $ 8,932    $7,520,030   $   209   $ 9,196,048  $(59,015)  $ 20,710,069  $(57,510) $ 20,859,138


Cash
distributions                      (1,513)     (149,827)   (9,418)   (3,472,011)   (4,616)   (17,423,678)  (13,848)  (18,337,690)


Net income                          1,193       118,102    17,821     1,764,268    60,557      5,995,130    68,284     6,760,073
                                  -------    ----------   -------   -----------  --------   ------------  --------  ------------

Balance at
end of period                     $ 8,612    $7,488,305   $ 8,612   $ 7,488,305  $ (3,074)  $  9,281,521  $ (3,074) $  9,281,521
                                  =======    ==========   =======   ===========  ========   ============  ========  ============
</TABLE>

          (See accompanying notes to unaudited financial statements)
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
                                               Nine Months Ended September 30,
                                               -------------------------------
                                                   1999                1998
                                               -----------         -----------
<S>                                            <C>                <C>
Net cash provided by operating activities      $   451,026        $  1,374,077
                                               -----------        ------------

Cash flows from investing activities:
    Investment in property                          (4,821)            (29,788)
    Net proceeds from sale of joint venture      2,639,445          16,475,000
    Deferred disposition fees                           --             510,000
    Decrease in short-term
         investments, net                               --             931,125
                                               -----------        ------------
            Net cash provided by
            investing activities                 2,634,624          17,886,337
                                               -----------        ------------

Cash flows from financing activity:
    Distributions to partners                   (3,481,429)        (18,351,538)
                                               -----------        ------------

            Net increase (decrease) in
            cash and cash equivalents             (395,779)            908,876

Cash and cash equivalents:
    Beginning of period                          1,952,504           1,645,244
                                               -----------        ------------

    End of period                              $ 1,556,725        $  2,554,120
                                               ===========        ============
</TABLE>

          (See accompanying notes to unaudited financial statements)
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (Unaudited)

     In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the Partnership's
financial position as of September 30, 1999 and December 31, 1998 and the
results of its operations, its cash flows and partners' capital (deficit) for
the three and nine months ended September 30, 1999 and 1998. These adjustments
are of a normal recurring nature.

     See notes to audited financial statements included in the Partnership's
1998 Annual Report on Form 10-K for additional information relating to the
Partnership's financial statements.

NOTE 1 - ORGANIZATION AND BUSINESS
----------------------------------

     New England Life Pension Properties III; A Real Estate Limited Partnership
(the "Partnership") is a Massachusetts limited partnership organized for the
purpose of investing primarily in newly constructed and existing income
producing real properties. The Partnership primarily serves as an investment for
qualified pension and profit sharing plans and other entities intended to be
exempt from federal income tax. The Partnership commenced operations in July
1985 and acquired the one investment it currently owns prior to the end of 1988.
The Partnership intends to dispose of its investments within twelve years of
their acquisition, and then liquidate; however, the managing general partner
could extend the investment period if it is in the best interest of the limited
partners. The Partnership has engaged AEW Real Estate Advisors, Inc. ("AEW") to
provide asset management advisory services.

NOTE 2 - REAL ESTATE JOINT VENTURES
-----------------------------------

     The following summarized financial information is presented for the
Bayberry joint venture whose property was sold on August 7, 1998.

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

<TABLE>
<CAPTION>
                                   Nine Months ended September 30,
                                   -------------------------------
                                       1999               1998
                                   ------------       ------------
<S>                                <C>                <C>
Revenue
  Rental income                    $          -         $1,444,843
  Other                                       -              3,862
                                   ------------         ----------
                                              -          1,448,705
                                   ------------         ----------
Expenses
  Operating expenses                          -            638,983
  Depreciation and amortization               -            198,186
                                   ------------         ----------
                                              -            837,169
                                   ------------         ----------
  Net income                       $          -         $  611,536
                                   ============         ==========
</TABLE>
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

     Expenses exclude amounts owed and attributable to the Partnership on behalf
of its various financing arrangements with the joint venture.

NOTE 3 - PROPERTY
-----------------

     270 Technology Park
     -------------------

     Effective January 1, 1998, the 270 Technology Park joint venture was
restructured and the venture partner's ownership interest was assigned 99% to
the Partnership, and 1% to an affiliate of the Partnership. Accordingly, as of
this date, the investment is being accounted for as a wholly-owned property. The
carrying value of the joint venture investment at conversion ($6,162,959) was
allocated to land, building and improvements, and other net operating assets.

     The building is being depreciated over 30 years, beginning January 1, 1998.

     North Cabot Industrial Park (formerly Marathon/Hayward)
     -------------------------------------------------------

     In September 1985, the Partnership acquired land in Hayward, California,
for $786,130 and leased it back to the seller. The Partnership also made a
nonrecourse permanent mortgage loan of $2,663,870 to the ground lessee to
finance the two research and development buildings located on the land.

         On November 15, 1994, the Partnership restructured this ground
lease/mortgage loan investment into a wholly-owned property, due to the
inability of the ground lessee/mortgagor to meet its financial obligations. The
Partnership received $85,000 in settlement of the guaranty that had been
provided by principals of the ground lessee. The Partnership obtained title to
the improvements on the land and to certain other operating assets in full
satisfaction of the related mortgage loan and obligations under the ground
lease, and in consideration of the assumption by the Partnership of certain
operating liabilities. The carrying value of the ground lease/mortgage loan
investment as of the date of restructuring was allocated to land, buildings and
net operating assets.

     The buildings and improvements (two industrial buildings in Hayward,
California) were being depreciated over 25 years beginning November 15, 1994.

          Prior to 1994, the managing general partner determined that the
carrying value of this investment should be reduced to its estimated fair market
value. Accordingly, the carrying value was reduced by $2,500,000.

          On March 18, 1999, the North Cabot Industrial Park investment was sold
to an unaffiliated third party (the "Buyer") for gross proceeds of $2,800,000.
The terms of the sale were determined by arm's length negotiation between the
Buyer and the Partnership. The Partnership received net proceeds of $2,639,445
and recognized a gain of $1,509,931 ($21.85 per limited partnership unit). On
April 29, 1999, the Partnership made a capital distribution of $2,539,528
($37.12 per limited partnership unit) from the proceeds of the sale.
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

     The following is a summary of the Partnership's investment in property (one
at September 30, 1999, and two at December 31, 1998):

<TABLE>
<CAPTION>
                                   September 30, 1999       December 31, 1998
                                   ------------------       ------------------
<S>                                <C>                      <C>

  Land                                  $  215,404               $  215,404
  Buildings and improvements             5,658,212                5,653,391
  Accumulated depreciation
     and amortization                     (296,657)                (156,156)
  Net operating assets                     531,430                  443,695
  Property held for disposition                  -                1,197,305
                                        ----------               ----------
                                        $6,108,389               $7,353,639
                                        ==========               ==========
</TABLE>

NOTE 4 - SUBSEQUENT EVENT
-------------------------

     Distributions of cash from operations relating to the quarter ended
September 30, 1999 were made on October 28, 1999 in the aggregate amount of
$143,047 ($2.07 per limited partnership unit). In addition, two special
distributions were also made on October 28, 1999: a distribution from operating
cash flow previously held in reserves totaling $398,736 ($5.77 per limited
partnership unit) and a special capital distribution, from unallocated sales
reserves, in the amount of $740,239 ($10.82 per limited partnership unit).
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

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

Liquidity and Capital Resources
-------------------------------

     The Partnership completed its offering of units of limited partnership
interest in December 1985 and a total of 68,414 units were sold. The Partnership
received proceeds of $61,950,285, net of selling commissions and other offering
costs, which were invested in real estate, used to pay related acquisition
costs, or retained as working capital reserves. The Partnership made nine real
estate investments, six of which were sold prior to 1994, and one of which was
sold in each of 1998 and 1999. As a result of the sales and similar
transactions, capital of $55,112,950 ($805.58 per limited partnership unit) has
been returned to the limited partners through September 30, 1999.

     At September 30, 1999, the Partnership had $1,556,725 in cash and cash
equivalents, of which $541,783 was used for operating cash distributions, and
$740,239 was used for capital distributions to partners on October 28, 1999; the
remainder is being retained as working capital reserves. The source of future
liquidity and cash distributions to partners will primarily be cash generated by
the Partnership's last remaining real estate investment and invested cash and
cash equivalents. Distributions of cash from operations for the first, second
and third quarters of 1999 were made at the annualized rate of 4.25% on the
adjusted capital contribution of $231.54, the weighted average adjusted capital
contribution of $205.97 and the adjusted capital contribution of $194.42 per
limited partnership unit, respectively. Distributions of cash from operations
relating to the first and second quarters of 1998 were made at an annualized
rate of 5.5% on the adjusted capital contribution of $485.54. Distributions of
cash from operations relating to the third quarter of 1998 were made at an
annualized rate of 5.5% on the weighted average adjusted capital contribution of
$389.10. The distribution rate was lower in 1999 primarily due to the sale of
investments in 1998 and 1999 and the consequent reduction in cash flow.

     The carrying value of real estate investments in the financial statements
at September 30, 1999 is at depreciated cost, or if the investment's carrying
value is determined not to be recoverable through expected undiscounted future
cash flows, the carrying value is reduced to estimated fair market value. The
fair market value of such investments is further reduced by the estimated cost
of sale for properties held for sale. Carrying value may be greater or less than
current appraised value. At September 30, 1999, the appraised value of the
Partnership's remaining real estate investment exceeded its related carrying
value by approximately $650,000. The current appraised value of the real estate
investment has been determined by the managing general partner and is generally
based on a combination of traditional appraisal approaches performed by AEW and
independent appraisers. Because of the subjectivity inherent in the valuation
process, the current appraised value may differ significantly from that which
could be realized if the real estate were actually offered for sale in the
marketplace.
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

Year 2000 Readiness Disclosure
------------------------------

     The Year 2000 Issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software 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 or engage in normal
business operations.

     The Partnership relies on AEW Capital Management L.P. ("AEW Capital
Management"), the parent of the Advisor, to generate financial information and
to provide other services, which are dependent on the use of computers. The
Partnership has obtained assurances from AEW Capital Management that:

     .    AEW Capital Management has developed a Year 2000 Plan (the "Plan")
          consisting of five phases: inventory, assessment, testing,
          remediation/repair and certification.

     .    As of September 30, 1998, AEW Capital Management had completed the
          inventory and assessment phases of this Plan and had commenced the
          testing and remediation/repair of internal systems.

     .    AEW Capital Management concluded the internal testing,
          remediation/repair and certifications of its Plan in June 1999.

     .    AEW Capital Management successfully participated in industry-wide
          testing in August 1999.

     .    AEW Capital Management believes it is ready for Year 2000. AEW Capital
          Management has advised the Partnership that being ready means that AEW
          Capital Management has tested its internal mission critical systems
          and software applications, and based upon testing conducted, AEW
          Capital Management believes that such systems and applications are
          prepared to process dates correctly through the Year 2000.

     Based upon these assurances, the Partnership has determined that it is not
necessary for it to develop a Year 2000 contingency plan.

     The Partnership also relies on joint venture partners and/or property
managers to supply financial and other data with respect to its real properties.
The Partnership is in the process of surveying these third party providers and
assessing their compliance with Year 2000 requirements. To date, the Partnership
is not aware of any problems that would materially impact its results of
operations, liquidity or capital resources. However, the Partnership has not yet
obtained written assurances that these providers would be Year 2000 compliant.

     The inability of one of these providers to complete its Year 2000
resolution process could materially impact the Partnership. In addition, the
Partnership is also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failures and related service interruptions. Given the nature of its
operations, the Partnership will not incur any costs associated with Year 2000
compliance. All such costs are borne by AEW Capital Management and the property
managers.
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

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

     Form of Real Estate Investments

     North Cabot Industrial Park, which was sold in March 1999, was a wholly-
owned property. Effective January 1, 1998, 270 Technology Park was converted to
a wholly-owned property; it was previously structured as a joint venture with a
real estate management/development firm. The Bayberry Apartments investment,
which was sold in August 1998, was structured as a joint venture with a real
estate management/development firm.

     Operating Factors

     The North Cabot Industrial Park was sold on March 18, 1999, and the
Partnership recognized a gain of $1,509,931. Occupancy at North Cabot Industrial
Park was 92% at the time of the sale. At September 30, 1998, the property was
also 92% occupied.

     Occupancy at 270 Technology Park decreased to 95% during the third quarter
of 1999, down from 100% during the third quarter of 1998.

     The Bayberry Apartments investment was sold on August 7, 1998, and the
Partnership recognized a gain of $6,391,800. At the time of the sale, the
Bayberry Apartments was 95% leased.

     Investment Results

     Interest on cash equivalents and short-term investments for the three and
nine months ended September 30, 1999, was $10,256 and $72,221, respectively,
compared to $74,588 and $140,698 for the same periods in 1998. The decreases of
approximately $64,000 or 86% and $68,000 or 49% for the respective three and
nine month periods are primarily due to lower average investment balances in
1999 as a result of the sale of Bayberry Apartments in August 1998 and the sale
of North Cabot Industrial Park in March 1999.

     For the three and nine months ended September 30, 1999, operating results
from real estate operations were $200,788 and $508,154, respectively, compared
to $203,261 and $1,109,419 for the comparable periods in 1998. The decreases of
$2,473 and $601,265 for the comparative three and nine month periods are
primarily due to no joint venture earnings as a result of the sale of Bayberry
Apartments in August 1998 and lower property operating results as a result of
the North Cabot Industrial Park sale in March 1999. Partially offsetting this
decrease is improved operating performance at 270 Technology Park for the three
months ended September 30, 1999 as a result of higher rental rates and higher
recovery income.

     Cash flow from operations decreased by approximately $923,000 between the
respective nine-month periods. The decrease is primarily due to the decrease in
operating activity as a result of the sales discussed above.

     Portfolio Expenses

     The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the managing general partner. General and administrative expenses
primarily consist of real estate appraisal, legal, accounting, printing and
servicing agent fees.
<PAGE>

NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP

     For the three and nine months ended September 30, 1999, management fees
were $53,583 and $124,799, respectively, compared to $36,565 and $127,875 for
the comparable periods in 1998. The increase in management fees between the
three month periods is due to a special operational cash distribution from cash
previously held in reserves which was made on October 28, 1999. The decrease in
management fees for the nine month periods is due to lower operational cash
distributions as a result of the sales of Bayberry Apartments in 1998 and North
Cabot Industrial Park in 1999.

     General and administrative expenses for the three and nine months ended
September 30, 1999 were $38,166 and $183,418, respectively, compared to $55,018
and $163,306 for the same periods in 1998. The decrease of approximately $17,000
or 31% for the respective three month periods is primarily due to higher
servicing agent fees and out of pocket expenses incurred during the third
quarter of 1998. The increase of approximately $20,000 or 12% for the respective
nine month periods is primarily due to increases in state taxes, accounting fees
and investor servicing fees due to sales.
<PAGE>

                   NEW ENGLAND LIFE PENSION PROPERTIES III;
                       A REAL ESTATE LIMITED PARTNERSHIP

                                   FORM 10-Q

                     FOR QUARTER ENDED SEPTEMBER 30, 1999

                                    PART II

                               OTHER INFORMATION
                              -------------------

Items 1-5  Not Applicable

Item 6.    Exhibits and Reports on Form 8-K

               a.   Exhibits: (27) Financial Data Schedule

               b.   Reports on Form 8-K: No reports on Form 8-K were filed
                    during the quarter ended September 30, 1999.
<PAGE>

                                  SIGNATURES
                                  ----------

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                              NEW ENGLAND LIFE PENSION PROPERTIES III;
                              A REAL ESTATE LIMITED PARTNERSHIP
                              (Registrant)

November 11, 1999
                              /s/ Alison Husid Cutler
                              -------------------------------
                                Alison Husid Cutler
                                President, Chief Executive Officer and Director
                                of Managing General Partner,
                                Copley Properties Company III, Inc.

November 11, 1999
                              /s/ Karin J. Lagerlund
                              --------------------------------
                                Karin J. Lagerlund
                                Principal Financial and Accounting Officer of
                                Managing General Partner,
                                Copley Properties Company III, Inc.