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



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

                                   Form 10-QSB

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


              For the quarterly period ended September 30, 2001


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


             For the transition period from _________to _________

                         Commission file number 0-10260


                             SHELTER PROPERTIES III
      (Exact name of small business issuer as specified in its charter)



         South Carolina                                          57-0718508
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                       55 Beattie Place, P.O. Box 1089
                       Greenville, South Carolina 29602
                   (Address of principal executive offices)

                                 (864) 239-1000
                           (Issuer's telephone number)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.
Yes X  No____


<PAGE>



                         PART I - FINANCIAL INFORMATION



ITEM 1.     FINANCIAL STATEMENTS


a)

                             SHELTER PROPERTIES III
                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
                       (in thousands, except unit data)

                               September 30, 2001

<TABLE>
<CAPTION>

Assets
<S>                                                                       <C>
   Cash and cash equivalents                                              $    260
   Receivables and deposits                                                    197
   Restricted escrows                                                          135
   Other assets                                                                467
   Investment properties:
      Land                                                 $   1,281
      Buildings and related personal property                 27,585
                                                              28,866
      Less accumulated depreciation                          (17,956)       10,910
                                                                          $ 11,969

Liabilities and Partners' Deficit
Liabilities
   Accounts payable                                                       $    153
   Tenant security deposit liabilities                                          99
   Accrued property taxes                                                      305
   Other liabilities                                                           538
   Mortgage notes payable                                                   15,062

Partners' Deficit
   General partners                                        $   (108)
   Limited partners (55,000 units issued and
      outstanding)                                           (4,080)        (4,188)
                                                                          $ 11,969


         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

b)

                             SHELTER PROPERTIES III
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                     (in thousands, except per unit data)
<TABLE>
<CAPTION>

                                     Three Months Ended            Nine Months Ended
                                       September 30,                 September 30,

                                    2001           2000           2001           2000
Revenues:
<S>                                <C>           <C>            <C>             <C>
   Rental income                   $1,288        $1,306         $3,945          $3,982
   Other income                       107           108            321             318
       Total revenues               1,395         1,414          4,266           4,300

Expenses:
   Operating                          790           638          2,002           1,843
   General and administrative          81           114            248             261
   Depreciation                       264           259            812             786
   Interest                           287           177            858             514
   Property taxes                      98           107            309             286
       Total expenses               1,520         1,295          4,229           3,690

   Net (loss) income               $ (125)       $  119         $   37          $  610

Net (loss) income allocated
   to general partners (1%)        $   (1)       $    1         $    0          $    6
Net (loss) income allocated
   to limited partners (99%)         (124)          118             37             604
                                   $ (125)       $  119         $   37          $  610
Net (loss) income per
   limited partnership unit        $(2.25)       $ 2.14         $  .67          $10.98

Distributions per limited
   partnership unit                $   --        $   --         $26.05          $10.44

         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>


c)

                            SHELTER PROPERTIES III
            CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
                                   (Unaudited)
                       (in thousands, except unit data)
<TABLE>
<CAPTION>

                                       Limited
                                     Partnership     General      Limited
                                        Units        Partners    Partners     Total

<S>                                    <C>             <C>        <C>        <C>
Original capital contributions         55,000         $   2       $27,500    $27,502

Partners' deficit at
   December 31, 2000                   55,000         $ (94)      $(2,684)   $(2,778)

Distributions to partners                  --           (14)       (1,433)    (1,447)

Net income for the nine months
   ended September 30, 2001                --             0            37         37

Partners' deficit at
   September 30, 2001                  55,000         $(108)     $ (4,080)   $(4,188)

         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

d)

                             SHELTER PROPERTIES III
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                (in thousands)
<TABLE>
<CAPTION>

                                                                 Nine Months Ended
                                                                   September 30,
                                                                  2001        2000
Cash flows from operating activities:
<S>                                                             <C>          <C>
   Net income                                                   $    37      $   610
   Adjustments to reconcile net income to net
     cash provided by operating activities:
        Depreciation                                                812          786
        Amortization of discounts and loan costs                     21           78
        Change in accounts:
            Receivables and deposits                                281          253
            Other assets                                            (50)         (29)
            Accounts payable                                         59          (55)
            Tenant security deposit liabilities                      (5)          14
            Accrued property taxes                                   35          123
            Other liabilities                                       164           50

               Net cash provided by operating activities          1,354        1,830

Cash flows from investing activities:
   Property improvements and replacements                          (648)        (755)
   Net withdrawals from (deposits to) restricted escrows            599         (160)

               Net cash used in investing activities                (49)        (915)

Cash flows from financing activities:
   Loan costs paid                                                  (32)          --
   Payments on mortgage notes payable                              (231)        (205)
   Partners' distributions                                       (1,447)        (580)

               Net cash used in financing activities             (1,710)        (785)

Net (decrease) increase in cash and cash equivalents               (405)         130

Cash and cash equivalents at beginning of period                    665          655

Cash and cash equivalents at end of period                      $   260      $   785

Supplemental disclosure of cash flow information:
   Cash paid for interest                                       $   749      $   460

         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

e)

                             SHELTER PROPERTIES III
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note A - Basis of Presentation

The  accompanying   unaudited   consolidated  financial  statements  of  Shelter
Properties  III (the  "Partnership"  or  "Registrant")  have  been  prepared  in
accordance with generally accepted  accounting  principles for interim financial
information  and  with  the  instructions  to Form  10-QSB  and  Item 310 (b) of
Regulation  S-B.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.  The general  partner  responsible  for management of the
Partnership's  business  is Shelter  Realty III  Corporation,  a South  Carolina
corporation (the "Corporate General Partner").  The Corporate General Partner is
a  subsidiary  of Apartment  Investment  and  Management  Company  ("AIMCO"),  a
publicly  traded real estate  investment  trust. In the opinion of the Corporate
General  Partner,  all  adjustments  (consisting of normal  recurring  accruals)
considered  necessary  for a fair  presentation  have been  included.  Operating
results for the three and nine month periods ended  September 30, 2001,  are not
necessarily  indicative  of the results that may be expected for the fiscal year
ending  December 31, 2001. For further  information,  refer to the  consolidated
financial  statements and footnotes thereto included in the Partnership's Annual
Report on Form 10-KSB for the year ended December 31, 2000.

Principles of Consolidation

The financial  statements include all of the accounts of the Partnership and its
99.99% owned  partnership.  The Corporate  General  Partner of the  consolidated
partnership is Shelter Realty III  Corporation.  Shelter Realty III  Corporation
may be removed as the general  partner of the  consolidated  partnership  by the
Registrant;   therefore,   the   consolidated   partnership  is  controlled  and
consolidated by the Registrant.  All significant  interpartnership balances have
been eliminated.

Segment Reporting

Statement of Financial  Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" 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.  As  defined  in SFAS  No.  131,  the
Partnership  has only one  reportable  segment.  The Corporate  General  Partner
believes that  segment-based  disclosures  will not result in a more  meaningful
presentation than the consolidated financial statements as currently presented.

Note B - Reconciliation of Cash Flows

The  following  is  a  reconciliation   of  the  subtotal  on  the  accompanying
consolidated  statements of cash flows captioned "net cash provided by operating
activities" to "net cash provided by operations",  as defined in the Partnership
Agreement.  However,  "net cash provided by operations" should not be considered
an  alternative  to net income as an  indicator of the  Partnership's  operating
performance or to cash flows as a measure of liquidity.


                                                      For the Nine Months Ended
                                                            September 30,
                                                        2001             2000
                                                            (in thousands)
Net cash provided by operating activities            $ 1,354            $ 1,830
   Payments on mortgage notes payable                   (231)              (205)
   Property improvements and replacements               (648)              (755)
   Change in restricted escrows, net                     599               (160)
   Changes in reserves for net operating
      assets                                            (417)              (356)
   Additional reserves                                  (657)              (132)

      Net cash provided by operations                $    --            $   222

The Corporate  General Partner reserved  approximately  $657,000 and $132,000 at
September  30, 2001 and 2000,  respectively,  to fund capital  improvements  and
repairs at the Partnership's four investment properties.

Note C - Transactions with Affiliated Parties

The  Partnership  has no employees  and is dependent  on the  Corporate  General
Partner  and  its  affiliates  for  the  management  and  administration  of all
partnership  activities.  The Partnership Agreement provides for (i) payments to
affiliates for services and (ii)  reimbursement of certain expenses  incurred by
affiliates  on behalf of the  Partnership.  The  following  amounts were paid or
accrued to the Corporate  General Partner and affiliates  during the nine months
ended September 30, 2001 and 2000.

                                                                 2001      2000
                                                                 (in thousands)

Property management fees (included in
  operating expenses)                                            $220      $216
Reimbursement for services of affiliates
  (included in operating and general and
   administrative expenses and investment properties)             385       145
Due to general partners (included in other liabilities)           185       185
Due from general partners (included in receivables and
   deposits)                                                       11        11

During the nine months  ended  September  30, 2001 and 2000,  affiliates  of the
Corporate General Partner were entitled to receive 5% of gross receipts from all
of the Registrant's  properties for providing property management services.  The
Registrant paid to such affiliates  approximately  $220,000 and $216,000 for the
nine months ended September 30, 2001 and 2000, respectively.

An  affiliate  of  the  Corporate  General  Partner  received  reimbursement  of
accountable  administrative  expenses  amounting to  approximately  $385,000 and
$145,000 for the nine months ended  September  30, 2001 and 2000,  respectively.
Included in these amounts are approximately  $249,000 and $3,000 of construction
service reimbursements.

During 1986 a liability  of  approximately  $185,000 was incurred to the general
partners for sales commissions  earned.  Pursuant to the Partnership  Agreement,
this  liability  cannot be paid until certain  levels of returns are received by
the limited  partners.  As of  September  30,  2001,  the level of return to the
limited partners has not been met.

In addition to its indirect  ownership of the combined general partner interests
in the  Partnership,  AIMCO and its  affiliates  currently  own  34,621  limited
partnership  units in the  Partnership  representing  62.95% of the  outstanding
units.  A number of these units were acquired  pursuant to tender offers made by
AIMCO or its  affiliates.  It is possible that AIMCO or its affiliates will make
one  or  more  additional  offers  to  acquire  additional  limited  partnership
interests in the  Partnership for cash or in exchange for units in the operating
partnership of AIMCO.  Under the Partnership  Agreement,  unitholders  holding a
majority of the Units are  entitled to take action with  respect to a variety of
matters, which would include without limitation, voting on certain amendments to
the Partnership Agreement and voting to remove the general partners. As a result
of its ownership of 62.95% of the outstanding  units,  AIMCO is in a position to
control all voting  decisions  with  respect to the  Registrant.  When voting on
matters,  AIMCO would in all  likelihood  vote the Units it acquired in a manner
favorable  to the  interest  of the  Corporate  General  Partner  because of its
affiliation with the Corporate General Partner.

Note D - Distributions

During  the  nine  months  ended  September  30,  2001,  the  Partnership   made
distributions  of  approximately  $1,447,000  (approximately  $1,433,000  to the
limited  partners  or $26.05 per  limited  partnership  unit)  from  operations.
Included in this amount was approximately  $8,000 which consisted of withholding
taxes paid to the state of South  Carolina  on behalf of the  limited  partners.
During  the  nine  months  ended  September  30,  2000,  cash  distributions  of
approximately $580,000 (approximately $574,000 to the limited partners or $10.44
per limited partnership unit) were paid from operations. Included in this amount
was approximately $15,000 which consisted of withholding taxes paid to the state
of South Carolina on behalf of the limited partners.

Note E - Legal Proceedings

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of  California  for the  County  of San  Mateo.  The  plaintiffs  named as
defendants,  among others,  the Partnership,  its Corporate  General Partner and
several of their  affiliated  partnerships  and corporate  entities.  The action
purports  to  assert  claims  on  behalf  of a class  of  limited  partners  and
derivatively  on behalf  of a number  of  limited  partnerships  (including  the
Partnership)  which are named as nominal  defendants,  challenging,  among other
things,  the  acquisition of interests in certain  general  partner  entities by
Insignia  Financial  Group,  Inc.  ("Insignia")  and entities which were, at one
time,  affiliates of Insignia;  past tender offers by the Insignia affiliates to
acquire  limited  partnership  units;  management  of  the  partnerships  by the
Insignia  affiliates;  and the series of transactions which closed on October 1,
1998 and  February 26, 1999 whereby  Insignia  and  Insignia  Properties  Trust,
respectively,  were merged into AIMCO.  The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998,  the Corporate  General  Partner filed a motion  seeking  dismissal of the
action.  In lieu of responding to the motion,  the  plaintiffs  filed an amended
complaint.  The  Corporate  General  Partner  filed  demurrers  to  the  amended
complaint which were heard February 1999.

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Corporate  General Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Corporate  General  Partner and its  affiliates  filed a
demurrer to the third amended  complaint.  On May 14, 2001,  the Court heard the
demurrer to the third amended  complaint.  On July 10, 2001, the Court issued an
order  sustaining  defendants'  demurrer on certain  grounds.  On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs  filed a fourth amended class and  derivative  action  complaint.  On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration.  On
October 5, 2001, the Corporate General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint,  which, together with a demurrer filed
by other  defendants,  is currently  scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.

During the third  quarter of 2001, a complaint  (the "Heller  action") was filed
against  the same  defendants  that are named in the  Nuanes  action,  captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended  complaint.  The first amended complaint in the Heller action is
brought as a purported  derivative  action,  and asserts  claims for among other
things  breach  of  fiduciary  duty;  unfair  competition;   conversion,  unjust
enrichment;  and judicial  dissolution.  Plaintiffs in the Nuanes action filed a
motion to  consolidate  the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed  without  leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Corporate  General Partner and affiliated
defendants  moved to strike the first  amended  complaint  in its  entirety  for
violating  the Court's July 10, 2001 order  granting in part and denying in part
defendants'  demurrer in the Nuanes action, or alternatively,  to strike certain
portions of the complaint based on the statute of limitations.  Other defendants
in the action  demurred to the fourth  amended  complaint,  and,  alternatively,
moved to strike the complaint.  The matters are currently  scheduled to be heard
on November 15, 2001.

The Corporate General Partner does not anticipate that any costs,  whether legal
or  settlement  costs,  associated  with  these  cases will be  material  to the
Partnership's overall operations.

The  Partnership is unaware of any other pending or outstanding  litigation that
is not of a routine nature arising in the ordinary course of business.


<PAGE>
Item 2.     Management's Discussion and Analysis or Plan of Operation

The  matters  discussed  in this Form  10-QSB  contain  certain  forward-looking
statements  and  involve  risks and  uncertainties  (including  changing  market
conditions,   competitive  and  regulatory   matters,   etc.)  detailed  in  the
disclosures  contained  in this  Form  10-QSB  and the  other  filings  with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussions of the  Registrant's  business and results of operations,  including
forward-looking  statements  pertaining  to such  matters,  does not  take  into
account the effects of any changes to the  Registrant's  business and results of
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.

The Partnership's investment properties consist of four apartment complexes. The
following  table sets forth the average  occupancy of the properties for each of
the nine months ended September 30, 2001 and 2000:

                                                             Average
                                                            Occupancy
       Property                                        2001          2000

       Essex Park Apartments
          Columbia, South Carolina                     92%            91%

       Colony House Apartments
          Mufreesboro, Tennessee                       85%            91%

       North River Village Apartments
          Atlanta, Georgia                             94%            95%

       Willowick Apartments
          Greenville, South Carolina                   94%            96%

The Corporate  General  Partner  attributes  the decrease in occupancy at Colony
House  Apartments to the  competitive  market of the  apartment  industry in the
Mufreesboro area. The decrease is also attributable to the purchase of new homes
by tenants due to lower interest rates.

Results of Operations

The  Registrant's  net income for the nine months ended  September  30, 2001 was
approximately $37,000 as compared to approximately  $610,000 for the nine months
ended September 30, 2000. The  Registrant's  net loss for the three months ended
September  30,  2001 was  approximately  $125,000  as  compared to net income of
approximately  $119,000  for the three  months ended  September  30,  2000.  The
decrease in net income for both periods is due to an increase in total  expenses
and, to a lesser extent, a decrease in total revenues.  Total revenues decreased
for the three and nine  months  ended  September  30,  2001 due to a decrease in
rental  income.  Rental  income  decreased  primarily  due to a decrease  in the
occupancy  levels  at  three of the  Partnership's  investment  properties.  The
decrease in rental  income was largely  offset by an increase in average  rental
rates at all investment  properties and a slight  increase in occupancy at Essex
Park Apartments.

The increase in total expenses for the three and nine months ended September 30,
2001 is due to an  increase  in  depreciation  expense,  interest  expense,  and
operating  expenses,  which were  partially  offset by a decrease in general and
administrative expenses.  Depreciation expense increased as a result of property
improvements and replacements  placed into service during the past twelve months
at all four of the investment  properties.  Interest expense  increased for both
periods  due to  the  refinancing  of the  mortgages  encumbering  Colony  House
Apartments,  Essex Park Apartments and Willowick Apartments during December 2000
with  increased debt balances.  Operating  expenses  increased for the three and
nine months ended  September  30, 2001 due to increases in property  expenses at
Colony House  Apartments and Essex Park  Apartments and an increase in insurance
premiums for all of the investment properties.  Property expenses increased as a
result of an increase in employee  salaries and related benefits and an increase
in  utilities  paid on behalf  of  vacant  apartments.  Operating  expense  also
increased for the nine months ended September 30, 2001 due to expenses  incurred
for minor  repairs  performed  as a result of damage from an ice storm at Colony
House Apartments in January 2001.  Property tax expense  decreased for the three
month period and increased for the nine month period ended September 30, 2001 as
a result of the changes in assessed values of the investment  properties and the
timing and receipt of invoices from the taxing authorities.

General  and  administrative  expenses  decreased  for the three and nine  month
periods ended  September  30, 2001 as a result of a decrease in General  Partner
reimbursements  allowed  under  the  Partnership  Agreement  and a  decrease  in
Partnership  legal costs. Also included in general and  administrative  expenses
for the nine months ended September 30, 2001 and 2000 were costs associated with
the quarterly and annual  communications  with investors and regulatory agencies
and the annual appraisals required by the Partnership Agreement.

As part of the ongoing  business plan of the Registrant,  the Corporate  General
Partner monitors the rental market environments of its investment  properties to
assess the feasibility of increasing rents,  maintaining or increasing occupancy
levels and protecting  the  Partnership  from increases in expenses.  As part of
this plan, the Corporate  General  Partner  attempts to protect the  Partnership
from the burden of  inflation-related  increases in expenses by increasing rents
and maintaining a high overall occupancy level.  However, due to changing market
conditions  which  can  result  in the  use of  rental  concessions  and  rental
reductions to offset softening market conditions, there is no guarantee that the
Corporate General Partner will be able to sustain such a plan.

Liquidity and Capital Resources

At  September  30,  2001,  the  Partnership  had cash and  cash  equivalents  of
approximately $260,000 compared to approximately $785,000 at September 30, 2000.
The decrease in cash and cash equivalents of approximately $405,000 for the nine
months ended  September 30, 2001, from the  Partnership's  calendar year end, is
due to  approximately  $1,710,000  of cash  used  in  financing  activities  and
approximately  $49,000 of cash used in investing  activities which was partially
offset by  approximately  $1,354,000 of cash  provided by operating  activities.
Cash  used in  investing  activities  consisted  of  property  improvements  and
replacements which were partially offset by net withdrawals from escrow accounts
maintained by the mortgage lender. Cash used in financing  activities  consisted
of partner distributions and, to a lesser extent,  payments of principal made on
the mortgages encumbering the Registrant's  properties and additional loan costs
related  to the  refinancing  of  the  mortgages  for  three  of the  investment
properties in December 2000. The Registrant invests its working capital reserves
in interest bearing accounts.

The sufficiency of existing  liquid assets to meet future  liquidity and capital
expenditure   requirements   is  directly   related  to  the  level  of  capital
expenditures  required at the investment  properties to adequately  maintain the
physical  assets and other  operating needs of the Registrant and to comply with
Federal, state and local legal and regulatory requirements. Capital improvements
completed at each of the Registrant's properties are detailed below.

Colony House Apartments

The Partnership has completed  approximately $190,000 in capital expenditures as
of September  30, 2001,  consisting  primarily of floor  covering and  appliance
replacements, air conditioning improvements, and structural improvements.  These
improvements  were  funded  primarily  from  operations.   The  Partnership  has
budgeted, but is not limited to, approximately $173,000 for capital improvements
during 2001 at Colony House  Apartments,  consisting  primarily of appliance and
floor covering replacements and other building improvements.

Essex Park Apartments

The Partnership has completed  approximately $138,000 in capital expenditures as
of September 30, 2001,  consisting  primarily of air conditioning  improvements,
floor covering and appliance replacements and other building improvements. These
improvements  were  funded  primarily  from  operations.   The  Partnership  has
budgeted, but is not limited to, approximately $206,000 for capital improvements
during 2001 at Essex Park Apartments consisting primarily of appliance and floor
covering  replacements,   air  conditioning  replacements,  and  other  building
improvements.

Willowick Apartments

The Partnership has completed  approximately $124,000 in capital expenditures as
of September 30, 2001,  consisting primarily of structural  improvements,  floor
covering and appliance  replacements and major  landscaping.  These improvements
were funded primarily from operations.  The Partnership has budgeted, but is not
limited  to,  approximately  $144,000  for capital  improvements  during 2001 at
Willowick  Apartments,  consisting  primarily  of appliance  and floor  covering
replacements, air conditioning improvements, and major landscaping.

North River Village Apartments

The Partnership has completed  approximately $196,000 in capital expenditures as
of September  30, 2001,  consisting  primarily of floor  covering and  appliance
replacements,  plumbing  improvements,  and other building  improvements.  These
improvements  were  funded  primarily  from  operations.   The  Partnership  has
budgeted, but is not limited to, approximately $105,000 for capital improvements
during 2001 at North River  Apartments,  consisting  primarily of appliance  and
floor covering replacements and structural improvements.

The additional  capital  expenditures will be incurred only if cash is available
from  operations  and  Partnership  reserves.  To the extent that such  budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.

The  Registrant's  current assets are thought to be sufficient for any near term
needs  (exclusive  of capital  improvements)  of the  Registrant.  The  mortgage
indebtedness of approximately  $15,062,000,  net of discount,  is amortized over
varying periods with balloon payments due from October 2003 to January 2021. The
Corporate  General  Partner will attempt to refinance such  indebtedness  and/or
sell the properties  prior to such maturity dates.  If the properties  cannot be
refinanced or sold for a sufficient amount, the Registrant will risk losing such
properties through foreclosure.

During  the  nine  months  ended  September  30,  2001,  the  Partnership   made
distributions  of  approximately  $1,447,000  (approximately  $1,433,000  to the
limited  partners  or $26.05 per  limited  partnership  unit)  from  operations.
Included in this amount was approximately  $8,000 which consisted of withholding
taxes paid to the state of South  Carolina  on behalf of the  limited  partners.
During  the  nine  months  ended  September  30,  2000,  cash  distributions  of
approximately $580,000 (approximately $574,000 to the limited partners or $10.44
per limited partnership unit) were paid from operations. Included in this amount
was approximately $15,000 which consisted of withholding taxes paid to the state
of South Carolina on behalf of the limited partners.  Future cash  distributions
will  depend  on  the  levels  of  net  cash  generated  from  operations,   the
availability of cash reserves, and the timing of debt maturities,  refinancings,
and/or property sales. The  Partnership's  distribution  policy is reviewed on a
monthly basis.  There can be no assurance,  however,  that the Partnership  will
generate  sufficient  funds from operations,  after planned capital  improvement
expenditures,  to permit any additional distributions to its partners during the
remainder of 2001 or subsequent  periods.  In addition,  the  Partnership may be
restricted  from making  distributions  if the amount in the reserve account for
North River Village  Apartments  maintained by the mortgage  lender is less than
$200 per apartment  unit. As of September 30, 2001 the reserve account was fully
funded with approximately $53,000 on deposit with the mortgage lender.

In addition to its indirect  ownership of the combined general partner interests
in the  Partnership,  AIMCO and its  affiliates  currently  own  34,621  limited
partnership  units in the  Partnership  representing  62.95% of the  outstanding
units.  A number of these units were acquired  pursuant to tender offers made by
AIMCO or its  affiliates.  It is possible that AIMCO or its affiliates will make
one  or  more  additional  offers  to  acquire  additional  limited  partnership
interests in the  Partnership for cash or in exchange for units in the operating
partnership of AIMCO.  Under the Partnership  Agreement,  unitholders  holding a
majority of the Units are  entitled to take action with  respect to a variety of
matters, which would include without limitation, voting on certain amendments to
the Partnership Agreement and voting to remove the general partners. As a result
of its ownership of 62.95% of the outstanding  units,  AIMCO is in a position to
control all voting  decisions  with  respect to the  Registrant.  When voting on
matters,  AIMCO would in all  likelihood  vote the Units it acquired in a manner
favorable  to the  interest  of the  Corporate  General  Partner  because of its
affiliation with the Corporate General Partner.



<PAGE>




                           PART II - OTHER INFORMATION


ITEM 1.     LEGAL PROCEEDINGS

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of  California  for the  County  of San  Mateo.  The  plaintiffs  named as
defendants,  among others,  the Partnership,  its Corporate  General Partner and
several of their  affiliated  partnerships  and corporate  entities.  The action
purports  to  assert  claims  on  behalf  of a class  of  limited  partners  and
derivatively  on behalf  of a number  of  limited  partnerships  (including  the
Partnership)  which are named as nominal  defendants,  challenging,  among other
things,  the  acquisition of interests in certain  general  partner  entities by
Insignia  Financial  Group,  Inc.  ("Insignia")  and entities which were, at one
time,  affiliates of Insignia;  past tender offers by the Insignia affiliates to
acquire  limited  partnership  units;  management  of  the  partnerships  by the
Insignia  affiliates;  and the series of transactions which closed on October 1,
1998 and  February 26, 1999 whereby  Insignia  and  Insignia  Properties  Trust,
respectively,  were merged into AIMCO.  The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998,  the Corporate  General  Partner filed a motion  seeking  dismissal of the
action.  In lieu of responding to the motion,  the  plaintiffs  filed an amended
complaint.  The  Corporate  General  Partner  filed  demurrers  to  the  amended
complaint which were heard February 1999.

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Corporate  General Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Corporate  General  Partner and its  affiliates  filed a
demurrer to the third amended  complaint.  On May 14, 2001,  the Court heard the
demurrer to the third amended  complaint.  On July 10, 2001, the Court issued an
order  sustaining  defendants'  demurrer on certain  grounds.  On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs  filed a fourth amended class and  derivative  action  complaint.  On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration.  On
October 5, 2001, the Corporate General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint,  which, together with a demurrer filed
by other  defendants,  is currently  scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.

During the third  quarter of 2001, a complaint  (the "Heller  action") was filed
against  the same  defendants  that are named in the  Nuanes  action,  captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended  complaint.  The first amended complaint in the Heller action is
brought as a purported  derivative  action,  and asserts  claims for among other
things  breach  of  fiduciary  duty;  unfair  competition;   conversion,  unjust
enrichment;  and judicial  dissolution.  Plaintiffs in the Nuanes action filed a
motion to  consolidate  the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed  without  leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Corporate  General Partner and affiliated
defendants  moved to strike the first  amended  complaint  in its  entirety  for
violating  the Court's July 10, 2001 order  granting in part and denying in part
defendants'  demurrer in the Nuanes action, or alternatively,  to strike certain
portions of the complaint based on the statute of limitations.  Other defendants
in the action  demurred to the fourth  amended  complaint,  and,  alternatively,
moved to strike the complaint.  The matters are currently  scheduled to be heard
on November 15, 2001.

The Corporate General Partner does not anticipate that any costs,  whether legal
or  settlement  costs,  associated  with  these  cases will be  material  to the
Partnership's overall operations.


<PAGE>



ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            a)    Exhibits:

                  None.

            b)    Reports on Form 8-K filed during the quarter  ended  September
                  30, 2001:

                  None.


<PAGE>


                                   SIGNATURES



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



                                 SHELTER PROPERTIES III

                                 By:     Shelter Realty III Corporation
                                         Corporate General Partner

                                 By:     /s/Patrick J. Foye
                                         Patrick J. Foye
                                         Executive Vice President

                                 By:     /s/Martha L. Long
                                         Martha L. Long
                                         Senior Vice President and
                                         Controller

                                 Date:   November 6, 2001