<PAGE>

                     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, 1999

                                       OR

            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 2-81033


           Winthrop Residential Associates III, A Limited Partnership
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


               Maryland                                  04-2782016
---------------------------------------     ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


Five Cambridge Center, Cambridge, MA                     02142-1493
---------------------------------------     ------------------------------------
(Address of principal executive office)                  (Zip Code)

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

Indicate by check mark whether 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
                                      ---   ---

                                    1 of 13

<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
                                                                September 30,      December 31,
(In Thousands, Except Unit Data)                                    1999              1998
                                                                -------------      ------------
<S>                                                                <C>               <C>
Assets

Cash and cash equivalents                                          $ 2,783           $ 1,723
Investment in Local Limited Partnership                                  -                76
Other assets                                                           151                98
Real estate (net of accumulated depreciation
      of $3,018 in 1999 and $2,884 in 1998)                          1,956             2,090
                                                                   -------           -------

      Total Assets                                                 $ 4,890           $ 3,987
                                                                   =======           =======

Liabilities and Partners' Capital

Liabilities:

Accounts payable and accrued expenses                              $    86           $   108
Distribution payable                                                    27               277
Mortgage payable                                                     2,490             2,533
Accrued interest - Subordinated Loan Payable                            70                60
Subordinated Loan Payable                                              133               133
                                                                   -------           -------

      Total Liabilities                                              2,806             3,111
                                                                   -------           -------

Partners' Capital:

Limited Partners -
   Units of Limited Partnership Interest,
   $1,000 stated value per unit; 25,005 units authorized,
   issued and outstanding                                            3,306             2,189
General Partners' deficit                                           (1,222)           (1,313)
                                                                   -------           -------

         Total Partners' Capital                                     2,084               876
                                                                   -------           -------

         Total Liabilities and Partners' Capital                   $ 4,890           $ 3,987
                                                                   =======           =======
</TABLE>

                 See notes to consolidated financial statements.

                                     2 of 13
<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
(In Thousands, Except Unit Data)
                                                                   For the Three Months Ended           For the Nine Months Ended
                                                                 September 30,     September 30,     September 30,     September 30,
                                                                     1999              1998              1999              1998
                                                                 -------------     -------------     -------------     -------------
<S>                                                                 <C>               <C>               <C>               <C>
Income:

    Rental income                                                   $   278           $   284           $   843           $   818
    Income from Local Limited Partnership cash distributions          1,017                 -             1,321               129
    Equity in loss of Local Limited Partnership                         (15)              (35)              (47)              (16)
    Interest                                                             20                17                52                45
    Other                                                                10                 9                37                23
                                                                    -------           -------           -------           -------

      Total Income                                                    1,310               275             2,206               999
                                                                    -------           -------           -------           -------

Expenses:

    Operating                                                           182               211               567               593
    Interest                                                             50                51               151               154
    Depreciation and amortization                                        45                46               136               137
    General and administrative                                           26                24                63                72
                                                                    -------           -------           -------           -------

      Total Expenses                                                    303               332               917               956
                                                                    -------           -------           -------           -------

Net income (loss)                                                   $ 1,007           $   (57)          $ 1,289           $    43
                                                                    =======           =======           =======           =======

Net income (loss) allocated to General Partners                     $    76           $    (4)          $    97           $     3
                                                                    =======           =======           =======           =======

Net income (loss) allocated to Limited Partners                     $   931           $   (53)          $ 1,192           $    40
                                                                    =======           =======           =======           =======

Net income (loss) per Unit of Limited Partnership Interest          $ 37.23           $ (2.12)          $ 47.67           $  1.60
                                                                    =======           =======           =======           =======

Distributions per Unit of Limited Partnership Interest              $  1.00           $  1.00           $  3.00           $  3.00
                                                                    =======           =======           =======           =======
</TABLE>

                 See notes to consolidated financial statements.

                                    3 of 13
<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

Consolidated Statement of Changes in Partners' Capital (Unaudited)
<TABLE>
<CAPTION>
(In Thousands, Except Unit Data)                 Units of
                                                  Limited                General                Limited                 Total
                                                Partnership             Partners'              Partners'              Partners'
                                                 Interest                Deficit                Capital                Capital
                                                -----------             ---------              ---------              ---------
<S>                                                <C>                   <C>                    <C>                    <C>
Balance - January 1, 1999                          25,005                $(1,313)               $ 2,189                $   876

    Net income                                                                97                  1,192                  1,289
    Distributions                                                             (6)                   (75)                   (81)
                                                  -------                -------                -------                -------

Balance - September 30, 1999                       25,005                $(1,222)               $ 3,306                $ 2,084
                                                  =======                =======                =======                =======
</TABLE>

                 See notes to consolidated financial statements.

                                     4 of 13
<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
                                                                                   For the Nine Months Ended
                                                                              September 30,          September 30,
(In Thousands)                                                                    1999                   1998
                                                                              -------------          --------------
<S>                                                                              <C>                    <C>
Cash Flows from Operating Activities:

Net income                                                                       $ 1,289                $    43
Adjustments to reconcile net income to net cash
  provided by operating activities:
      Depreciation                                                                   133                    134
      Amortization                                                                     3                      3
      Equity in loss of Local Limited Partnership                                     47                     16

      Changes in assets and liabilities:
         Increase in other assets                                                    (53)                   (25)
         Decrease in accounts payable
            and accrued expenses                                                     (22)                    (3)
         Increase in accrued interest payable on subordinated loan                    10                     10
                                                                                 -------                -------

      Net cash provided by operating activities                                    1,407                    178
                                                                                 -------                -------

Cash Flows From Investing Activities:

      Distribution received from Local Limited Partnership                            27                    250
                                                                                 -------                -------

      Cash provided by investing activities                                           27                    250
                                                                                 -------                -------

Cash Flows From Financing Activities:

      Mortgage principal payments                                                    (43)                   (40)
      Distributions to partners                                                     (331)                   (81)
                                                                                 -------                -------

      Cash used in financing activities                                             (374)                  (121)
                                                                                 -------                -------

Net increase in cash and cash equivalents                                          1,060                    307

Cash and cash equivalents, beginning of period                                     1,723                  1,484
                                                                                 -------                -------

Cash and cash equivalents, end of period                                         $ 2,783                $ 1,791
                                                                                 =======                =======

Supplemental Disclosure of Cash Flow Information

      Interest paid in cash                                                      $   141                $   144
                                                                                 =======                =======

Supplemental Disclosure of Non-Cash
      Investing Activities

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

                 See notes to consolidated financial statements.

                                     5 of 13
<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.           General

             The accompanying financial statements, footnotes and discussions
             should be read in conjunction with the financial statements,
             related footnotes and discussions contained in the Partnership's
             Annual Report on Form 10-KSB for the year ended December 31, 1998.

             The financial information contained herein is unaudited. In the
             opinion of management, all adjustments necessary for a fair
             presentation of such financial information have been included. All
             adjustments are of a normal recurring nature. Certain amounts have
             been reclassified to conform to the September 30, 1999
             presentation. The balance sheet at December 31, 1998, was derived
             from audited financial statements at such date.

             The results of operations for the three and nine months ended
             September 30, 1999 and 1998, are not necessarily indicative of the
             results to be expected for the full year.

2.           Consolidation

             The accompanying financial statements have been prepared on a
             consolidated basis, including the accounts of Clear Creek Ltd.
             ("Clear Creek"). All significant intercompany transactions and
             balances have been eliminated.

                                     6 of 13
<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

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 disclosure contained in this Form
             10-QSB 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 September 30, 1999, the Partnership retained an equity
             interest in five Local Limited Partnerships, each of which owns a
             single apartment complex. The Partnership also owns an 88.5%
             interest in Clear Creek Ltd. ("Clear Creek"), a partnership in
             which an affiliate of the Partnership's general partner is the sole
             general partner. 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 September 30,
             1999, the Partnership had cash and cash equivalents of $2,783,000,
             as compared to $1,723,000 at December 31, 1998. 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
             Partnership did not fund any operating deficits to Local Limited
             Partnerships in 1999 and 1998.

             The level of liquidity based on cash and cash equivalents
             experienced a $1,060,000 increase at September 30, 1999, as
             compared to December 31, 1998. The Partnership's $1,407,000 of net
             cash provided by operating activities and $27,000 distribution
             received from a Local Limited Partnership (investing activities)
             was partially offset by $43,000 of mortgage principal payments and
             $331,000 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

                                     7 of 13
<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

Item 2.      Management's Discussion and Analysis or Plan of Operation
             (Continued)

             Liquidity and Capital Resources (Continued)

             Fayetteville during the first quarter of 1999. In addition, as of
             September 30, 1999, Partnership distributions (paid or accrued)
             aggregated $75,000 ($3.00 per Unit) to its limited partners and
             $6,000 to the general partners. On May 27, 1999, Village Square
             Associates ("Village Square") refinanced its mortgage. During
             September 1999, Village Square distributed $942,000 of refinancing
             proceeds to the Partnership. The Partnership anticipates
             distributing a portion of the refinancing proceeds during the
             fourth quarter of 1999 at an amount to be determined.

             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") was
             in default and 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. In June of 1999, the Department of Housing and Urban
             Development foreclosed on the mortgage for Dunhaven. For financial
             reporting purposes, the Partnership's investment in this Local
             Limited Partnership had previously been written down to zero. For
             tax reporting purposes, the Partnership will incur a tax liability
             due to the recapture of tax benefits taken in prior years in
             proportion to its ownership interest in the Local Limited
             Partnership.

             Clear Creek 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. One
             contract expired in July 1999 and was not renewed. The other
             contract expired in September 1999 but was extended through
             December 1999. Based upon current market conditions of apartment
             rentals, the non-renewal of these contracts is not expected to have
             a significant impact on rental operations.

             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.

                                     8 of 13
<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

Item 2.      Management's Discussion and Analysis or Plan of Operation
             (Continued)

             Year 2000 (Continued)

             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 the Managing
             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 the Managing 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 costs in connection with the
             upgrade of those systems requiring remediation.

             To date, neither Coordinated Services or the General Partner are
             aware of any external agent with a Year 2000 issue that would
             materially impact the Registrant's results of operations, liquidity
             or capital resources. However, the Managing General Partner has 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 on the financial position or
             results of operations of the Registrant. However, the effect of
             non-compliance by external agents is not readily determinable.

             Results of Operations

             Net income increased by $1,246,000 for the nine months ended
             September 30, 1999, as compared to the nine months ended September
             30, 1998. The increase is due to an increase in income of
             $1,207,000 and a decrease in expenses of $39,000. The increase in
             income is primarily due to an increase of $1,192,000 of cash
             received from Local Limited Partnerships, an increase in rental
             income of $25,000, and an increase in other income of $14,000,
             which was partially offset by an increase of $31,000 of equity in
             loss of Local Limited Partnership. Rental income increased
             primarily due to higher occupancy in 1999 as compared to 1998.
             During the nine months ended September 30, 1999, the Local Limited
             Partnerships owning Village Square Apartments and the Groves
             Apartments distributed $1,308,000 and $13,000, respectively. During
             the nine months ended September 30, 1998, the Local Limited
             Partnerships owning Village Square Apartments and Dunhaven
             Apartments, Section II - Phase I distributed $115,000 and $14,000,
             respectively. The decrease in expenses is primarily due to a
             decrease in operating expenses of $26,000 and a decrease in general
             and administrative expenses of $9,000, which are due to the
             reduction and timing of certain expenditures. All other items of
             income and expense remained relatively constant.

                                     9 of 13
<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

Part II - Other Information

Item 6.      Exhibits and Reports on Form 8-K.

             (a)  Exhibits

                  27.      Financial Data Schedule

                  99.      Supplementary Information Required Pursuant to
                           Section 9.4 of the Partnership Agreement.

             (b) Reports on Form 8-K:

                  No reports on Form 8-K were filed during the period ended
                  September 30, 1999.

                                    10 of 13
<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

                                   SIGNATURES

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


                                            WINTHROP RESIDENTIAL ASSOCIATES III,
                                            A LIMITED PARTNERSHIP


                                            BY: TWO WINTHROP PROPERTIES, INC.
                                                Managing General Partner


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


                                            BY: /s/ Thomas Staples
                                                --------------------------------
                                                Thomas Staples
                                                Chief Financial Officer

                                                Dated: November 10, 1999

                                    11 of 13
<PAGE>

           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 1999

Exhibit Index


         Exhibit                                                     Page No.
         -------                                                     --------

27.      Financial Data Schedule                                         -

99.      Supplementary Information Required Pursuant to
         Section 9.4 of the Partnership Agreement.                      13

                                    12 of 13