<PAGE>


                                  UNITED STATES
                       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
                                               ------------------

                                       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)

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


   7 Bulfinch Place, Suite 500, Boston, MA                                  02114-9507
--------------------------------------------------          ---------------------------------------------
   (Address of principal executive office)                                  (Zip Code)
</TABLE>

        Registrant's telephone number, including area code  (617)-570-4600
                                                           ----------------


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, 2001

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS                                      SEPTEMBER 30,
                                                                    2001        DECEMBER 31,
(IN THOUSANDS, EXCEPT UNIT DATA)                                 (UNAUDITED)        2000
                                                                --------------  -----------
<S>                                                             <C>           <C>
Assets

Cash and cash equivalents                                          $  3,634      $  3,052
Other assets                                                            168            98
Real estate (net of accumulated depreciation
      of $3,443 in 2001 and $3,293 in 2000)                           1,827         1,977
                                                                   --------      --------
      Total Assets                                                 $  5,629      $  5,127
                                                                   ========      ========
Liabilities and Partners' Capital

Liabilities:

Accounts payable and accrued expenses                              $    123      $    110
Other liabilities                                                       357            --
Distributions payable                                                    81            81
Mortgage payable                                                      2,363         2,413
Accrued interest - subordinated loan payable                             97            87
Subordinated loan payable                                               133           133
                                                                   --------      --------
      Total Liabilities                                               3,154         2,824
                                                                   --------      --------
Partners' Capital:

Limited Partners -
   Units of Limited Partnership Interest,
   $1,000 stated value per unit; 25,005 units authorized,
   issued and outstanding                                             3,632         3,473
General Partners' deficit                                            (1,157)       (1,170)
                                                                   --------      --------
         Total Partners' Capital                                      2,475         2,303
                                                                   --------      --------
         Total Liabilities and Partners' Capital                   $  5,629      $  5,127
                                                                   ========      ========
</TABLE>


                 See notes to consolidated financial statements.

                                     2 of 13


<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 2001

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN THOUSANDS, EXCEPT UNIT DATA)

<TABLE>
<CAPTION>

                                                                   FOR THE THREE MONTHS ENDED          FOR THE NINE MONTHS ENDED
                                                                 SEPTEMBER 30,    SEPTEMBER 30,      SEPTEMBER 30,    SEPTEMBER 30,
                                                                     2001             2000                2001            2000
                                                                 -------------    -------------      -------------    -------------
Income:
<S>                                                               <C>               <C>                <C>              <C>
    Rental income                                                 $   248           $  298             $   838          $   880
    Income from Local Limited Partnership cash distributions           --               --                 355              576
    Interest                                                           33               30                  96               89
    Other                                                               7               14                  32               36
                                                                  -------           ------             -------          -------
      Total income                                                    288              342               1,321            1,581
                                                                  -------           ------             -------          -------
Expenses:

    Operating                                                         210              187                 616              541
    Interest                                                           48               49                 145              148
    Depreciation                                                       50               47                 150              141
    General and administrative                                         28               24                  76               72
                                                                  -------           ------             -------          -------
      Total expenses                                                  336              307                 987              902
                                                                  -------           ------             -------          -------
Net (loss) income                                                 $   (48)          $   35             $   334          $   679
                                                                  =======           ======             =======          =======
Net (loss) income allocated to General Partners                   $    (4)          $    3             $    25          $    51
                                                                  =======           ======             =======          =======
Net (loss) income allocated to Limited Partners                   $   (44)          $   32             $   309          $   628
                                                                  =======           ======             =======          =======
Net (loss) income per Unit of Limited Partnership Interest        $ (1.76)          $ 1.28             $ 12.36          $ 25.11
                                                                  =======           ======             =======          =======
Distributions per Unit of Limited Partnership Interest            $  1.00           $ 1.00             $  6.00          $  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, 2001


CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (UNAUDITED)


<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT UNIT DATA)          UNITS OF
                                          LIMITED           LIMITED           GENERAL                TOTAL
                                        PARTNERSHIP        PARTNERS'         PARTNERS'             PARTNERS'
                                          INTEREST          CAPITAL           DEFICIT               CAPITAL
                                        -----------        ---------         ----------           -----------
<S>                                     <C>             <C>                <C>                   <C>
Balance - January 1, 2001                  25,005          $ 3,473            $ (1,170)             $ 2,303

    Net income                                                 309                  25                  334
    Distributions                                             (150)                (12)                (162)
                                           ------          -------            --------              -------

Balance - September 30, 2001               25,005          $ 3,632            $ (1,157)             $ 2,475
                                           ======          =======            ========              =======
</TABLE>

                 See notes to consolidated financial statements.


                                     4 of 13

<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 2001

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              FOR THE NINE MONTHS ENDED
                                                                        SEPTEMBER 30,          SEPTEMBER 30,
(IN THOUSANDS)                                                              2001                   2000
                                                                        -------------          -------------
<S>                                                                    <C>                    <C>
Cash Flows from Operating Activities:

Net income                                                                $   334                $   679
Adjustments to reconcile net income to net cash
  provided by operating activities:
      Depreciation                                                            150                    141
      Income from Local Limited Partnership cash distributions               (355)                  (576)

      Changes in assets and liabilities:
         Increase in other assets                                             (70)                   (31)
         Increase in accounts payable
            and accrued expenses                                               13                     23
         Increase in accrued interest payable on subordinated loan             10                     10
                                                                          -------                -------
      Net cash provided by operating activities                                82                    246
                                                                          -------                -------
Cash Flows From Investing Activities:

      Distributions received from Local Limited Partnerships                  355                    576
      Insurance proceeds received, net of expenses paid                       357                     --
      Property improvements                                                    --                   (109)
                                                                          -------                -------
      Net cash provided by investing activities                               712                    467
                                                                          -------                -------
Cash Flows From Financing Activities:

      Mortgage principal payments                                             (50)                   (46)
      Distributions to partners                                              (162)                  (529)
                                                                          -------                -------
      Cash used in financing activities                                      (212)                  (575)
                                                                          -------                -------
Net increase in cash and cash equivalents                                     582                    138

Cash and cash equivalents, beginning of period                              3,052                  2,683
                                                                          -------                -------
Cash and cash equivalents, end of period                                  $ 3,634                $ 2,821
                                                                          =======                =======
Supplemental Disclosure of Cash Flow Information

      Interest paid in cash                                               $   135                $   138
                                                                          =======                =======
Supplemental Disclosure of Non-Cash
      Financing Activities

      Accrued distributions to partners                                   $    81                $    54
                                                                          =======                =======
</TABLE>

                See notes to consolidated financial statements.


                                     5 of 13

<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 2001

                   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, 2000.

             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. The balance sheet at
             December 31, 2000 was derived from audited financial statements at
             such date.

             The results of operations for the nine months ended September 30,
             2001 and 2000 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.

3.           OTHER LIABILITIES - FLOOD DAMAGE

             During the third quarter, a flood occurred at the Partnership's
             Clear Creek property. The flood damaged approximately 100 units of
             the 200 unit complex. The insurance settlement is expected to be
             approximately $985,000, which is estimated to approximate the
             amount of costs to be incurred to repair the damaged units. As of
             September 30, 2001, Clear Creek had received insurance proceeds of
             approximately $777,000 and had paid expenses of approximately
             $420,000 related to the flood. Clear Creek is presently in the
             process of completing the repair work and anticipates that upon
             completion, residents will be able to re-occupy the damaged units.
             The excess of insurance proceeds received over expenses paid is
             included as other liabilities.


                                     6 of 13

<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 2001


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 consolidated
           financial statements and other items contained elsewhere in the
           report.

           Liquidity and Capital Resources

           As of September 30, 2001, 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, 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,
           2001, the Partnership had cash and cash equivalents of $3,634,000, as
           compared to $3,052,000 at December 31, 2000. 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 2001 and
           2000.

           The level of liquidity based on cash and cash equivalents experienced
           a $582,000 increase at September 30, 2001 as compared to December 31,
           2000. The Partnership's $82,000 of net cash provided by operating
           activities and $712,000 of cash provided by investing activities was
           partially offset by $212,000 of cash used in financing activities.
           Cash provided by investing activities included $355,000 of
           distributions received from Local Limited Partnerships and $357,000
           of insurance proceeds received, net of expenses paid. Cash used in
           financing activities included $50,000 of mortgage principal payments
           and $162,000 of distributions to partners.


                                     7 of 13

<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 2001

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

           Liquidity and Capital Resources (Continued)

           At September 30, 2001, the Partnership accrued distributions
           aggregating $75,000 ($3.00 per Unit) to its limited partners and
           $6,000 to the general partners.

           During the third quarter, a flood occurred at the Partnership's Clear
           Creek property. The flood damaged approximately 100 units of the 200
           unit complex. The insurance settlement is expected to be
           approximately $985,000, which is estimated to approximate the amount
           of costs to be incurred to repair the damaged units. As of September
           30, 2001, Clear Creek had received insurance proceeds of
           approximately $777,000 and had paid expenses of approximately
           $420,000 related to the flood. Clear Creek is presently in the
           process of completing the repair work and anticipates that upon
           completion, residents will be able to re-occupy the damaged units.
           The excess of insurance proceeds received over expenses paid is
           included as other liabilities.

           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.

           Results of Operations

           Net income decreased by $345,000 for the nine months ended September
           30, 2001, as compared to the nine months ended September 30, 2000.
           The decrease is due to a decrease in income of $260,000 and an
           increase in expenses of $85,000. The decrease in income is primarily
           due to a decrease in income from Local Limited Partnership cash
           distributions of $221,000 and a decrease in rental income of $42,000.
           The decrease in rental income is a result of the flood as described
           above. The increase in expenses is primarily due to an increase in
           various operating expenses of $75,000 at Clear Creek. All other
           expenses remained relatively constant.

           Recently Issued Accounting Standards

           The Financial Accounting Standards Board ("FASB") issued Statement of
           Financial Accounting Standards "SFAS" No. 137, "Accounting for
           Derivative Instruments and Hedging Activities - Deferral of the
           Effective Date of SFAS No. 133." The Statement deferred for one year
           the effective date of SFAS No. 133, "Accounting for Derivative
           Instruments and Hedging Activities". The Statement requires companies
           to recognize all derivatives on the balance sheet as assets or
           liabilities, measured at fair value. Gains or losses resulting from
           changes in the values of those derivatives would be accounted for
           depending on the use of the derivative and whether they qualify for
           hedge accounting. This Statement was effective for fiscal years
           beginning after June 15, 2000. There was no effect from this
           Statement on the Partnership's financial statements.


                                     8 of 13

<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 2001

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)

           Recently Issued Accounting Standards (continued)

           In July 2001, the FASB issued SFAS No. 141 "Business Combinations".
           SFAS No. 141 requires that all business combinations be accounted
           for under the purchase method of accounting. SFAS No. 141 also
           changes the criteria for the separate recognition of intangible
           assets acquired in a business combination. SFAS No. 141 is effective
           for all business combinations initiated after June 30, 2001. This
           statement will not effect the Partnership's financial statements.

           In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other
           Intangible Assets". SFAS No. 142 addresses accounting and reporting
           for intangible assets acquired, except for those acquired in a
           business combination. SFAS No. 142 presumes that goodwill and
           certain intangible assets have indefinite useful lives. Accordingly,
           goodwill and certain intangibles will not be amortized but rather
           will be tested at least annually for impairment. SFAS No. 142 also
           addresses accounting and reporting for goodwill and other intangible
           assets subsequent to their acquisition. SFAS No. 142 is effective
           for fiscal years beginning after December 15, 2001. This statement
           will not effect the Partnership's financial statements.

           In August 2001, the FASB issued SFAS No. 144, "Accounting for the
           Impairment or Disposal of Long-Lived Assets," which addresses
           financial accounting and reporting for the impairment or disposal of
           long-lived assets. This statement supersedes SFAS No. 121,
           "Accounting for the Impairment of Long-Lived Assets and for
           Long-Lived Assets to be Disposed Of" and the accounting and reporting
           provisions of APB Opinion No. 30, "Reporting the Results of
           Operations -Reporting the Effects of a Disposal of a Business and
           Extraordinary, Unusual and Infrequently Occurring Events and
           Transactions," for the disposal of a segment of a business. This
           Statement also amends ARB No. 51, "Consolidated Financial
           Statements," to eliminate the exception to consolidation for a
           subsidiary for which control is likely to be temporary. SFAS No. 144
           is effective for fiscal years beginning after December 15, 2001, and
           interim periods within those fiscal years. The provisions of this
           Statement generally are to be applied prospectively. The Partnership
           has not evaluated the effect of this statement, however, it is not
           expected that this statement will have a material effect on the
           Partnership's results of operations.

           Quantitative and Qualitative Disclosures of Market Risk

           The Partnership does not have any financial instruments that would
           expose it to market risk associated with the risk of loss arising
           from adverse changes in market rates and prices. The Partnership's
           mortgage note payable at September 30, 2001 is at a fixed rate of
           interest.


                                     9 of 13

<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 2001


PART II - OTHER INFORMATION


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.

             (a)  Exhibits:

                  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, 2001.


                                10 of 13

<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 2001

                                   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 C. Staples
                                           ------------------------------------
                                           Thomas C. Staples
                                           Chief Financial Officer

                                           Dated: November 14, 2001


                                    11 of 13

<PAGE>


           WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                         FORM 10-QSB SEPTEMBER 30, 2001



Exhibit Index


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

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






                                    12 of 13