<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 June 30, 1998

                                      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 [ ]


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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998

                        PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

Consolidated Balance Sheets (Unaudited)

                                                          June 30,  December 31,
(In Thousands, Except Unit Data)                           1998         1997
                                                          -------     -------
Assets

Cash and cash equivalents                                 $ 1,560     $ 1,484
Investments in Local Limited Partnerships                     391         374
Other assets                                                   83          60
Real estate (net of accumulated depreciation
     of $2,795 in 1998 and $2,706 in 1997)                  2,179       2,268
                                                          -------     -------

     Total Assets                                         $ 4,213     $ 4,186
                                                          =======     =======

Liabilities and Partners' Capital

Liabilities:

Accounts payable, accrued interest and expenses           $   160     $   153
Distribution payable                                           27          27
Mortgage payable                                            2,560       2,586
Subordinated loan payable                                     133         133
                                                          -------     -------

     Total Liabilities                                      2,880       2,899
                                                          -------     -------

Partners' Capital:

Limited Partners -
   Units of Limited Partnership Interest,
   $1,000 stated value per unit; 25,005 units
   authorized, issued and outstanding                       2,631       2,588
General Partners' deficit                                  (1,298)     (1,301)
                                                          -------     -------

         Total Partners' Capital                            1,333       1,287
                                                          -------     -------

         Total Liabilities and Partners' Capital          $ 4,213     $ 4,186
                                                          =======     =======


                See notes to consolidated financial statements.

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998

Consolidated Statements of Operations (Unaudited)

(In Thousands, Except Unit Data)

<TABLE>
<CAPTION>
                                                                          For the Three Months Ended   For the Six Months Ended
                                                                             June 30,      June 30,      June 30,      June 30,
                                                                               1998          1997          1998          1997
                                                                              -----         -----         -----         -----
<S>                                                                            <C>           <C>           <C>           <C>
Income:

   Rental income                                                              $ 267         $ 266         $ 534         $ 527
   Income from Local Limited Partnership cash distributions                     115           335           129           335
   Equity in income of Local Limited Partnership                                --              3            19            16
   Interest                                                                      17            16            28            28
   Other                                                                          6             3            14            11
                                                                              -----         -----         -----         -----

     Total Income                                                               405           623           724           917
                                                                              -----         -----         -----         -----

Expenses:

   Operating                                                                    188           166           382           321
   Interest                                                                      51            58           103           107
   Depreciation and amortization                                                 45            45            91            91
   General and administrative                                                    24            30            48            35
                                                                              -----         -----         -----         -----

     Total Expenses                                                             308           299           624           554
                                                                              -----         -----         -----         -----

Net income                                                                    $  97         $ 324         $ 100         $ 363
                                                                              =====         =====         =====         =====

Net income allocated to General Partners                                      $   7         $  24         $   7         $  27
                                                                              =====         =====         =====         =====

Net income allocated to Limited Partners                                      $  90         $ 300         $  93         $ 336
                                                                              =====         =====         =====         =====

Net income per Unit of Limited Partnership Interest                           $3.60        $12.00         $3.72        $13.44
                                                                              =====         =====         =====         =====

Distributions per Unit of Limited Partnership Interest                        $1.00         $1.00         $2.00         $2.00
                                                                              =====         =====         =====         =====

</TABLE>

                See notes to consolidated financial statements.

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998


Consolidated Statement of Changes in Partners' Capital (Unaudited)

(In Thousands,              Units of
 Except Unit Data)          Limited       General       Limited
                            Partnership   Partners'     Partners'     Total
                            Interest      Deficit       Capital       Capital
                            -------       -------       -------       -------

Balance - January 1, 1998    25,005       $(1,301)      $ 2,588       $ 1,287

   Net income                                   7            93           100
   Distributions                               (4)          (50)          (54)
                            -------       -------       -------       -------

Balance - June 30, 1998      25,005       $(1,298)      $ 2,631       $ 1,333
                            =======       =======       =======       =======



                See notes to consolidated financial statements.

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998


Consolidated Statements of Cash Flows (Unaudited)


                                                        For the Six Months Ended
                                                          June 30,    June 30,
(In Thousands)                                              1998        1997
                                                          -------     -------

Cash Flows from Operating Activities:

Net income                                                $   100     $   363
Adjustments to reconcile net income to net cash
  provided by operating activities:
     Depreciation                                              89          89
     Amortization                                               2           2
     Equity in income of Local Limited Partnership            (19)        (16)

     Changes in assets and liabilities:
         Increase in other assets                             (23)        (82)
         Decrease in accounts payable
            and accrued expenses                             --            (1)
                                                          -------     -------

     Net cash provided by operating activities                149         355
                                                          -------     -------

Cash Flows From Financing Activities:

     Mortgage principal payments                              (26)        (25)
     Distributions to partners                                (54)        (54)
     Increase in accrued interest payable
       on subordinated loan                                     7        --
                                                          -------     -------

     Cash used in financing activities                        (73)        (79)
                                                          -------     -------

Net increase in cash and cash equivalents                      76         276

Cash and cash equivalents, beginning of period              1,484         980
                                                          -------     -------

Cash and cash equivalents, end of period                  $ 1,560     $ 1,256
                                                          =======     =======

Supplemental Disclosure of Cash Flow Information

     Interest paid in cash                                $    96     $   107
                                                          =======     =======

Supplemental Disclosure of Non-Cash
     Investing Activities

     Accrued Distributions to Partners                    $    27     $    27
                                                          =======     =======


                See notes to consolidated financial statements.

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998

                  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 report on Form 10-KSB for
     the year ended December 31, 1997.

     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, 1997, was derived
     from audited financial statements at such date.

     The results of operations for the six months ended June 30, 1998 and
     1997, 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. All
     significant intercompany transactions and balances have been eliminated.

3.   Transaction with Related Parties

     An affiliate of the Managing General Partner received approximately
     $57,000 and $34,000, in management fees from Local Limited Partnerships
     during the six months ended June 30, 1998 and 1997, respectively.

4.   Mortgage Refinancing

     On June 16, 1998, Fayettville Apartments Limited Partnership, one of the
     Local Limited Partnerships which the Partnership has an equity interest,
     refinanced its mortgage. The new mortgage in the amount of $1,850,000
     replaced indebtedness of approximately $1,217,000. The mortgage bears
     interest at 7.08%, requires monthly payments of approximately $12,000 and
     matures on July 1, 2008, with a balloon payment of approximately
     $1,630,000.


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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998

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 June 30, 1998, the Partnership retained an equity interest in six
     Local Limited Partnerships, each of which owns a single apartment
     complex. The Partnership also owns an 88.5% interest in a partnership in
     which an affiliate of the Partnership's general partner became the sole
     general partner in October 1996. The Partnership's primary sources of
     income are distributions from the Local Limited Partnerships and rental
     income from Clear Creek Apartments. The Partnership requires cash to pay
     the operating expenses of Clear Creek, for general and administrative
     expenses and to make capital contributions and/or loans to any of the
     Local Limited Partnerships which the Managing General Partner deems to be
     in the Partnership's best interest.

     To date, all cash requirements have been satisfied by interest income
     earned on short-term investments, rental income from Clear Creek and cash
     distributed to the Partnership by the Local Limited Partnerships. If the
     Partnership funds any operating deficits, it will use monies from its
     operating reserves. As of June 30, 1998, the Partnership had cash and
     cash equivalents of $1,560,000, which has been invested primarily in
     short-term certificates of deposit and money market accounts. 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 1998 and
     1997.

     The level of liquidity based on cash and cash equivalents experienced a
     $76,000 increase at June 30, 1998, as compared to December 31, 1997. The
     Partnership's $149,000 of cash provided by operating activities and an
     increase in accrued interest on the subordinated loan of $7,000
     (financing activity) was only partially offset by $26,000 of mortgage
     principal payments and $54,000 of cash distributed to partners (financing
     activities).

     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

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998

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

     Liquidity and Capital Resources (Continued)

     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.

     On June 16, 1998, Fayettville Apartments Limited Partnership, one of the
     Local Limited Partnerships which the partnership has an equity interest,
     refinanced its mortgage. The new mortgage in the amount of $1,850,000
     replaced indebtedness of $1,217,000. The mortgage bears interest at
     7.08%, requires monthly payments of approximately $12,000 and matures on
     July 1, 2008 with a balloon payment of approximately $1,630,000.

     The loan encumbering Dunhaven Apartments Phase II, ("Dunhaven") is in
     default. The Partnership was unable to reach an agreement with the
     general partner of the Local Limited Partnership which holds title to
     Dunhaven pursuant to which the Partnership, or an affiliate of the
     Partnership, would have been appointed as general partner of the Dunhaven
     Local Limited Partnership and the Partnership, or its affiliate, would
     satisfy the default on the loan. At June 30, 1998, the Managing General
     Partner estimates the default to be approximately $100,000. Unless an
     agreement is reached with the existing general partner, it is possible
     that the Dunhaven property could be lost through foreclosure.

     During 1998, Partnership distributions (paid or accrued) aggregated
     $50,000 ($2.00 per Unit) to its limited partners and $4,000 to the
     general partners.

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

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998

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

     Results of Operations

     The Partnership's net income for the six months ended June 30, 1998 was
     $100,000, as compared to $363,000 for six months ended June 30, 1997. The
     decrease in net income is primarily due to a decline in Local Limited
     Partnership cash distributions of $206,000 and an increase in Clear
     Creek's operating expenses of $61,000. During the six months ended June
     30, 1998, the Local Limited Partnerships owning Village Square Apartments
     and Dunhaven Apartments, Section II - Phase I distributed $115,000 and
     $14,000, respectively. During the six months ended June 30, 1997, the
     Local Limited Partnership owning Village Square Apartments distributed
     $335,000. All other items of income and expense remained relatively
     constant.

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998

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 three months
                 ended June 30, 1998.


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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998


                                  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:  ONE WINTHROP PROPERTIES, INC.
                                             Managing General Partner

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

                                        BY:  /s/ Edward V. Williams
                                             --------------------------
                                             Edward V. Williams
                                             Chief Financial Officer

                                             Dated:  August 12, 1998


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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                           FORM 10-QSB JUNE 30, 1998


Exhibit Index

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

27.   Financial Data Schedule                                         -

99.   Supplementary Information Required Pursuant to
      Section 9.4 of the Partnership Agreement.                      12






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