<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 March 31, 1997

                                      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)

             One International Place, Boston, Massachusetts 02110
             ----------------------------------------------------
   (Address of principal executive office)                    (Zip Code)

      Registrant's telephone number, including area code (617) 330-8600


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 MARCH 31, 1997

                    PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements.

Consolidated Balance Sheets (Unaudited)
                                                   March 31,       December 31,
(In Thousands, Except Unit Data)                     1997              1996
                                                   ---------       ------------
Assets

Investments in Local Limited Partnerships          $    401        $      390
Cash and Cash Equivalents                               963               980
Other Assets                                             98                64
Real Estate (net of accumulated depreciation
  of $2,572 in 1997 and $2,528 in 1996)               2,402             2,446
                                                   --------        ----------
  Total Assets                                     $  3,864        $    3,880
                                                   ========        ==========
                                                    
Liabilities and Partners' Capital

Liabilities:

Accounts Payable and Accrued Expenses              $    112        $      128
Distribution Payable                                     27                27
Mortgage Payable                                      2,624             2,636
Subordinated Loan Payable                               133               133
                                                   --------        ---------- 
  Total Liabilities                                   2,896             2,924
                                                   --------        ---------- 
Partners' Capital:

Limited Partners -
   Units of Limited Partnership Interest,
   $1,000 stated value per unit; 25,005 units 
   authorized, issued and outstanding                 2,293             2,282

General Partners (deficit)                           (1,325)           (1,326)
                                                   --------        ---------- 
    Total Partners' Capital                             968               956
                                                   --------        ----------
    Total Liabilities and Partners' Capital        $  3,864        $    3,880
                                                   ========        ==========



               See notes to consolidated financial statements.

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                          FORM 10-QSB MARCH 31, 1997


Consolidated Statements of Operations (Unaudited)

(In Thousands, Except Unit Data)
                                                     For the Three Months Ended
                                                       March 31,     March 31,
                                                         1997          1996
                                                       ---------     ---------
Income:

Rental Income                                          $    261      $      -
Equity in income of Located Limited Partnerhips              13             6
Interest                                                     12            16
Other                                                         8             -
                                                      ---------     ---------
 Total Income                                               294            22
                                                      ---------     ---------
Expenses:

Operating                                                   122             -
Interest                                                     49             -
Depreciation and amortization                                46             -
General and administrative                                   38            16
                                                      ---------     ---------
 Total Expenses                                             255            16
                                                      ---------     ---------
Net income                                             $     39      $      6
                                                      =========     =========  
Net income allocated to General Partners               $      3      $      -
                                                      =========     =========  
Net income allocated to Limited Partners               $     36      $      6
                                                      =========     =========  
Net Income per Unit of Limited Partnership Interest    $   1.44      $    .24
                                                      =========     =========  
Distributions per Unit of Limited Partnership Interest $   1.00      $   5.00
                                                      =========     =========  



               See notes to consolidated financial statements.

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                          FORM 10-QSB MARCH 31, 1997


Consolidated Statement of Changes in Partners' Capital (Unaudited)

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

Balance - January 1, 1997             25,005     $ (1,326)   $  2,282   $  956

  Distributions                                        (2)        (25)     (27)
  Net Income                                            3          36       39
                                      ------     ---------   ---------  --------
Balance - March 31, 1997              25,005     $ (1,325)   $  2,293   $   968
                                      ======     =========   =========  ========




                See notes to consolidated financial statements.

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                          FORM 10-QSB MARCH 31, 1997


Consolidated Statements of Cash Flows (Unaudited)
                                                    For the Three Months Ended
                                                     March 31,       March 31,
(In Thousands)                                         1997            1996
                                                     ---------       ---------
 
Cash Flows from Operating Activities:

Net income                                           $     39        $      6
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                            46               -
  Equity in income of Local Limited Partnership           (13)             (6)

  Changes in assets and liabilities:
    (Increase) decrease in other assets                   (34)              7
    Decrease in accounts payable and accrued expense      (16)              -
                                                     ---------       ---------

  Net cash provided by operating activities                22               7
                                                     ---------       ---------

Cash Flows From Financing Activities:

  Mortgage principal payments                             (12)              -
  Distributions to partners                               (27)           (189)
                                                     ---------       ---------

  Cash used in financing activities                       (39)           (189)
                                                     ---------       ---------

Net decrease in cash and cash equivalents                 (17)           (182)

Cash and cash equivalents, beginning of period            980           1,609
                                                     ---------       ---------
Cash and cash equivalents, end of period             $    963        $  1,427
                                                     =========       =========  
 
Supplemental Disclosure of Cash Flow Information

  Interest paid in cash                              $     49        $      -
                                                     =========       =========
Supplemental Disclosure of Non-Cash
  Investing Activities

  Accrued Distributions to Partners                  $     27        $    135
                                                     =========       =========




               See notes to consolidated financial statements.

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                          FORM 10-QSB MARCH 31, 1997

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (Unaudited)


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, 1996.

             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 March 31, 1997 presentation.
             The balance sheet at December 31, 1996 was derived from audited
             financial statements at such date.

             The results of operations for the three months ended March 31, 1997
             and 1996, are not necessarily indicative of the results to be
             expected for the full year.

2.           Consolidation

             In conjunction with the October 1996 additional investment in and
             transfer of control of Clear Creek Ltd. ("Clear Creek"), a Local
             Limited Partnership in which the Partnership owns an 88.5% limited
             partnership interest, to an affiliate of the Partnership's general
             partner, the accompanying financial statements have been prepared
             on a consolidated basis, including the accounts of Clear Creek,
             from the date of transfer of control. All significant intercompany
             transactions and balances have been eliminated. Prior to October
             1996, Clear Creek was a Local Limited Partnership accounted for
             under the equity method.

3.           Transaction with Related Parties

             An affiliate of the Managing General Partner received approximately
             $29,000 in management fees from Local Limited Partnerships during
             1997. This affiliate was also entitled to receive 25% or
             approximately $3,000 of the Clear Creek management fee.


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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP

                          FORM 10-QSB MARCH 31, 1997

3.           Management's Discussion and Analysis or Plan of Operation

             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 March 31, 1997, 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 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, 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 preserve its ownership interest.

             To date, all cash requirements have been satisfied by interest
             income earned on short-term investments 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 March 31, 1997, the Partnership had cash and cash
             equivalents of $963,000, as compared to $980,000 at December 31,
             1996. 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 any Local Limited Partnerships during the three months
             ended March 31, 1997.

             The level of liquidity based on cash and cash equivalents
             experienced a $17,000 decrease at March 31, 1997, as compared to
             December 31, 1996. The Partnership's $22,000 of cash provided by
             operating activities was more than offset by $12,000 of mortgage
             principal payments and $27,000 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 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.

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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                          FORM 10-QSB MARCH 31, 1997


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

             The loan encumbering Dunhaven Apartments Phase II, ("Dunhaven") is
             in default. The Partnership is negotiating 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 be appointed as general partner of the Dunhaven
             Local Limited Partnership and the Partnership, or its affiliate,
             would satisfy the default on the loan. If the Partnership is unable
             to reach an agreement with the existing general partner, the
             Dunhaven property could be lost through foreclosure.

             As of March 31, 1997, Partnership distributions (paid or accrued)
             aggregated $25,000 ($1.00 per Unit) to its limited partners and
             $2,000 to the general partners.

             Results of Operations

             Net income increased for the three months ended March 31, 1997 by
             $33,000, as compared to the three months ended March 31, 1996, due
             to the recognition of Clear Creek's net income of $20,000 for the
             period January through March 1997, an increase in equity in income
             of a Local Limited Partnership and an increase in other income.



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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                          FORM 10-QSB MARCH 31, 1997


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 March 31, 1997.




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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                          FORM 10-QSB MARCH 31, 1997


                                  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.



                                     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:     May 13, 1997



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          WINTHROP RESIDENTIAL ASSOCIATES III, A LIMITED PARTNERSHIP
                          FORM 10-QSB MARCH 31, 1997

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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