<PAGE>   1
                                   FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

                         COMMISSION FILE NUMBER 0-14457


                  NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                        (A MARYLAND LIMITED PARTNERSHIP)
             (Exact name of registrant as specified in its charter)



            MARYLAND                                       52-1394972
  (State or other jurisdiction                          (I.R.S. Employer
of incorporation or organization)                     Identification No.)



                         8065 LEESBURG PIKE, SUITE 400
                             VIENNA, VIRGINIA 22182
                    (Address of principal executive offices)
                                   (Zip Code)


                                 (703) 394-2400
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                         if changed since last report.)


Indicate by check mark whether the 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 
   ---------       --------
<PAGE>   2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

                  NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                        (A MARYLAND LIMITED PARTNERSHIP)
                        STATEMENTS OF FINANCIAL POSITION


<TABLE>
<CAPTION>
                                                                                     June 30,
                                                                                       1997              December 31,
                                                                                    (Unaudited)              1996      
                                                                                    -----------          -----------
<S>                                                                                  <C>                 <C>
                                                              ASSETS
                                                              ------
Cash and cash equivalents                                                             $ 115,025           $ 140,782
Investments in and advances to Local Limited Partnerships (Note 2)                        -                   -    
                                                                                      ---------           ---------

                                                                                      $ 115,025           $ 140,782
                                                                                      =========           =========

                                                LIABILITIES AND PARTNERS' DEFICIT
                                                ---------------------------------
Liabilities:
    Administrative and reporting fee payable to General Partner (Note 3)              $ 576,861           $ 533,737
    Accrued expenses                                                                     19,500              39,095
                                                                                      ---------           ---------

                                                                                        596,361             572,832
                                                                                      ---------           ---------
Partners' deficit:
    General Partner -- The National Housing Partnership (NHP)                          (100,063)            (99,570)
    Original Limited Partner -- 1133 Fifteenth Street Three Associates                 (104,963)           (104,470)
    Other Limited Partners -- 11,500 investment units                                  (276,310)           (228,010)
                                                                                      --------            ---------

                                                                                       (481,336)           (432,050)
                                                                                      ---------           ---------

                                                                                      $ 115,025           $ 140,782
                                                                                      =========           =========
</TABLE>

                      See notes to financial statements.

                                      -1-
<PAGE>   3
                  NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                        (A MARYLAND LIMITED PARTNERSHIP)
                            STATEMENTS OF OPERATIONS
                                  (UNAUDITED)



<TABLE>
<CAPTION>
                                                      Three Months Ended         Six Months Ended
                                                           June 30,                  June 30,         
                                                   -----------------------      --------------------
                                                       1997         1996           1997        1996  
                                                   ----------     --------      ---------   --------
  <S>                                              <C>            <C>            <C>        <C>
  REVENUES:                                                      
     Distributions and repayments
       received in excess of investment
       in and advances to Local Limited
       Partnerships                                $   15,698     $ 18,362      $  15,698   $ 18,362
     Interest income                                    1,428        2,183          2,700      6,061
                                                   ----------     --------      ---------   --------

                                                       17,126       20,545         18,398     24,423
                                                   ----------     --------      ---------   --------
  COSTS AND EXPENSES:
     Administrative and reporting fees to
       General Partner (Note 3)                        21,562       21,562         43,124     43,124
     Other operating expenses                          11,221       11,251         24,560     22,951
                                                   ----------     --------      ---------   --------

                                                       32,783       32,813         67,684     66,075
                                                   ----------     --------      ---------   --------

  NET LOSS                                         $  (15,657)    $(12,268)     $ (49,286)  $(41,652)
                                                   ==========     ========      =========   ======== 
  NET LOSS ASSIGNABLE TO
    LIMITED PARTNERS                               $  (15,343)    $(12,022)     $ (48,300)  $(40,818)
                                                   ==========     ========      =========   ======== 
  NET LOSS PER LIMITED
    PARTNERSHIP INTEREST                           $       (1)    $     (1)     $      (4)  $     (4)
                                                   ==========     ========      =========   ======== 
</TABLE>


                      See notes to financial statements.

                                      -2-
<PAGE>   4
                  NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                        (A MARYLAND LIMITED PARTNERSHIP)
                         STATEMENT OF PARTNER'S DEFICIT
                                  (UNAUDITED)



<TABLE>
<CAPTION>
                                        The National         1133
                                          Housing         Fifteenth          Other
                                        Partnership      Street Three       Limited
                                           (NHP)          Associates        Partners             Total
                                        -----------       ----------        --------             -----
<S>                                     <C>               <C>              <C>                 <C>
Deficit at January 1, 1997               $ (99,570)       $(104,470)       $(228,010)          $(432,050)

Net loss -- six months ended
  June 30, 1997                               (493)            (493)         (48,300)            (49,286)
                                         ---------        ---------        ---------           --------- 

Deficit at June 30, 1997                 $(100,063)       $(104,963)       $(276,310)          $(481,336)
                                         =========        =========        =========           ========= 

Percentage interest at June 30, 1997             1%               1%              98%                100%
                                         =========        =========        =========           ========= 
                                                (A)              (B)              (C)
</TABLE>

(A)      General Partner
(B)      Original Limited Partner
(C)      Consists of 11,500 investment units of 0.008522% held by 921 investors



                      See notes to financial statements.

                                      -3-
<PAGE>   5
                  NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                        (A MARYLAND LIMITED PARTNERSHIP)
                            STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)



<TABLE>
<CAPTION>
                                                                   Six Months Ended June 30,       
                                                                  ---------------------------
                                                                    1997               1996    
                                                                  ---------          --------   
<S>                                                               <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                          
   Distributions received in excess of investment in                           
     Local Limited Partnerships                                   $  15,698          $ 18,362
   Interest received                                                  2,700             6,061
   Operating expenses paid                                          (44,155)          (42,661)
                                                                  ---------          -------- 
                                                                               
   Net cash used in operating activities                            (25,757)          (18,238)
                                                                  ---------          -------- 
CASH AND CASH EQUIVALENTS, BEGINNING OF                                        
  PERIOD                                                            140,782           164,374
                                                                  ---------          --------
                                                                               
CASH AND CASH EQUIVALENTS, END OF PERIOD                          $ 115,025          $146,136
                                                                  =========          ========
RECONCILIATION OF NET LOSS TO NET CASH                                         
  USED IN OPERATING ACTIVITIES:                                                
    Net loss                                                      $ (49,286)         $(41,652)
                                                                  ---------          -------- 
    Adjustments to reconcile net loss to net cash                              
      used in operating activities:                                            
         Increase in administrative and reporting fees                         
           payable                                                   43,124            43,124
         Increase in other accrued expenses                         (19,595)          (19,710)
                                                                  ---------          -------- 

         Total adjustments                                           23,529            23,414
                                                                  ---------          --------
                                                                               
    Net cash used in operating activities                         $ (25,757)         $(18,238)
                                                                  =========          ======== 
</TABLE>



                      See notes to financial statements.

                                      -4-
<PAGE>   6
                 NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                       (A MARYLAND LIMITED PARTNERSHIP)
                        NOTES TO FINANCIAL STATEMENTS



(1)      ACCOUNTING POLICIES

         ORGANIZATION

         National Housing Partnership Realty Fund III (the "Partnership") is a
         limited partnership organized under the laws of the State of Maryland
         under the Maryland Revised Uniform Limited Partnership Act on May 10,
         1985. The Partnership was formed for the purpose of raising capital by
         offering and selling limited partnership interests and then investing
         in limited partnerships ("Local Limited Partnerships"), each of which
         owns and operates an existing rental housing project which is financed
         and/or operated with one or more forms of rental assistance or
         financial assistance from the U.S. Department of Housing and Urban
         Development ("HUD").

         The General Partner raised capital for the Partnership by offering and
         selling to additional limited partners 11,500 investment units at a
         price of $1,000 per unit. The Partnership acquired limited partnership
         interests ranging from 94.5% to 99% in twelve Local Limited
         Partnerships, which were organized to directly or indirectly own and
         operate existing rental housing projects.

         On June 3, 1997, Apartment Investment and Management Company, a
         Maryland corporation ("AIMCO" and, together with its subsidiaries and
         other controlled entities, the "AIMCO Group"), acquired all of the
         issued and outstanding capital stock of NHP Partners, Inc., a Delaware
         corporation ("NHP Partners"), and the AIMCO Group acquired all of the
         outstanding interests in NHP Partners Two Limited Partnership, a
         Delaware limited partnership ("NHP Partners Two"). The Acquisition was
         made pursuant to a Real Estate Acquisition Agreement, dated as of May
         22, 1997 (the "Agreement"), by and among AIMCO, AIMCO Properties,
         L.P., a Delaware limited partnership (the "Operating Partnership"),
         Demeter Holdings Corporation, a Massachusetts corporation ("Demeter"),
         Phemus Corporation, a Massachusetts corporation ("Phemus"), Capricorn
         Investors, L.P., a Delaware limited partnership ("Capricorn"), J.
         Roderick Heller, III and NHP Partners Two LLC, a Delaware limited
         liability company ("NHP Partners Two LLC"). NHP Partners owns all of
         the outstanding capital stock of the National Corporation for Housing
         Partnerships, a District of Columbia corporation ("NCHP"), which is
         the general partner of The National Housing Partnership, a District of
         Columbia limited partnership (the "NHP Partnership"). Together, NCHP
         and NHP Partners Two own all of the outstanding partnership interests
         in the NHP Partnership. The NHP Partnership is the general partner of
         National Housing Partnership Realty Fund III (a Maryland Limited
         Partnership) (the "Registrant"). As a result of these transactions,
         the AIMCO Group has acquired control of the general partner of the
         Registrant and, therefore, may be deemed to have acquired control of
         the Registrant.

         BASIS OF PRESENTATION

         The accompanying unaudited interim financial statements reflect all
         adjustments which are, in the opinion of management, necessary to a
         fair statement of the financial condition and results of operations
         for the  interim periods presented. All such adjustments are of a
         normal and recurring nature.

         While the General Partner believes that the disclosures presented are
         adequate to make the information not misleading, it is suggested that
         these financial statements be read in conjunction with the financial
         statements and notes included in NHP Realty Fund III's Annual Report
         filed in Form 10-K for the year ended December 31, 1996.





                                      -5-
<PAGE>   7
                 NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                       (A MARYLAND LIMITED PARTNERSHIP)
                        NOTES TO FINANCIAL STATEMENTS



(2)      INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS

         The Partnership owns a 99% limited partnership interest in Brunswick
         Village Limited Partnership and 94.5% limited partnership interests
         (98% with respect to allocation of losses) in nine other Local Limited
         Partnerships. The Partnership also acquired a 99% limited partnership
         interest in Meadowood Townhouses I Limited Partnership and Meadowood
         Townhouses III Limited Partnership. These two Local Limited
         Partnerships each own a 99% limited partnership interest in an
         operating limited partnership which holds title to one and two rental
         housing properties, respectively. The Partnership's effective interest
         in these operating limited partnerships is 98.01%.

         Because the Partnership, as a limited partner, does not exercise
         control over the activities of the Local Limited Partnerships in
         accordance with the partnership agreements, these investments in Local
         Limited Partnerships are accounted for using the equity method. Thus,
         the investments (and the advances made to the Local Limited
         Partnerships as discussed below) are carried at cost less the
         Partnership's share of the Local Limited Partnerships' losses and
         distributions.  However, because the Partnership is not legally liable
         for the obligations of the Local Limited Partnerships, and is not
         otherwise committed to provide additional support to them, it does not
         recognize losses once its investments, reduced for its share of losses
         and cash distributions, reach zero in each of the individual Local
         Limited Partnerships. As of June 30, 1997 and December 31, 1996,
         investments in all twelve Local Limited Partnerships had been reduced
         to zero. As a result, the Partnership did not recognize $662,004 and
         $631,426 of losses from these twelve Local Limited Partnerships during
         the six months ended June 30, 1997 and 1996, respectively. As of June
         30, 1997 and December 31, 1996, the Partnership has not recognized a
         total of $14,943,355 and $14,281,351, respectively, of its allocated
         share of cumulative losses from the Local Limited Partnerships in
         which its investment is zero.

         Advances made by the Partnership to the individual Local Limited
         Partnerships are considered part of the Partnership's investment in
         Local Limited Partnerships. When advances are made, they are charged
         to operations as a loss on investment in the Local Limited Partnership
         using previously unrecognized cumulative losses. As discussed above,
         due to the cumulative losses incurred by the Local Limited
         Partnerships, the aggregate balance of investments in and advances to
         Local Limited Partnerships has been reduced to zero at June 30, 1997
         and December 31, 1996. To the extent these advances are repaid by the
         Local Limited Partnerships in the future, the repayments will be
         credited as distribution and repayments received in excess of
         investment in Local Limited Partnerships. These advances are carried
         as a payable to the Partnership by the Local Limited Partnerships.

         No working capital advances or repayments occurred between the
         Partnership and the Local Limited Partnerships during the six months
         ended June 30, 1997 and 1996. The combined amount carried as due to
         the Partnership by the Local Limited Partnerships was $538,469 as of
         June 30, 1997. Future advances made will be charged to operations;
         likewise, future repayments will be credited to operations.

         The following are combined statements of operations for the three and
         six months ended June 30, 1997 and 1996, respectively, of the Local
         Limited Partnerships in which the Partnership has invested. The
         statements are compiled from financial statements of the Local Limited
         Partnerships, prepared on the accrual basis of accounting, as supplied
         by the management agents of the projects, and are unaudited.





                                      -6-
<PAGE>   8
                 NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                       (A MARYLAND LIMITED PARTNERSHIP)
                        NOTES TO FINANCIAL STATEMENTS




                       COMBINED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                             Three Months Ended                   Six Months Ended
                                                  June 30,                            June 30,         
                                         ---------------------------       ------------------------------
                                             1997            1996             1997               1996     
                                         ----------      -----------       ----------       -------------
<S>                                      <C>             <C>               <C>                 <C>
Rental income                            $2,153,127       $2,106,679       $4,319,060          $4,240,487
Other income                                 98,334           78,498          183,322             167,078
                                         ----------       ----------       ----------          ---------- 

   Total income                           2,251,461        2,185,177        4,502,382           4,407,565
                                         ----------       ----------       ----------          ----------

Operating expenses                        1,544,577        1,484,895        2,993,627           2,915,578
Interest, taxes and insurance               715,864          743,446        1,492,593           1,478,657
Depreciation                                343,987          328,492          690,456             656,989
                                         ----------       ----------       ----------          ----------

   Total expenses                         2,604,428        2,556,833        5,176,676           5,051,224
                                         ----------       ----------       ----------          ----------

Net loss                                 $ (352,967)      $ (371,656)      $ (674,294)         $ (643,659)
                                         ==========       ==========       ==========          ========== 

National Housing Partnership
  Realty Fund III share of losses        $ (346,794)      $ (364,466)      $ (662,004)         $ (631,426)
                                         ==========       ==========       ==========          ==========
</TABLE>


(3)      TRANSACTIONS WITH THE GENERAL PARTNER

         During the six month periods ended June 30, 1997 and 1996, the
         Partnership accrued administrative and reporting fees payable to the
         General Partner in the amount of $43,124 for services provided to the
         Partnership. The Partnership has not made any payments to the General
         Partner for these fees during each of the respective periods. The
         amount of fees due the General Partner by the Partnership was $576,861
         and $533,737 at June 30, 1997 and December 31, 1996, respectively.

         The accrued administrative and reporting fees payable to the General
         Partner will be paid as cash flow permits or from proceeds generated
         from the sale or refinancing of one or more of the underlying
         properties of the Local Limited Partnerships.

(4)      SUBSEQUENT EVENTS

         On May 2, 1996, Meadowood Townhouses I Local Limited Partnership
         entered  into an Agreement of Sale with Community Preservation and
         Development Corporation, to sell its two properties, Meadowood
         Townhouses I and II pursuant to the terms of Low Income Housing
         Preservation and Resident Homeownership Act of 1990 ("LIHPRHA"). The
         purchase price is based on the properties' Transfer Preservation
         Value, as approved by the United States Department of Housing and
         Urban Development ("HUD"). During the six months ended June 30, 1997,
         funding was approved for the sale of Meadowood Townhouses I and II,
         and final settlement occurred on July 15, 1997. Total LIHPRHA grant
         money received for the properties was $3,336,388, comprised of
         $1,558,253 for Meadowoods Townhouses I and $1,778,135 for Meadowood
         Townhouses II. The holders of the deferred acquisition notes were
         repaid from a portion of the LIHPRHA grant money at an agreed upon
         discounted amount.
         
         



                                      -7-
<PAGE>   9
                 NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                       (A MARYLAND LIMITED PARTNERSHIP)
                        NOTES TO FINANCIAL STATEMENTS




         The mortgage notes were assumed by the purchaser.  The Partnership
         expects to receive net proceeds from the sale of approximately
         $675,000.  The transaction will be recorded in the financial 
         statements in the quarter ending September 30, 1997.

         In addition, during the six months ended June 30, 1997, Elden Limited
         Partnership entered into an Agreement of Sale with Southport Financial
         Services, Inc., to sell its property, Elden Terrace Apartments.  The
         purchase price for the sale was $2,241,667, which is $375,000 above
         the mortgage note of $1,866,667.  In addition, Southport Financial
         Services, Inc., assumed the deferred acquisition note and accrued
         interest totalling $3,505,225 due to the noteholders.  Final
         settlement occurred on July 31, 1997.  The Partnership expects to
         receive net proceeds from the sale of approximately $350,000.  The
         transaction will be recorded in the financial statements in the 
         quarter ending September 30, 1997.
         




                                      -8-
<PAGE>   10
ITEM 2 -   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

                  NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                        (A MARYLAND LIMITED PARTNERSHIP)



The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. Certain information
included in this Report and other Partnership filings (collectively "SEC
Filings") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, including statements regarding the effect
of government regulations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety
of factors including national and local economic conditions, the general level
of interest rates, terms of governmental regulations that affect the
Partnership and interpretations of those regulations, the competitive
environment in which the properties owned by the Local Limited Partnerships
operate, the availability of working capital and dispositions of properties
owned by the Partnership.

LIQUIDITY AND CAPITAL RESOURCES

The properties in which the Partnership has invested, through its investments
in the Local Limited Partnerships, receive one or more forms of assistance from
Federal, state or local governments or agencies. As a result, the Local Limited
Partnerships' ability to transfer funds either to the Partnership or among
themselves in the form of cash distributions, loans or advances is generally
restricted by these government-assistance programs. These restrictions,
however, are not expected to impact the Partnership's ability to meet its cash
obligations.

For the past several years, various proposals have been advanced by HUD,
Congress and others proposing the restructuring of HUD's rental assistance
programs under Section 8 of the United States Housing Act of 1937 ("Section
8"), under which 603 units, 35 percent of the total units owned by the
properties in which the Partnership has invested, receive rental subsidies. One
such proposal has recently been introduced in the U.S. Senate, and two such
proposals have recently been introduced in the U.S. House of Representatives.
Three such proposals are now pending before Congress. These proposals generally
seek to lower subsidized rents to market levels, thereby reducing rent
subsidies, and to lower required debt service costs as needed to ensure
financial viability at the reduced rents and rent subsidies, but vary greatly
as to how that result is to be achieved. Some proposals include a phase-out of
project-based subsidies on a property-by-property basis upon expiration of a
property's Housing Assistance Payments Contract ("HAP Contract"), with a
conversion to a tenant-based subsidy. Under a tenant-based system, rent
vouchers would be issued to qualified tenants who then could elect to reside at
a property of their choice, provided the tenant has the financial ability to
pay the difference between the selected property's  monthly rent and the value
of the vouchers, which would be established based on HUD's regulated fair
market rent for that geographical area. Congress has not yet accepted any of
these restructuring proposals.  With respect to HAP Contracts expiring on or
before September 30, 1997, Congress has elected to renew expiring HAP Contracts
for one year terms, generally at existing rents. Congress is now considering
what action to take with respect to HAP Contracts expiring October 1, 1997
through September 30, 1998. While the Partnership does not believe that the
proposed changes would result in a significant number of tenants relocating
from properties owned by the Local Limited Partnerships, there can be no
assurance that the proposed changes would not significantly affect the
operations of the properties of the Local Limited Partnerships. Furthermore,
there can be no assurance that changes in federal subsidies will not be more
restrictive than those currently proposed or that other changes in policy will
not occur. Any such changes could have an adverse effect on the operation of
the Partnership.



                                      -9-
<PAGE>   11
                 NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                       (A MARYLAND LIMITED PARTNERSHIP)
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS



Net cash used in operations for the six months ended June 30, 1997 was $25,757
as compared to net cash used in operations of $18,238 for the six months ended
June 30, 1996. The increase in cash used in operations resulted from a decrease
in interest income received and a decrease in distributions received in excess
of investment in Local Limited Partnerships during the six months ended June
30, 1997, compared to the six months ended June 30, 1996.

No working capital advances or repayments occurred between the Partnership and
the Local Limited Partnerships during the six months ended June 30, 1997 and
1996. The combined amount carried as due to the Partnership by the Local
Limited Partnerships was $538,469 as of June 30, 1997. Future advances made
will be charged to operations; likewise, future repayments will be credited to
operations.

Distributions received from Local Limited Partnerships represent the
Partnership's proportionate share of the excess cash available for distribution
from the Local Limited Partnerships. As a result of the use of the equity
method of accounting for the Partnership's investments, as of June 30, 1997,
investments in all twelve Local Limited Partnerships had been reduced to zero.
For these investments, cash distributions received are recorded in income as
distributions received in excess of investment in Local Limited Partnerships.
During the six months ended June 30, 1997 and 1996, cash distributions of
$15,698 and $18,362, respectively, were received from two Local Limited
Partnerships. The receipt of distributions in future quarters is dependent upon
the operations of the underlying properties of the Local Limited Partnerships.

Cash and cash equivalents amounted to $115,025 at June 30, 1997. The ability of
the Partnership to meet its on-going cash requirements, in excess of cash on
hand at June 30, 1997, is dependent upon the future receipt of distributions
from the Local Limited Partnerships and proceeds from sales or refinancings of
the underlying properties of the Local Limited Partnerships. Cash on hand at
June 30, 1997, plus any distributions from the underlying operations of the
combined Local Limited Partnerships is expected to adequately fund the
operations of the Partnership in the current year. However, there can be no
assurance that future distributions will be adequate to fund the operations
beyond the current year.

The Partnership currently owes the General Partner $576,861 for administrative
and reporting services performed. The payment of the unpaid administrative and
reporting fees will most likely result from the sale or refinancing of the
underlying properties of the Local Limited Partnerships, rather than through
recurring operations.

National Corporation for Housing Partnerships was a significant participant in
the drafting and passage of LIHPRHA. LIHPRHA creates a procedure under which
owners of properties assisted under the HUD Section 236 or 221(d)(3) program
may be eligible to receive financial incentives in return for agreeing to
extend their property's use as low income housing. The appropriation for the
Department of Housing and Urban Development (which administers LIHPRHA) for the
1997 fiscal year is insufficient to meet existing program demand. As part of
this appropriation, Congress directed HUD to suspend processing of any property
which had not received approval of a sale or refinancing under LIHPRHA as of
the date of enactment of the appropriation, which occurred on September 26,
1996. Brunswick Village and Meadowood I, II and III all received approval to be
sold under the program within the requisite time frame. During the six months
ended June 30, 1997, funds were allocated for the sale of Meadowoods I and II
and on July 15, 1997, final settlement occurred, as further discussed below.
However, funds have not been allocated for the sale of Brunswick Village and
Meadowoods III, which is required so that these transactions can close. It is
uncertain at this point whether LIHPRHA will receive future appropriations from
Congress sufficient to allow the sales of Brunswick Village and Meadowood III
to close. In the event that the LIHPRHA sales do not close, the General Partner
will investigate other sale or refinancing opportunities for these





                                      -10-
<PAGE>   12
                 NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                       (A MARYLAND LIMITED PARTNERSHIP)
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS



properties, but there can be no assurance that these efforts will be
successful. If unsuccessful, this could have a substantially negative impact on
the Partnership's future available capital resources.

All of the Local Limited Partnerships in which the Partnership has invested
carry deferred acquisition notes due the original owner of each Property. The
deferred acquisition notes related to Meadowood Townhouses I and III reached
final maturity in April 1996 and April 1997, respectively. All other notes will
reach final maturity during 1999. These notes are secured by both the
Partnership's and NHP's interests in the Local Limited Partnerships. In the
event of a default on the notes, the note holders would be able to assume NHP's
and the Partnership's interests in the Local Limited Partnerships.

On May 2, 1996, Meadowood Townhouses I Local Limited Partnership entered into
an Agreement of Sale with Community Preservation and Development Corporation,
to sell its two properties, Meadowood Townhouses I and II pursuant to the terms
of Low Income Housing Preservation and Resident Homeownership Act of 1990
("LIHPRHA"). The purchase price is based on the properties' Transfer
Preservation Value, as approved by HUD. During the six months ended June 30,
1997, funding was approved for the sale of Meadowood Townhouses I and II, and
final settlement occurred on July 15, 1997. Total LIHPRHA grant money received
for the properties was $3,336,388, comprised of $1,558,253 for Meadowoods
Townhouses I and $1,778,135 for Meadowood Townhouses II. The holders of the
deferred acquisition notes were repaid from a portion of the LIHPRHA grant      
money at an agreed upon discounted amount.  The mortgage notes were assumed by
the purchaser.  The Partnership expects to receive net proceeds from the sale
of approximately $675,000. The transaction will be recorded in the financial
statements in the quarter ending September 30, 1997.

In connection with the sale, a Forebearance Agreement had been executed which
extended the maturity date of the deferred acquisition notes made by the Local
Limited Partner. Under the terms of this agreement, the initial period of
forebearance expired on April 30, 1997. A further extension of forebearance
would be granted until December 31, 1997 if funding for such closing had been
approved by HUD. Funding for the sale of Meadowood Townhouses III was not
approved by April 30, 1997, and an extension of forebearance until January 2,
1998, was granted to permit the Local Limited Partnership to submit an
alternative plan to the note holders, and to negotiate and close such plan. In
consideration for the initial period of extension of forebearance, the Local
Limited Partnership shall pay solely from their share of the net sale proceeds
received at closing, an extension fee equal to 1% of the aggregate amount of
principal due on the notes. The Local Limited Partnership shall have no
liability for the extension fee if closing of the sales does not occur. Upon
expiration of the forebearance period with extensions, the Local Limited
Partnership shall cause title to the Local Limited Partnership's interest in
the Local Limited Partnership to be conveyed to the note holders.

In the absence of a LIHPRHA sale, the Partnership's continued ownership in
Meadowood Townhouses III Local Limited Partnerships is dependent on their
successful efforts to negotiate further amendments of the terms of the note and
the related sale and forebearance agreements. If title to the Local Limited
Partnership interest is conveyed to the note holder, the Partnership will not
receive any future benefits from the underlying Properties, and taxable income
will be generated and flow to the Partnership's investors without any
distributable cash. The specific impact of the tax consequences is dependent
upon each specific partner's individual tax situation.

During the six months ended June 30, 1997, Elden Limited Partnership entered
into an Agreement of Sale with Southport Financial Services, Inc., to sell its
property, Elden Terrace Apartments. The purchase price for the sale was
$2,241,667, which is $375,000 above the mortgage note of $1,866,667. In
addition, Southport Financial Services, Inc.,





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<PAGE>   13
                 NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                       (A MARYLAND LIMITED PARTNERSHIP)
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS



assumed the deferred acquisition note and accrued interest totalling $3,505,225
from the noteholders. Final settlement occurred on July 31, 1997. The
Partnership expects to receive net proceeds from the sale of approximately      
$350,000. The transaction will be recorded in the financial statements in the
quarter ending September 30, 1997. The sale may generate taxable income to the
Partnership's investors possibly without any distributable cash. The specific
impact of the tax consequences is dependent upon each specific partner's
individual tax situation.

RESULTS OF OPERATIONS

The Partnership has invested as a limited partner in twelve Local Limited
Partnerships which operate thirteen rental housing properties. In prior years,
results of operations of NHP Realty Fund III were significantly impacted by the
Partnership's share of the losses of the Local Limited Partnerships. These
losses included depreciation and accrued deferred acquisition note interest
expense which are noncash in nature. Because the investments in and advances
to Local Limited Partnerships have been reduced to zero, the Partnership's
share of the operations of the Local Limited Partnerships is no longer being
recorded.

The Partnership's net loss increased to $49,286 for the six months ended June
30, 1997 from a net loss of $41,652 for the six months ended June 30, 1996. Net
loss per unit of limited partnership interest was $4 for the 11,500 units
outstanding throughout both periods. The increase in net loss was primarily due
to a decrease in interest income and a decrease in distributions received in
excess of investment in Local Limited Partnerships. The Partnership did not
recognize $662,004 of its allocated share of losses from the twelve Local
Limited Partnerships for the six months ended June 30, 1997, as the
Partnership's net carrying basis in these Partnerships had been reduced to
zero. The Partnership's share of losses from the Local Limited Partnerships, if
not limited to its investment account balance, would have increased $30,578
between periods, primarily due to an increase in operating expenses, partially
offset by an increase in rental income.

PART II - OTHER INFORMATION

ITEM 5 - OTHER INFORMATION

DISPOSITION OF RENTAL PROPERTIES

On May 2, 1996, Meadowood Townhouses I Local Limited Partnership entered into
an Agreement of Sale with Community Preservation and Development Corporation,
to sell its two properties, Meadowood Townhouses I and II pursuant to the terms
of LIHPRHA. The purchase price is based on the properties' Transfer
Preservation Value, as approved by HUD. During the six months ended June 30,
1997, funding was approved for the sale of Meadowood Townhouses I and II, and
final settlement occurred on July 15, 1997. Total LIHPRHA grant money received
for the properties was $3,336,388, comprised of $1,558,253 for Meadowoods
Townhouses I and $1,778,135 for Meadowood Townhouses II. The holders of the
deferred acquisition notes were repaid from a portion of the LIHPRHA grant
money at an agreed upon discounted amount.  The mortgage notes were assumed by
the purchaser. The Partnership expects to receive net proceeds from the sale of 
approximately $675,000. The transaction will be recorded in the financial
statements in the quarter ending September 30, 1997.

In addition, during the six months ended June 30, 1997, Elden Limited
Partnership entered into an Agreement of Sale with Southport Financial
Services, Inc., to sell its property, Elden Terrace Apartments. The purchase
price for the sale





                                      -12-
<PAGE>   14
                 NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                       (A MARYLAND LIMITED PARTNERSHIP)
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS



was $2,241,667, which is $375,000 above the mortgage note of $1,866,667. In
addition, Southport Financial Services, Inc., assumed the deferred acquisition
note and accrued interest totalling $3,505,225 from the noteholders. Final
settlement occurred on July 31, 1997. The Partnership expects to receive net    
proceeds from the sale of approximately $350,000. The transaction will be
recorded in the financial statements in the quarter ending September 30, 1997.

ITEM 6  -  EXHIBITS AND REPORTS ON FORM 8-K

         (a)     Exhibits

                 Exhibit No.

                 2.1      Real Estate Agreement, dated as of May 22, 1997, by
                          and among Apartment Investment and Management
                          Company, AIMCO Properties, L.P., Demeter Holdings
                          Corporation, Phemus Corporation, Capricorn Investors,
                          L.P., J.  Roderick Heller, III and NHP Partners Two
                          LLC (Exhibit 2.1 to the Partnership's report on Form
                          8-K, dated June 3, 1997, is incorporated herein by
                          reference).

         (b)     Report on Form 8-K

                 The Partnership filed a report on Form 8-K, dated June 3,
                 1997, filed with the commission on June 17, 1997, reporting
                 events under Item 1, Changes in Control of the Registrant. The
                 Partnership reported that on June 3, 1997, Apartment
                 Investment and Management Company, a Maryland corporation
                 ("AIMCO" and, together with its subsidiaries and other
                 controlled entities, the "AIMCO Group"), acquired all of the
                 issued and outstanding capital stock of NHP Partners, Inc., a
                 Delaware corporation ("NHP Partners"), and the AIMCO Group
                 acquired all of the outstanding interests in NHP Partners Two
                 Limited Partnership, a Delaware limited partnership ("NHP
                 Partners Two"). The Acquisition was made pursuant to a Real
                 Estate Acquisition Agreement, dated as of May 22, 1997 (the
                 "Agreement"), by and among AIMCO, AIMCO Properties, L.P., a
                 Delaware limited partnership (the "Operating Partnership"),
                 Demeter Holdings Corporation, a Massachusetts corporation
                 ("Demeter"), Phemus Corporation, a Massachusetts corporation
                 ("Phemus"), Capricorn Investors, L.P., a Delaware limited
                 partnership ("Capricorn"), J. Roderick Heller, III and NHP
                 Partners Two LLC, a Delaware limited liability company ("NHP
                 Partners Two LLC"). NHP Partners owns all of the outstanding
                 capital stock of the National Corporation for Housing
                 Partnerships, a District of Columbia corporation ("NCHP"),
                 which is the general partner of The National Housing
                 Partnership, a District of Columbia limited partnership (the
                 "NHP Partnership"). Together, NCHP and NHP Partners Two own
                 all of the outstanding partnership interests in the NHP
                 Partnership. The NHP Partnership is the general partner of
                 National Housing Partnership Realty Fund III (a Maryland
                 Limited Partnership) (the "Registrant"). As a result of these
                 transactions, the AIMCO Group has acquired control of the
                 general partner of the Registrant and, therefore, may be
                 deemed to have acquired control of the Registrant.





                                      -13-
<PAGE>   15
                                   SIGNATURES



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



                              NATIONAL HOUSING PARTNERSHIP REALTY FUND III
                              --------------------------------------------
                              (Registrant)


                              By:     The National Housing Partnership,
                                      its sole General Partner


                              By:     National Corporation for Housing
                                      Partnerships, its sole General Partner
      


August 12, 1997               By:                    /s/                       
---------------                   ----------------------------------------------
                                  Jeffrey J. Ochs
                                  As Vice President and Chief Accounting Officer





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