<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                    FORM 10-Q


             Quarterly Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                  For the Quarterly Period Ended MARCH 31, 1999

                         Commission File Number 0-10673

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California Limited Partnership)

                  I.R.S. Employer Identification No. 95-3547611

                         9090 WILSHIRE BLVD., SUITE 201
                           BEVERLY HILLS, CALIF. 90211

                         Registrant's Telephone Number,
                       Including Area Code (310) 278-2191



Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                               INDEX TO FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 1999



<TABLE>
<S>                                                                                                <C>
PART I.  FINANCIAL INFORMATION

             Item 1.  Financial Statements

                      Balance Sheets, March 31, 1999 and December 31, 1998..........................1

                      Statements of Operations,
                              Three Months Ended March 31, 1999 and 1998 ...........................2

                      Statement of Partners' Equity (Deficiency),
                              Three Months Ended March 31, 1999 ....................................3

                      Statements of Cash Flows,
                              Three Months Ended March 31, 1999 and 1998 ...........................4

                      Notes to Financial Statements ................................................5

             Item 2.  Management's Discussion and Analysis of Financial
                              Condition and Results of Operations .................................11


PART II.  OTHER INFORMATION

             Item 1.    Legal Proceedings..........................................................14

             Item 6.    Exhibits and Reports on Form 8-K...........................................14

             Signatures............................................................................15
</TABLE>




<PAGE>   3


                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 BALANCE SHEETS

                      MARCH 31, 1999 AND DECEMBER 31, 1998

                                     ASSETS



<TABLE>
<CAPTION>
                                                                                      1999                     1998
                                                                                    (Unaudited)              (Audited)
                                                                                   ------------             ------------
<S>                                                                                <C>                      <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)                                       $    799,457             $    744,457

CASH AND CASH EQUIVALENTS (Note 1)                                                    5,590,938               11,331,803

CASH DUE FROM ESCROW (Note 2)                                                                --                1,950,530
                                                                                   ------------             ------------

          TOTAL ASSETS                                                             $  6,390,395             $ 14,026,790
                                                                                   ============             ============


                        LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:

     Accounts payable                                                              $      7,493             $    308,747
                                                                                   ------------             ------------

COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)


PARTNERS' EQUITY (DEFICIENCY):
    General partners                                                                   (135,147)                 (61,795)
    Limited partners                                                                  6,518,049               13,779,838
                                                                                   ------------             ------------

                                                                                      6,382,902               13,718,043
                                                                                   ------------             ------------
           TOTAL LIABILITIES AND PARTNERS'
                EQUITY                                                               $6,390,392             $ 14,026,790
                                                                                   ============             ============
</TABLE>



     The accompanying notes are integral part of these financial statements.



                                       1
<PAGE>   4

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
                                   (Unaudited)




<TABLE>
<CAPTION>
                                                                      1999                 1998
                                                                   ---------             ---------
<S>                                                                <C>                   <C>
INTEREST AND OTHER INCOME                                          $  37,609             $ 124,839
                                                                   ---------             ---------

OPERATING EXPENSES:
             Legal and accounting                                     34,215                23,679
             Management fees - general partner (Note 3)               44,247               113,700
             Interest                                                                       37,750
             Administrative  (Note 3)                                 37,521               209,078
                                                                   ---------             ---------
                    Total operating expenses                         115,983               384,207
                                                                   ---------             ---------

LOSS FROM OPERATIONS                                                 (78,374)             (259,368)

COSTS RELATED TO THE SALE OF LIMITED
     PARTNERSHIP INTERESTS (Note 2)                                 (379,348)                   --


DISTRIBUTIONS FROM LIMITED
      PARTNERSHIPS RECOGNIZED AS
      INCOME (Note 2)                                                 18,112                40,458

EQUITY IN INCOME OF LIMITED
      PARTNERSHIPS AND
       AMORTIZATION OF ACQUISITION
       COSTS (Note 2)                                                 55,000                64,000
                                                                   ---------             ---------
NET LOSS                                                           $(384,610)            $(154,910)
                                                                   =========             =========
NET LOSS PER LIMITED PARTNERSHIP
     INTEREST (Note 1)                                             $     (34)            $     (14)
                                                                   =========             =========
</TABLE>



     The accompanying notes are integral part of these financial statements.



                                       2
<PAGE>   5

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                   STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
                    FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                  General                  Limited
                                                  Partners                 Partners                  Total
                                                ------------             ------------             ------------
<S>                                             <C>                      <C>                      <C>
PARTNERSHIP INTERESTS                                                          11,456
                                                                         ============


EQUITY (DEFICIENCY),
       January 1, 1999                          $    (61,795)            $ 13,779,838             $ 13,718,043

       Distributions                                 (69,506)              (6,881,025)              (6,950,521)

       Net loss for the three months
       ended March 31, 1999                           (3,846)                (380,764)                (384,610)
                                                ------------             ------------             ------------
EQUITY (DEFICIENCY),
       March 31, 1999                           $   (135,147)            $  6,518,049             $  6,382,902
                                                ============             ============             ============
</TABLE>




     The accompanying notes are integral part of these financial statements.



                                       3
<PAGE>   6

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                                              1999                      1998
                                                                          ------------             ------------
<S>                                                                       <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
         Net loss                                                         $   (384,610)            $   (154,910)
         Adjustments to reconcile net loss to net cash used in
           operating activities:
             Equity in income of limited partnerships and
                 amortization of acquisition costs                             (55,000)                 (64,000)
             Increase in other assets                                               --                  (54,561)
             Increase in interest and other payables                          (301,257)                 146,446
                                                                          ------------             ------------

                  Net cash used in operating activities                       (740,864)                (127,025)
                                                                          ------------             ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Sales proceeds                                                      1,950,530
         Distributions to limited partners                                  (6,950,531)
                                                                          ------------             ------------
                  Net cash used in investing activities                     (5,000,001)
                                                                          ------------             ------------


NET DECREASE IN CASH AND CASH
         EQUIVALENTS                                                        (5,740,865)                (127,025)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              11,331,803               10,575,810
                                                                          ------------             ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                  $  5,590,938             $ 10,448,785
                                                                          ============             ============
</TABLE>




     The accompanying notes are integral part of these financial statements.



                                       4
<PAGE>   7

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS

                                 MARCH 31, 1999



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          GENERAL

          The information contained in the following notes to the financial
          statements is condensed from that which would appear in the annual
          audited financial statements; accordingly, the financial statements
          included herein should be reviewed in conjunction with the financial
          statements and related notes thereto contained in the Real Estate
          Associates Limited III (the "Partnership") annual report for the year
          ended December 31, 1998. Accounting measurements at interim dates
          inherently involve greater reliance on estimates than at year end. The
          results of operations for the interim period presented are not
          necessarily indicative of the results for the entire year.

          In the opinion of the Partnership, the accompanying unaudited
          financial statements contain all adjustments (consisting primarily of
          normal recurring accruals) necessary to present fairly the financial
          position as of March 31, 1999 and the results of operations and
          changes in cash flows for the three months then ended.

          The general partners have a 1 percent interest in profits and losses
          of the Partnership. The limited partners have the remaining 99 percent
          interest which is allocated in proportion to their respective
          individual investments. National Partnership Investments Corp.
          (NAPICO) is the corporate general partner of the Partnership. Casden
          Properties Inc. owns a 92.25% economic interest in NAPICO, with the
          balance owned by Casden Investment Corporation ("CIC"). CIC, which is
          wholly owned by Alan I. Casden, owns 95% of the voting common stock of
          NAPICO.

          USE OF ESTIMATES

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial statements and reported amounts of revenues and
          expenses during the reporting period. Actual results could differ from
          those estimates.

          METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS

          The investment in limited partnerships is accounted for on the equity
          method. Acquisition, selection and other costs related to the
          acquisition of the projects are capitalized as part of the investment
          account, and are being amortized on a straight line basis over the
          estimated lives of the underlying assets, which is generally 30 years.

          NET INCOME PER LIMITED PARTNERSHIP INTEREST

          Net income per limited partnership interest was computed by dividing
          the limited partners' share of net income by the number of limited
          partnership interests outstanding during the year. The number of
          limited partnership interests was 11,456 for the periods presented.




                                        5


<PAGE>   8

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 1999



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          CASH AND CASH EQUIVALENTS

          Cash and cash equivalents consist of cash and bank certificates of
          deposit with an original maturity of three months or less. The
          Partnership has its cash and cash equivalents on deposit primarily
          with two high credit quality institutions. Such cash and cash
          equivalents are in excess of the FDIC insurance limit.

          INCOME TAXES

          No provision has been made for income taxes in the accompanying
          financial statements since such taxes, if any, are the liability of
          the individual partners

          IMPAIRMENT OF LONG-LIVED ASSETS

          The Partnership reviews long-lived assets to determine if there has
          been any permanent impairment whenever events or changes in
          circumstances indicate that the carrying amount of the asset may not
          be recoverable. If the sum of the expected future cash flows is less
          than the carrying amount of the assets, the Partnership recognizes an
          impairment loss.

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS

          The Partnership holds limited partnership interests in 12 limited
          partnerships as of March 31, 1999, after selling its interests in 20
          limited partnerships in 1998. In addition, the Partnership holds a
          general partner interest in Real Estate Associates III ("REA"), which
          in term holds a limited partnership interest in one additional limited
          partnership. NAPICO is also a general partner in REA II. In total,
          therefore, the Partnership holds interests, either directly or
          indirectly through REA I, in 12 partnerships which owned March 31,
          1999, residential low income rental projects consisting of 1,181
          apartment units. The mortgage loans of these projects are payable to
          or insured by various governmental agencies.

          The Partnership, as a limited partner, is entitled to between 75
          percent and 99 percent of the profits and losses of the limited
          partnerships it has invested in directly. The Partnership is also
          entitled to 99.9 percent of the profits and losses of REA. REA holds a
          99 percent interest in the limited partnership in which it has
          invested.

          Equity in losses of limited partnerships is recognized in the
          financial statements until the limited partnership investment account
          is reduced to a zero balance. Losses incurred after the limited
          partnership investment account is reduced to zero are not recognized.

          Distributions from limited partnerships are recognized as a reduction
          of capital until the investment balance has been reduced to zero.
          Subsequent distributions received are recognized as income.




                                        6


<PAGE>   9

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 1999



NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)


<TABLE>
<S>                                                                              <C>
          The following is a summary of the investment in limited
          partnerships for the three months ended March 31, 1999:

          Balance, beginning of period                                            $ 744,457
          Amortization of acquisitions costs                                         (1,000)
          Equity in income of limited partnerships                                   56,000
                                                                                  ---------
          Balance, end of period                                                  $ 799,457
                                                                                  =========
</TABLE>

          The following are unaudited combined estimated statements of
          operations for the three months ended March 31, 1999 and 1998 for the
          limited partnerships in which the Partnership has investments:


<TABLE>
<CAPTION>
                                          Three months             Three months
                                             ended                    ended
                                         March 31, 1999           March 31, 1998
                                         --------------           --------------
<S>                                        <C>                     <C>
          REVENUES
               Rental and other            $ 2,056,000             $ 5,793,000
                                           -----------             -----------

          EXPENSES
               Depreciation                    408,000                 918,000
               Interest                        560,000               1,732,000
               Operating                     1,115,000               3,013,000
                                           -----------             -----------

                                             2,083,000               5,663,000

          NET (LOSS) INCOME                $   (27,000)            $   130,000
                                           ===========             ===========
</TABLE>


          NAPICO, or one of its affiliates, is the general partner and property
          management agent for certain of the limited partnerships included
          above.

          Under recent adopted law and policy, the United States Department of
          Housing and Urban Development ("HUD") has determined not to renew the
          Housing Assistance Payment ("HAP") Contracts on a long term basis on
          the existing terms. In connection with renewals of the HAP Contracts
          under such new law and policy, the amount of rental assistance
          payments under renewed HAP Contracts will be based on market rentals
          instead of above market rentals, which was generally the case under
          existing HAP Contracts. The payments under the renewed HAP Contracts
          are not expected to be in an amount that would provide sufficient cash
          flow to permit owners of properties subject to HAP Contracts to meet
          the debt service requirements of existing loans insured by the Federal
          Housing Administration of HUD ("FHA") unless such mortgage loans are
          restructured. In order to address the reduction in payments




                                        7

<PAGE>   10

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 1999



NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

          under HAP Contracts as a result of this new policy, the Multi-family
          Assisted Housing Reform and Affordability Act of 1997 ( "MAHRAA"),
          which was adopted in October 1997, provides for the restructuring of
          mortgage loans insured by the FHA with respect to properties subject
          to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan
          can be restructured into a first mortgage loan which will be amortized
          on a current basis and a low interest second mortgage loan payable to
          FHA which will only be payable on maturity of the first mortgage loan.
          This restructuring results in a reduction in annual debt service
          payable by the owner of the FHA-insured mortgage loan and is expected
          to result in an insurance payment from FHA to the holder of the
          FHA-insured loan due to the reduction in the principal amount. MAHRAA
          also phases out project-based subsidies on selected properties serving
          families not located in rental markets with limited supply, converting
          such subsidies to a tenant-based subsidy.

          MAHRAA provides that properties begin the restructuring process in
          federal fiscal year 1999 (beginning October 1, 1998). On September 11,
          1998, HUD issued interim regulations implementing MAHRAA and final
          regulations are expected to be issued in 1999. With respect to the
          local limited partnerships' expiring HAP Contracts, it is expected
          that the HAP payments will be reduced or terminated pursuant to the
          terms of MAHRAA.

          When the HAP Contracts are subject to renewal, there can be no
          assurance that the local limited partnerships in which the Partnership
          has an investment will be permitted to restructure its mortgage
          indebtedness under MAHRAA. In addition, the economic impact on the
          Partnership of the combination of the reduced payments under the HAP
          Contracts and the restructuring of the existing FHA-insured mortgage
          loans under MAHRAA is uncertain.

          As a result of the foregoing, the Partnership in 1997 undertook an
          extensive review of disposition, refinancing or re-engineering
          alternatives for the properties in which the limited partnerships have
          invested and are subject to HUD mortgage and rental subsidy programs.
          The Partnership has incurred expenses in connection with this review
          by various third party professionals, including accounting, legal,
          valuation, structural and engineering costs, which amounted to
          $767,974 through December 31, 1998.

          On December 30, 1998, the Partnership sold its limited partnership
          interests in 20 local limited partnerships to subsidiaries of Casden
          Properties Inc. The sale resulted in cash proceeds to the Partnership
          of $1,950,000 and a net gain of $2,647,716, after deducting selling
          costs. The cash proceeds were held in escrow at December 31, 1998 and
          were collected in 1999. In March 1999, the Partnership made cash
          distributions of $6,881,025 to the limited partners and $69,505 to the
          general partners, which included using proceeds from the sale of the
          partnership interests.




                                        8


<PAGE>   11

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 1999



NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

          Casden Properties Inc. purchased such limited partner interests for
          cash, which it raised in connection with a private placement of its
          equity securities. The purchase was subject to, among other things,
          (i) the purchase of the general partner interests in the local limited
          partnerships by Casden Properties Inc.; (ii) the approval of HUD and
          certain state housing finance agencies; and (iii) the consent of the
          limited partners to the sale of the local limited partnership
          interests held for investment by the Partnership.

          In August 1998, a consent solicitation statement was sent to the
          limited partners setting forth the terms and conditions of the
          purchase of the limited partners' interests held for investment by the
          Partnership, together with certain amendments to the Partnership
          Agreement and other disclosures of various conflicts of interest in
          connection with the proposed transaction. Prior to the sale of the
          partnership interests, the consents of the limited partners to the
          sale and amendments to the Partnership Agreement were obtained.

NOTE 3 - MANAGEMENT FEE AND EXPENSES DUE TO GENERAL PARTNER

          Under the terms of the Restated Certificate and Agreement of Limited
          Partnership, the Partnership is obligated to NAPICO for an annual
          management fee approximately equal to .4 percent of the invested
          assets. Invested assets are defined as the costs of acquiring project
          interests, including the proportionate amount of the mortgage loans
          related to the Partnership's interests in the capital accounts of the
          respective partnership. The management fee incurred for the three
          months ended March 31, 1999 and 1998 was approximately $44,247 and
          $113,700, respectively.

          The Partnership reimburses NAPICO for certain expenses. The
          reimbursement paid to NAPICO was approximately $4,122 and $8,800 for
          the three months ended March 31, 1999 and 1998, respectively, and is
          included in administrative expenses.

NOTE 4 - CONTINGENCIES

          On August 27, 1998, two investors holding an aggregate of eight units
          of limited partnership interests in Real Estate Associates Limited III
          (an affiliated partnership in which NAPICO is the managing general
          partner) and two investors holding an aggregate of five units of
          limited partnership interest in Real Estate Associates Limited VI
          (another affiliated partnership in which NAPICO is the managing
          general partner) commenced an action in the United States District
          Court for the Central District of California against the Partnership,
          NAPICO and certain other affiliated entities. The complaint alleges
          that the defendants breached their fiduciary duty to the limited
          partners of certain NAPICO managed partnerships and made materially
          false and misleading statements in the consent solicitation statements
          sent to the limited partners of such partnerships relating to approval
          of the transfer of partnership interests in limited partnerships,
          owning certain of the properties, to Casden Properties Inc., which was
          organized by an affiliate of NAPICO. The plaintiffs seek equitable
          relief, as well as compensatory damages and litigation related costs.
          The managing general



                                        9


<PAGE>   12

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 1999



NOTE 4 - CONTINGENCIES (CONTINUED)

          partner of such NAPICO managed partnerships and the other defendants
          believe that the plaintiffs' claims are without merit and intend to
          contest the action vigorously.

          The corporate general partner of the Partnership is involved in
          various lawsuits arising from transactions in the ordinary course of
          business. In the opinion of management and the corporate general
          partner, the claims will not result in any material liability to the
          Partnership.

          The Partnership has assessed the potential impact of the Year 2000
          computer systems issue on its operations. The Partnership believes
          that no significant actions are required to be taken by the
          Partnership to address the issue and that the impact of the Year 2000
          computer systems issue will not materially affect the Partnership's
          future operating results or financial condition.

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

          Statement of Financial Accounting Standards No. 107, "Disclosure about
          Fair Value of Financial Instruments," requires disclosure of fair
          value information about financial instruments, when it is practicable
          to estimate that value. The notes payable are collateralized by the
          Partnership's investments in the investee limited partnerships and are
          payable only out of cash distributions from the investee partnerships.
          The operations generated by the investee limited partnerships are
          subject to various government rules, regulations and restrictions
          which make it impracticable to estimate the fair value of the notes
          payable and related accrued interest. The carrying amount of other
          assets and liabilities reported on the balance sheets that require
          such disclosure approximates fair value due to their short-term
          maturity.




                                       10


<PAGE>   13

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 1999



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

          LIQUIDITY AND CAPITAL RESOURCES

          The Partnership's primary sources of funds include interest income
          earned from investing available cash and distributions from limited
          partnerships in which the Partnership has invested. It is not expected
          that any of the local limited partnerships in which the Partnership
          has invested will generate cash flow sufficient to provide for
          distributions to limited partners in any material amount. The
          Partnership made a distributions to investors in March 31, 1999,
          previously using proceeds from the disposition of its investments in
          certain limited partnerships.

          RESULTS OF OPERATIONS

          Partnership revenues consist primarily of interest income earned on
          certificates of deposit and other temporary investment of funds not
          required for investment in local partnerships.

          Operating expenses consist primarily of recurring general and
          administrative expenses and professional fees for services rendered to
          the Partnership. In addition, an annual Partnership management fee in
          an amount equal to .4 percent of investment assets is payable to the
          corporate general partner.

          The Partnership accounts for its investments in the local limited
          partnerships on the equity method, thereby adjusting its investment
          balance by its proportionate share of the income or loss of the local
          limited partnerships. Losses incurred after the limited partnership
          investment account is reduced to zero are not recognized in accordance
          with the equity accounting method.

          Distributions received from limited partnerships are recognized as
          return of capital until the investment balance has been reduced to
          zero or to a negative amount equal to future capital contributions
          required. Subsequent distributions received are recognized as income.
          Overall distributions from limited partnerships continue to be
          favorable. This primarily is due, to improved operating results at
          several of the properties.

          Except for certificates of deposit and money market funds, the
          Partnership's investments are entirely interests in other limited
          partnerships owning government assisted projects. Funds temporarily
          not required for such investments in projects are invested in
          certificate of deposit and money market funds which provide
          substantial amounts of interest as reflected in the statement of
          operations. These investments are converted to cash to meet
          obligations as they arise. The Partnership intends to continue
          investing available funds in this manner.

          Until the sale of the partnership interests on December 30, 1998, the
          Partnership was obligated on non-recourse notes payable of $1,510,000
          which bore interest at 10 percent per annum and had principal
          maturities ranging from June 2020 to March 2024. The notes and related
          interest are payable from cash flow generated from operations of the
          related rental properties as defined in the notes. These obligations
          were collateralized by the Partnership's investments in the limited




                                       11


<PAGE>   14

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 1999



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (CONTINUED)

          RESULTS OF OPERATIONS (CONTINUED)

          partnerships. Unpaid interest is due at maturity of the notes. The
          Partnership was relieved of these notes and related accrued interest
          in connection with the sale of the partnership interests.

          Under recent adopted law and policy, the United States Department of
          Housing and Urban Development ("HUD") has determined not to renew the
          Housing Assistance Payment ("HAP") Contracts on a long term basis on
          the existing terms. In connection with renewals of the HAP Contracts
          under such new law and policy, the amount of rental assistance
          payments under renewed HAP Contracts will be based on market rentals
          instead of above market rentals, which was generally the case under
          existing HAP Contracts. The payments under the renewed HAP Contracts
          are not expected to be in an amount that would provide sufficient cash
          flow to permit owners of properties subject to HAP Contracts to meet
          the debt service requirements of existing loans insured by the Federal
          Housing Administration of HUD ("FHA") unless such mortgage loans are
          restructured. In order to address the reduction in payments under HAP
          Contracts as a result of this new policy, the Multi-family Assisted
          Housing Reform and Affordability Act of 1997 ( "MAHRAA"), which was
          adopted in October 1997, provides for the restructuring of mortgage
          loans insured by the FHA with respect to properties subject to the
          Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be
          restructured into a first mortgage loan which will be amortized on a
          current basis and a low interest second mortgage loan payable to FHA
          which will only be payable on maturity of the first mortgage loan.
          This restructuring results in a reduction in annual debt service
          payable by the owner of the FHA-insured mortgage loan and is expected
          to result in an insurance payment from FHA to the holder of the
          FHA-insured loan due to the reduction in the principal amount. MAHRAA
          also phases out project-based subsidies on selected properties serving
          families not located in rental markets with limited supply, converting
          such subsidies to a tenant-based subsidy.

          MAHRAA provides that properties begin the restructuring process in
          federal fiscal year 1999 (beginning October 1, 1998). On September 11,
          1998, HUD issued interim regulations implementing MAHRAA and final
          regulations are expected to be issued in 1999. With respect to the
          local limited partnerships' expiring HAP Contracts, it is expected
          that the HAP payments will be reduced or terminated pursuant to the
          terms of MAHRAA.

          When the HAP Contracts are subject to renewal, there can be no
          assurance that the local limited partnerships in which the Partnership
          has an investment will be permitted to restructure its mortgage
          indebtedness under MAHRAA. In addition, the economic impact on the
          Partnership of the combination of the reduced payments under the HAP
          Contracts and the restructuring of the existing FHA-insured mortgage
          loans under MAHRAA is uncertain.

          As a result of the foregoing, the Partnership in 1997 undertook an
          extensive review of disposition, refinancing or re-engineering
          alternatives for the properties in which the limited partnerships have
          invested and are subject to HUD mortgage and rental subsidy programs.
          The Partnership has incurred expenses in connection with this review
          by various third party professionals, including accounting,




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<PAGE>   15

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 1999


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (CONTINUED)

          RESULTS OF OPERATIONS (CONTINUED)

          legal, valuation, structural and engineering costs, which amounted to
          $767,974 through December 31, 1998.

          On December 30, 1998, the Partnership sold its limited partnership
          interests in 20 local limited partnerships to subsidiaries of Casden
          Properties Inc. The sale resulted in cash proceeds to the Partnership
          of $1,950,530 and a net gain of $2,647,716, after deducting selling
          costs. The cash proceeds were held in escrow at December 31, 1998 and
          were collected in 1999. In March 1999, the Partnership made cash
          distributions of $6,881,025 to the limited partners and $69,505 to the
          general partners, which included using proceeds from the sale of the
          partnership interests.

          Casden Properties Inc. purchased such limited partner interests for
          cash, which it raised in connection with a private placement of its
          equity securities. The purchase was subject to, among other things,
          (i) the purchase of the general partner interests in the local limited
          partnerships by Casden Properties Inc.; (ii) the approval of HUD and
          certain state housing finance agencies; and (iii) the consent of the
          limited partners to the sale of the local limited partnership
          interests held for investment by the Partnership.

          In August 1998, a consent solicitation statement was sent to the
          limited partners setting forth the terms and conditions of the
          purchase of the limited partners' interests held for investment by the
          Partnership, together with certain amendments to the Partnership
          Agreement and other disclosures of various conflicts of interest in
          connection with the proposed transaction. Prior to the sale of the
          partnership interests, the consents of the limited partners to the
          sale and amendments to the Partnership Agreement were obtained.




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<PAGE>   16

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 1999



PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

          On August 27, 1998, two investors holding an aggregate of eight units
          of limited partnership interests in Real Estate Associates Limited III
          (an affiliated partnership in which NAPICO is the managing general
          partner) and two investors holding an aggregate of five units of
          limited partnership interest in Real Estate Associates Limited VI
          (another affiliated partnership in which NAPICO is the managing
          general partner) commenced an action in the United States District
          Court for the Central District of California against the Partnership,
          NAPICO and certain other affiliated entities. The complaint alleges
          that the defendants breached their fiduciary duty to the limited
          partners of certain NAPICO managed partnerships and made materially
          false and misleading statements in the consent solicitation statements
          sent to the limited partners of such partnerships relating to approval
          of the transfer of partnership interests in limited partnerships,
          owning certain of the properties, to Casden Properties Inc., which was
          organized by an affiliate of NAPICO. The plaintiffs seek equitable
          relief, as well as compensatory damages and litigation related costs.
          The managing general partner of such NAPICO managed partnerships and
          the other defendants believe that the plaintiffs' claims are without
          merit and intend to contest the action vigorously

          The corporate general partner is involved in various lawsuits. None of
          these are related to REAL III.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

          (a) No exhibits are required per the provision of Item 7 of regulation
S-K.



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<PAGE>   17

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 1999


                                   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.



                                REAL ESTATE ASSOCIATES LIMITED III
                                (a California limited partnership)


                                By: National Partnership Investments Corp.
                                    General Partner


                                    /s/ BRUCE NELSON
                                    ---------------------------
                                    Bruce Nelson
                                    President


                                Date: May 20, 1999
                                      -------------------------



                                    /s/ CHARLES H. BOXENBAUM
                                    ---------------------------
                                    Charles H. Boxenbaum
                                    Chief Executive Officer



                                Date: May 20, 1999
                                      -------------------------




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