UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-QSB

(Mark One)
[X*]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

                 For the quarterly period ended September 30, 2002


[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

              For the transition period from __________ to __________

                         Commission file number 0-10673


                       REAL ESTATE ASSOCIATES LIMITED III
                       (A California Limited Partnership)


          California                                           95-3547611
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization                             Identification No.)

                          55 Beattie Place, PO Box 1089
                        Greenville, South Carolina 29602
                    (Address of principal executive offices)

                                 (864) 239-1000
                           (Issuer's telephone number)




* While this Form 10-QSB has been filed on the  specified  due date, it does not
contain the certifications  required by the Sarbanes-Oxley Act of 2002 and Rules
13a-14 and 15d-14  promulgated under the Securities and Exchange Act of 1934, as
amended. The Securities and Exchange Commission thus will not consider this Form
10-QSB to be timely filed.


<PAGE>


                                Explanatory Note

The  Partnership  is in the  process  of  verifying  that the  equity  method of
accounting   has  been  properly   applied  for  its   investments   in  limited
partnerships.  Once the Partnership has completed its review,  Ernst & Young LLP
will  complete  its review of the interim  financial  statements  for the period
ended September 30, 2002. As a result,  this quarterly report includes financial
statements that have not been reviewed by an independent  accountant as required
by Rule 10-01(d) of Regulation  S-X. Once the  Partnership and Ernst & Young LLP
have completed their review related to this issue, the Partnership  expects that
Ernst & Young LLP will complete the quarterly  review  required by Rule 10-01(d)
of Regulation S-X.

As a result of the fact that Ernst & Young LLP has not  completed  its review of
the interim financial  statements as of and for the three months ended September
30, 2002, this Form 10-QSB is not accompanied by the certifications  required by
the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 promulgated under the
Securities Exchange Act of 1934, as amended.  The Partnership expects that these
certifications will be filed by amendment to this Form 10-QSB upon completion of
Ernst & Young LLP's review.


<PAGE>




                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

                              INDEX TO FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2002




PART I.     FINANCIAL INFORMATION

      ITEM 1.     FINANCIAL STATEMENTS

                  Balance Sheet,
                    September 30, 2002                                         1

                  Statements of Operations
                    Three and Nine months Ended September 30, 2002 and 2001    2

                  Statement of Partners' (Deficiency) Equity,
                    Nine months Ended September 30, 2002                       3

                  Statements of Cash Flows
                    Nine months Ended September 30, 2002 and 2001              4

                  Notes to Financial Statements                                5

      ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION   10

      ITEM 3.     Controls and Procedures                                     11

PART II.    OTHER INFORMATION

      ITEM 1.     LEGAL PROCEEDINGS                                           12

      ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K                            13

      SIGNATURES                                                              14


<PAGE>



                         PART I - FINANCIAL INFORMATION


ITEM 1.     FINANCIAL STATEMENTS



                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

                                  BALANCE SHEET

                               SEPTEMBER 30, 2002
                                   (Unaudited)



                              ASSETS

Investments in limited partnerships (Note 2)                       $   580,299
Cash and cash equivalents                                            1,983,073

            Total assets                                           $ 2,563,372

          LIABILITIES AND PARTNERS' (DEFICIENCY) EQUITY

Liabilities:
   Accounts payable and accrued expenses                           $    62,090
   Advances due to affiliates                                            4,750
                                                                          66,840
Commitments and Contingencies (Notes 3 and 4)

Partners' (Deficiency) Equity:
   General partners                                                   (144,011)
   Limited partners                                                  2,640,543
                                                                       2,496,532
            Total liabilities and partners' (deficiency) equity    $ 2,563,372

     The accompanying notes are an integral part of these financial statements.



<PAGE>





                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

                            STATEMENTS OF OPERATIONS

          FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
                                   (Unaudited)


<TABLE>
<CAPTION>

                                              Three Months Ended           Nine Months Ended
                                                 September 30,               September 30,
                                              2002          2001           2002          2001

<S>                                       <C>           <C>           <C>            <C>
interest and other income                 $    17,315   $    50,750   $    32,940    $    169,600

operating Expenses:
  Management fee - partners (Note 3)           32,322        32,322        96,941          96,967
  General and administrative (Note 3)          22,972       114,635        72,347         154,223
  Legal and accounting                         22,211       175,206        90,595         392,819
        Total operating expenses               77,505       322,163       259,883         644,009

Loss from Partnership operations              (60,190)     (271,413)     (226,943)       (474,409)
Distributions from limited partnerships
  recognized as income (Note 2)                    --            --        33,903          21,925
Equity in (loss) income of limited
  partnerships and amortization of
  acquisition costs (Notes 1 and 2)           478,221        53,071       170,299         162,546

Net income (loss)                         $   418,031   $  (218,342)   $  (22,741)    $  (289,938)
Net income (loss) allocated to general
 partners (1%)                            $     4,180   $    (2,183)   $     (227)    $    (2,899)
Net income (loss) allocated to limited
 partners (99%)                               413,851      (216,159)      (22,514)       (287,039)

                                          $   418,031   $  (218,342)   $  (22,741)    $   289,938
Net income (loss) per limited
  partnership interest (Note 1)           $        36   $       (19)   $       (2)    $       (25)

     The accompanying notes are an integral part of these financial statements.

</TABLE>


<PAGE>




                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

                   STATEMENT OF PARTNERS' (DEFICIENCY) EQUITY

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
                                   (Unaudited)


<TABLE>
<CAPTION>


                                        General          Limited
                                       Partners          Partners          Total

<S>                                                         <C>
Partnership interests                                       11,456

Partners' (deficiency) equity,
  January 1, 2002                     $ (143,784)       $2,663,057       $2,519,273

Net loss for the nine months
  ended September 30, 2002                  (227)          (22,514)         (22,741)

Partners' (deficiency) equity,
  September 30, 2002                  $ (144,011)       $2,640,543       $2,496,532

     The accompanying notes are an integral part of these financial statements.
</TABLE>



<PAGE>




                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

                            STATEMENTS OF CASH FLOWS

               FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
                                   (Unaudited)



<TABLE>
<CAPTION>

                                                                      2002            2001
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                <C>             <C>
  Net loss                                                         $ (22,741)      $ (289,938)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
     Equity in income of limited partnerships and
      amortization of acquisition costs                              (170,299)       (162,546)
     Increase in interest and other payables                               --          54,790
     Increase in advances due to affiliates                               250              --
     Decrease in accounts payable and accrued expenses                 (2,368)             --
         Net cash used in operating activities                       (195,158)       (397,694)

cash flow from investing activities:
     Distributions from limited partnership recognized
       as return of capital                                                --          41,227

NET DECREASE IN CASH AND CASH EQUIVALENTS                            (195,158)       (356,467)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                      2,178,231       5,655,763

CASH AND CASH EQUIVALENTS, END OF PERIOD                          $ 1,983,073     $ 5,299,296

     The accompanying notes are an integral part of these financial statements.
</TABLE>



<PAGE>

                       REAL ESTATE ASSOCIATES LIMITED III
                       (a California limited partnership)

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2002

NOTE 1 - ORGANIZATION AND 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"  or
"Registrant")  annual  report  for the  fiscal  year ended  December  31,  2001.
Accounting  measurements at interim dates inherently involve greater reliance on
estimates  than at year end. The results of operations  for the interim  periods
presented are not necessarily  indicative of the results expected 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 September 30,
2002 and the results of  operations  and changes in cash flows for the three and
nine months then ended.

The general  partners  collectively  have a one 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.  The general  partners of the Partnership are National  Partnership
Investments  Corporation ("NAPICO" or the "Corporate General Partner") and Coast
Housing Investments Associates Limited Partnership.

 On December 3, 2001,  Casden  Properties Inc.,  entered into a merger agreement
and certain other transaction documents with Apartment Investment and Management
Company,  ("AIMCO"), a publicly traded real estate investment trust, and certain
of its subsidiaries, pursuant to which, on March 11, 2002, AIMCO acquired Casden
Properties Inc. and its subsidiaries,  including 100% of the outstanding capital
stock of NAPICO.
Prior to March 11, 2002, Casden Properties Inc. owned a 95.25% economic interest
in NAPICO, with the balance owned by Casden Investment Corporation ("CIC"). CIC,
which is wholly owned by Alan I. Casden, owned 95% of the voting common stock of
NAPICO prior to March 11, 2002.

Basis of Presentation

The  accompanying  financial  statements  have been prepared in conformity  with
accounting principles generally accepted in the United States of America.

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 (Loss) Per Limited Partnership Interest

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

Cash and Cash Equivalents

Cash and cash  equivalents  consist of cash and money market mutual  funds.  The
Partnership  has its cash and cash  equivalents  on deposit  primarily  with two
money market mutual funds. Such cash and cash equivalents are uninsured.

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.

Change in Estimate

During the quarter ended  September 30, 2002, the  Partnership  made a change in
the recognition of equity in income from the one limited partnership in which an
investment  balance  existed at December 31, 2001. The result of this change was
to recognize equity in income of the limited  partnership of $478,777 during the
three months ended September 30, 2002.

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS

As of September 30, 2002, the Partnership holds limited partnership interests in
12 limited partnerships (the "Local Partnerships"). The Local Partnerships as of
September  30, 2002 own  residential  low income rental  projects  consisting of
1,182 apartment  units.  The mortgage loans for these projects are payable to or
insured by various governmental agencies.

The Partnership,  as a limited partner,  is entitled to between 94.9 percent and
99 percent of the profits and losses of the Local  Partnerships  it has invested
in directly. The Partnership is also entitled to 99.9 percent of the profits and
losses of Real Estate Associates ("REA"). REA holds a 99 percent interest in the
limited partnership in which it has invested.

Equity in losses of Local 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 Local  Partnerships are recognized as a reduction of capital
until the investment balance has been reduced to zero. Subsequent  distributions
received are recognized as income.

The following is a summary of the investments in Local Partnerships for the nine
months ended September 30, 2002:

           Balance, beginning of period                    $ 410,000
           Amortization of acquisition costs                  (1,666)
           Equity in income of limited partnerships          171,965

           Balance, end of period                          $ 580,299

The following are unaudited combined estimated  statements of operations for the
three  and  nine  months  ended  September  30,  2002  and  2001  for the  Local
Partnerships in which the Partnership has investments:

<TABLE>
<CAPTION>

                               Three Months Ended              Nine Months Ended
                                 September 30,                   September 30,
                              2002           2001             2002            2001
Revenues
<S>                       <C>             <C>             <C>             <C>
  Rental and other        $ 1,681,000     $ 1,646,000     $ 5,043,000     $ 4,938,000

Expenses
  Depreciation                303,000         320,000         908,000         960,000
  Interest                    367,000         450,000       1,101,000       1,350,000
  Operating                 1,154,000       1,003,000       3,463,000       3,009,000

                            1,824,000       1,773,000       5,472,000       5,319,000

Net loss                   $ (143,000)    $ (127,000)      $ (429,000)     $ (381,000)
</TABLE>

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 may be the case under
existing HAP Contracts.  The payments under the renewed HAP Contracts may not 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") 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.

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.

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 0.4 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
both the nine month periods ended September 30, 2002 and 2001 was  approximately
$97,000.

The Partnership  reimburses NAPICO for certain expenses.  The reimbursement paid
to NAPICO  was  approximately  $11,000  for both the nine  month  periods  ended
September  30, 2002 and 2001,  and is  included  in general  and  administrative
expenses.

NOTE 4 - CONTINGENCIES

On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership  interests in the Partnership 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  affiliates of Casden  Properties  Inc.,
organized by an affiliate of NAPICO.  The plaintiffs seek equitable  relief,  as
well as  compensatory  damages and litigation  related costs. On August 4, 1999,
one  investor  holding  one unit of  limited  partnership  interest  in  Housing
Programs Limited (another affiliated partnership in which NAPICO is the managing
general  partner)  commenced a virtually  identical  action in the United States
District Court for the Central  District of California  against the Partnership,
NAPICO  and  certain  other  affiliated  entities.  The  second  action has been
subsumed in the first action,  which has been  certified as a class  action.  On
August 21, 2001,  plaintiffs  filed a  supplemental  complaint,  which added new
claims,  including  a claim  for a  recission  of the  transfer  of  partnership
interests  and an  accounting.  The trial on these claims is in progress.  As of
November  15,  2002,  the jury  returned a special  verdict  against  NAPICO and
certain other  defendants  for  violations  of  securities  laws and breaches of
fiduciary  duty.  However,  no verdicts  have been  returned  against any of the
NAPICO managed partnerships and no judgments have been entered in the case.

Consent Solicitation

In March 2001, a limited  partner of the  Partnership,  which acquired its units
through a tender offer, commenced a consent solicitation to remove NAPICO as the
Corporate  General  Partner of the  Partnership.  In April 2001, the Partnership
commenced an action to enjoin the  solicitation  alleging  that the  information
contained  in the  solicitation  was  materially  false  and  misleading  and in
violation of the federal  securities  laws. In November  2002, a settlement  was
reached  between  NAPICO and the limited  partner  whereby  the lawsuit  will be
dismissed,  NAPICO  will  remain the  Corporate  General  Partner and all claims
between the parties will be released.

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.

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. The carrying amount of other assets and liabilities
reported on the balance  sheet that require such  disclosure  approximates  fair
value due to their short-term maturity.



<PAGE>




ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for forward-looking  statements in certain circumstances.  The matters discussed
in this report contain certain forward-looking  statements,  including,  without
limitation,  statements regarding future financial performance and the effect of
government regulations. The discussions of the Registrant's business and results
of operations,  including forward-looking statements pertaining to such matters,
do not take into account the effects of any changes to the Registrant's business
and  results of  operations.  Actual  results may differ  materially  from those
described in the forward-looking statements and will be affected by a variety of
risks and factors  including,  without  limitation:  national and local economic
conditions; the terms of governmental regulations that affect the Registrant and
interpretations of those regulations;  the competitive  environment in which the
Registrant  operates;  financing risks,  including the risk that cash flows from
operations  may be  insufficient  to meet  required  payments of  principal  and
interest;  real estate risks, including variations of real estate values and the
general  economic  climate in local markets and  competition for tenants in such
markets; and possible environmental liabilities. Readers should carefully review
the Registrant's financial statements and the notes thereto, as well as the risk
factors  described in the documents the Registrant  files from time to time with
the Securities and Exchange Commission.

The Corporate  General  Partner  monitors  developments in the area of legal and
regulatory   compliance  and  is  studying  new  federal  laws,   including  the
Sarbanes-Oxley  Act of 2002. The Sarbanes-Oxley Act of 2002 mandates or suggests
additional compliance measures with regard to governance,  disclosure, audit and
other areas.  In light of these changes,  the  Partnership  expects that it will
incur higher expenses related to compliance, including increased legal and audit
fees.

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
Partnerships  in which the  Partnership  has invested  will  generate  cash flow
sufficient  to provide for  distributions  to limited  partners in any  material
amount.

Results of Operations

Partnership  revenues  consist  primarily of interest income earned on 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  Partnerships on the
equity method,  thereby  adjusting its investment  balance by its  proportionate
share of the income or loss of the Local 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 Local  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.

Except for money  market  funds,  the  Partnership's  investments  are  entirely
interests in other Local Partnerships owning government assisted projects. Funds
temporarily not required for such  investments in projects are invested in money
market funds which  provide  interest  income as reflected in the  statements of
operations.  These  investments  can  be  readily  converted  to  cash  to  meet
obligations as they arise.

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 may be the case under
existing HAP Contracts.  The payments under the renewed HAP Contracts may not 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")  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.

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.

ITEM 3.     CONTROLS AND PROCEDURES

The principal executive officer and principal financial officer of the Corporate
General Partner, who are the equivalent of the Partnership's principal executive
officer and principal financial officer,  respectively,  have, within 90 days of
the filing date of this quarterly  report,  evaluated the  effectiveness  of the
Partnership's  disclosure  controls and  procedures  (as defined in Exchange Act
Rules  (13a-14(c)  and  (15d-14(c))  and have  determined  that such  disclosure
controls  and  procedures  are  adequate,  except  that,  as  indicated  in  the
Explanatory Note introducing  this quarterly  report,  the Partnership is in the
process of verifying  that the equity  method of  accounting  has been  properly
applied  to  its  investments  in  limited  partnerships.  There  have  been  no
significant  changes in the Partnership's  internal controls or in other factors
that could  significantly  affect the Partnership's  internal controls since the
date of evaluation.  However,  depending on the outcome of the review  currently
being  undertaken by the  Partnership as to the propriety of the  application of
the equity method of accounting with respect to the Partnership's investments in
limited  partnerships,  changes to the  Partnership's  internal  controls may be
warranted.


<PAGE>



                           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 the Partnership 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  affiliates of Casden  Properties  Inc.,
organized by an affiliate of NAPICO.  The plaintiffs seek equitable  relief,  as
well as  compensatory  damages and litigation  related costs. On August 4, 1999,
one  investor  holding  one unit of  limited  partnership  interest  in  Housing
Programs Limited (another affiliated partnership in which NAPICO is the managing
general  partner)  commenced a virtually  identical  action in the United States
District Court for the Central  District of California  against the Partnership,
NAPICO  and  certain  other  affiliated  entities.  The  second  action has been
subsumed in the first action,  which has been  certified as a class  action.  On
August 21, 2001,  plaintiffs  filed a  supplemental  complaint,  which added new
claims,  including  a claim  for a  recission  of the  transfer  of  partnership
interests  and an  accounting.  The trial on these claims is in progress.  As of
November  15,  2002,  the jury  returned a special  verdict  against  NAPICO and
certain other  defendants  for  violations  of  securities  laws and breaches of
fiduciary  duty.  However,  no verdicts  have been  returned  against any of the
NAPICO managed partnerships and no judgments have been entered in the case.

Consent Solicitation

In March 2001, a limited  partner of the  Partnership,  which acquired its units
through a tender offer, commenced a consent solicitation to remove NAPICO as the
Corporate  General  Partner of the  Partnership.  In April 2001, the Partnership
commenced an action to enjoin the  solicitation  alleging  that the  information
contained  in the  solicitation  was  materially  false  and  misleading  and in
violation of the federal  securities  laws. In November  2002, a settlement  was
reached  between  NAPICO and the limited  partner  whereby  the lawsuit  will be
dismissed,  NAPICO  will  remain the  Corporate  General  Partner and all claims
between the parties will be released.

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.


<PAGE>


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

         Exhibit        3  Restated   Certificate   and   Agreement  of  Limited
                        Partnership herein dated January 5, 1981 incorporated by
                        reference to the Partnership's Form S-11 No. 268983.

(b) Reports on Form 8-K filed during the quarter ended September 30, 2002:

         Current Report on Form 8-K dated August 29, 2002 and filed on September
         6,  2002,  discussing  the  dismissal  of  Deloitte & Touche LLP as the
         Registrant's  certifying  auditor and the  appointment of Ernst & Young
         LLP as the certifying auditor for the year ending December 31, 2002.


<PAGE>


                                   SIGNATURES



In accordance with the  requirements of the Exchange Act, the Registrant  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.
                                          Corporate General Partner


                                    By:   /s/David R. Robertson
                                          David R. Robertson
                                          President and Chief Executive Officer


                                    By:   /s/Brian H. Shuman
                                          Brian H. Shuman
                                          Senior Vice President    and   Chief
                                          Financial Officer


                                    Date: November 19, 2002