<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 SEPTEMBER 30, 2000

                         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 SEPTEMBER 30, 2000



PART I. FINANCIAL INFORMATION

<TABLE>
<S>                                                                                <C>
        Item 1.  Financial Statements

                Balance Sheets, September 30, 2000 and December 31, 1999 ............1

                Statements of Operations,
                      Nine and Three Months Ended September 30, 2000 and 1999 .......2

                Statement of Partners' Equity (Deficiency),
                      Nine Months Ended September 30, 2000 ..........................3

                Statements of Cash Flows,
                      Nine Months Ended September 30, 2000 and 1999 .................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

                    SEPTEMBER 30, 2000 AND DECEMBER 31, 1999

                                     ASSETS

<TABLE>
<CAPTION>
                                                                            2000
                                                                         (Unaudited)          1999
                                                                         -----------       -----------
<S>                                                                      <C>               <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)                             $ 1,037,013       $   894,213

CASH AND CASH EQUIVALENTS (Note 1)                                         5,609,069         5,571,366

DUE FROM NAPICO                                                                   --             2,144
                                                                         -----------       -----------
          TOTAL ASSETS                                                   $ 6,646,082       $ 6,467,723
                                                                         ===========       ===========

                                   LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:
     Accounts payable                                                    $    10,502       $     6,161
                                                                         -----------       -----------

COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)

PARTNERS' EQUITY (DEFICIENCY):
    General partners                                                        (132,621)         (134,361)
    Limited partners                                                       6,768,201         6,595,923
                                                                         -----------       -----------
                                                                           6,635,580         6,461,562
                                                                         -----------       -----------
           TOTAL LIABILITIES AND PARTNERS'
                EQUITY                                                   $ 6,646,082       $ 6,467,723
                                                                         ===========       ===========
</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
             NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                      Nine months   Three months   Nine months    Three months
                                                         ended          ended         ended          ended
                                                     Sept. 30, 2000 Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 1999
                                                     -------------- -------------- -------------- --------------
<S>                                                  <C>            <C>           <C>            <C>
INTEREST AND OTHER INCOME                              $ 227,263       $83,305      $ 159,526       $ 62,552
                                                       ---------       -------      ---------       --------

OPERATING EXPENSES:
       Legal and accounting                               78,874        11,458         79,993          1,695
       Management fees - general partner (Note 3)         96,969        32,323        132,741         44,247
       Administrative  (Note 3)                           54,821        17,821        100,772         32,962
                                                       ---------       -------      ---------       --------
             Total operating expenses                    230,664        61,602        313,506         78,904
                                                       ---------       -------      ---------       --------

LOSS FROM OPERATIONS                                      (3,401)       21,703       (153,980)       (16,352)

COSTS RELATED TO SALE OF LIMITED
      PARTNERSHIP INTERESTS (Note 2)                          --            --       (380,795)

DISTRIBUTIONS FROM LIMITED
      PARTNERSHIPS RECOGNIZED AS
      INCOME (Note 2)                                     34,619            --         63,663             --

EQUITY IN INCOME OF LIMITED
      PARTNERSHIPS AND AMORTI-
       ZATION OF ACQUISITION
       COSTS (Note 2)                                    142,800        48,800        165,000         55,000
                                                       ---------       -------      ---------       --------

NET (LOSS) INCOME                                      $ 174,018       $70,503      $(306,112)      $ 38,648
                                                       =========       =======      =========       ========

NET (LOSS) INCOME PER LIMITED
     PARTNERSHIP INTEREST (Note 1)                     $      15       $     6      $     (27)      $      3
                                                       =========       =======      =========       ========
</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 NINE MONTHS ENDED SEPTEMBER 30, 2000
                                   (Unaudited)


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

           EQUITY (DEFICIENCY),
                 January 1, 2000                   $(134,361)      $6,595,923      $6,461,562

                 Net loss for the nine months
                 ended September 30, 2000              1,740          172,278         174,018
                                                   ---------       ----------      ----------
           EQUITY (DEFICIENCY),
                 September 30, 2000                $(132,621)      $6,768,201      $6,635,580
                                                   =========       ==========      ==========
</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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                             2000              1999
                                                                         -----------       ------------
<S>                                                                      <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                    $   174,018       $   (306,112)
    Adjustments to reconcile net income to net cash provided by
      (used in) operating activities:
        Equity in income of limited partnerships and
            amortization of acquisition costs                               (142,800)          (165,000)
        Increase in other assets                                               2,144                 --
        Increase (decrease) in interest and other payables                     4,341           (308,690)
                                                                         -----------       ------------

             Net cash provided by (used in) by operating activities           37,703           (779,802)
                                                                         -----------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Sales proceeds                                                                --          1,950,530
    Distributions from limited partnerships
       recognized as a return of investment                                       --             41,229
                                                                         -----------       ------------

             Net cash provided by investing activities                            --          1,991,759
                                                                         -----------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Distribution to partners                                                      --         (6,950,531)
                                                                         -----------       ------------

NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS                                                      37,703         (5,738,574)
                                                                         -----------       ------------

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                             5,571,366         11,331,803
                                                                         -----------       ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                 $ 5,609,069       $  5,593,229
                                                                         ===========       ============
</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

                               SEPTEMBER 30, 2000


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, 1999. 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 September 30, 2000 and the results of operations for the nine and
        three months then ended and changes in cash flows for the nine 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 95.25% 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.

        BASIS OF PRESENTATION

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


                                       5
<PAGE>   8

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 2000


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        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 income (loss) by the number
        of limited partnership interests outstanding during the year. 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 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.


                                       6
<PAGE>   9

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 2000


NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS

        The Partnership holds limited partnership interests in 12 limited
        partnerships. The limited partnerships as of September 30, 2000 own
        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 94.9
        percent and 99 percent of the profits and losses of the limited
        partnerships. 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 partnerships 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.

        The following is a summary of the investment in limited partnerships for
        the nine months ended September 30, 2000:

<TABLE>
<S>                                                      <C>
        Balance, beginning of period                     $  894,213
        Amortization of acquisitions costs                   (2,200)
        Equity in income of limited partnerships            145,000
                                                         ----------
        Balance, end of period                           $1,037,013
                                                         ==========
</TABLE>


                                       7
<PAGE>   10

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 2000


NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

        The following are unaudited combined estimated statements of operations
        for the nine and three months ended September 30, 2000 and 1999 for the
        limited partnerships in which the Partnership has investments:

<TABLE>
<CAPTION>
                            Nine months      Three months      Nine months        Three months
                               ended            ended             ended               ended
                          Sept. 30, 2000    Sept. 30, 2000    Sept. 30, 1999     Sept. 30,1999
                          --------------    --------------    --------------     -------------
<S>                       <C>               <C>               <C>                <C>
REVENUES
     Rental and other        $4,894,000       $ 1,631,000       $ 6,168,000       $ 2,056,000
                            -----------       -----------       -----------       -----------
EXPENSES
     Depreciation               948,000           316,000         1,224,000           408,000
     Interest                 1,340,000           447,000         1,680,000           560,000
     Operating                2,838,000           946,000         3,345,000         1,115,000
                            -----------       -----------       -----------       -----------
                              5,126,000         1,709,000         6,249,000         2,083,000
                            -----------       -----------       -----------       -----------
    Net loss                $  (232,000)      $   (78,000)      $   (81,000)      $   (27,000)
                            ===========       ===========       ===========       ===========
</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 under
        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"), 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


                                       8
<PAGE>   11

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 2000


NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

        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.

        On December 30, 1998, after obtaining the consents of the limited
        partners, 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 which
        was collected in 1999. In March 1999, the Partnership made cash
        distributions of $6,881,025 to the limited partners and $69,506 to the
        general partners, which included using proceeds from the sale of the
        partnership interests.

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 nine months ended
        September 30, 2000 and 1999 was approximately $97,000 and $133,000,
        respectively.

        The Partnership reimburses NAPICO for certain expenses. The
        reimbursement paid to NAPICO was approximately $8,600 and $12,400 for
        the nine months ended September 30, 2000 and 1999, respectively, and is
        included in administrative expenses.


                                       9
<PAGE>   12

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 2000


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 (an 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 subsidiaries of
        Casden Properties Inc. 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 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 actions 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.

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 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)

                               SEPTEMBER 30, 2000


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
        distribution to investors on March 12, 1999, 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.


                                       11
<PAGE>   14

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                               SEPTEMBER 30, 2000


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

        RESULTS OF OPERATIONS (CONTINUED)

        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 under
        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"), 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.

        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.

        On December 30, 1998, after obtaining the consents of the limited
        partners, 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 which
        was collected in 1999. In March 1999, the Partnership made cash
        distributions of $6,881,025 to the limited partners and $69,506 to the
        general partners, which included using proceeds from the sale of the
        partnership interests.


                                       12
<PAGE>   15

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                               SEPTEMBER 30, 2000


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 (an 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 subsidiaries of
        Casden Properties Inc. 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 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 actions 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 6 of regulation
            S-K and no reports on Form 8-K were filed during the quarter ended
            September 30, 2000.


                                       13
<PAGE>   16

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                               SEPTEMBER 30, 2000


                                   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.,
                                         its General Partner



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


                                         Date:  Novmeber 14, 2000
                                              ----------------------------------


                                         By:  /s/ BRIAN H. SHUMAN
                                            ------------------------------------
                                            Brian H. Shuman
                                            Chief Financial Officer



                                         Date:  November 14, 2000
                                              ----------------------------------




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