<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, 2001

                         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, 2001


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

           Item 1.  Financial Statements

                    Balance Sheets, March 31, 2001 and December 31, 2000................      1

                    Statements of Operations,
                        Three Months Ended March 31, 2001 and 2000 .....................      2

                    Statement of Partners' Equity (Deficiency),
                        Three Months Ended March 31, 2001 ..............................      3

                    Statements of Cash Flows,
                        Three Months Ended March 31, 2001 and 2000 .....................      4

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

           Item 2.  Management's Discussion and Analysis of Financial
                        Condition and Results of Operations ............................     10


PART II. OTHER INFORMATION

           Item 1.  Legal Proceedings...................................................     12

           Item 6.  Exhibits and Reports on Form 8-K....................................     12

           Signatures ..................................................................     13
</TABLE>


<PAGE>   3

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 BALANCE SHEETS

                      MARCH 31, 2001 AND DECEMBER 31, 2000

                                     ASSETS

<TABLE>
<CAPTION>
                                                                      2001                  2000
                                                                  (Unaudited)            (Audited)
                                                                  -----------           -----------
<S>                                                               <C>                   <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)                      $ 1,122,713           $ 1,069,713

CASH AND CASH EQUIVALENTS (Note 1)                                  5,680,416             5,655,763
                                                                  -----------           -----------

          TOTAL ASSETS                                            $ 6,803,129           $ 6,725,476
                                                                  ===========           ===========


                        LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:
     Accounts payable (Note 2)                                    $     7,929           $    15,294
                                                                  -----------           -----------

COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)


PARTNERS' EQUITY (DEFICIENCY):
    General partners                                                 (131,025)             (131,875)
    Limited partners                                                6,926,225             6,842,057
                                                                  -----------           -----------

                                                                    6,795,200             6,710,182
                                                                  -----------           -----------
           TOTAL LIABILITIES AND PARTNERS'
                EQUITY                                            $ 6,803,129           $ 6,725,476
                                                                  ===========           ===========
</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, 2001 AND 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                               2001              2000
                                                             --------          --------
<S>                                                          <C>               <C>
INTEREST AND OTHER INCOME                                    $ 69,078          $ 67,328
                                                             --------          --------

OPERATING EXPENSES:
         Legal and accounting                                  16,300            34,416
         Management fees - general partner (Note 3)            32,323            32,324
         Administrative (Note 3)                               10,362            11,235
                                                             --------          --------

              Total operating expenses                         58,985            77,975
                                                             --------          --------

INCOME (LOSS) FROM OPERATIONS                                  10,093           (10,647)

DISTRIBUTIONS FROM LIMITED
      PARTNERSHIPS RECOGNIZED AS
      INCOME (Note 2)                                          21,925            34,619

EQUITY IN INCOME OF LIMITED
      PARTNERSHIPS AND AMORTI-
       ZATION OF ACQUISITION
       COSTS (Note 2)                                          53,000            47,000
                                                             --------          --------

NET INCOME                                                   $ 85,018          $ 70,972
                                                             ========          ========

NET INCOME PER LIMITED PARTNERSHIP
     INTEREST (Note 1)                                       $      7          $      6
                                                             ========          ========
</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, 2001
                                   (Unaudited)

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

EQUITY (DEFICIENCY),
       January 1, 2001                          $ (131,875)          $6,842,057          $6,710,182

       Net income for the three months
       ended March 31, 2001                            850               84,168              85,018
                                                ----------           ----------          ----------

EQUITY (DEFICIENCY),
       March 31, 2001                           $ (131,025)          $6,926,225          $6,795,200
                                                ==========           ==========          ==========
</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, 2001 AND 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                           2001                  2000
                                                                       -----------           -----------
<S>                                                                    <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
       Net income                                                      $    85,018           $    70,972
       Adjustments to reconcile net income to net cash
         provided by operating activities:
           Equity in income of limited partnerships and
               amortization of acquisition costs                           (53,000)              (47,000)
           (Decrease) increase in interest and other payables               (7,365)                  169
                                                                       -----------           -----------

                Net cash provided by operating activities                   24,653                24,141
                                                                       -----------           -----------

NET INCREASE IN CASH AND
       CASH EQUIVALENTS                                                     24,653                24,141

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                           5,655,763             5,571,366
                                                                       -----------           -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                               $ 5,680,416           $ 5,595,507
                                                                       ===========           ===========
</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, 2001


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, 2000. 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, 2001 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 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.

       BASIS OF PRESENTATION

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

       USE OF ESTIMATES

       The preparation of financial statements in conformity with accounting
       principles generally accepted in the United States of America 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.


                                       5
<PAGE>   8

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       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 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 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

       As of March 31, 2001, the Partnership holds limited partnership interests
       in 12 limited partnerships The limited partnerships as of March 31, 2001
       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 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, 2001

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

       The following is a summary of the investment in limited partnerships for
       the three months ended March 31, 2001:

<TABLE>
<S>                                                             <C>
       Balance, beginning of period                             $1,069,713
       Amortization of acquisitions costs                           (1,000)
       Equity in income of limited partnerships                     54,000
                                                                ----------
       Balance, end of period                                   $1,122,713
                                                                ==========
</TABLE>

       The following are unaudited combined estimated statements of operations
       for the three months ended March 31, 2001 and 2000 for the limited
       partnerships in which the Partnership has investments:

<TABLE>
<CAPTION>
                                              Three months          Three months
                                                 ended                 ended
                                             March 31, 2001        March 31, 2000
                                             --------------        --------------
<S>                                          <C>                   <C>
       REVENUES
            Rental and other                  $ 1,646,000           $ 1,631,000
                                              -----------           -----------

       EXPENSES
            Depreciation                          320,000               316,000
            Interest                              450,000               447,000
            Operating                           1,003,000               946,000
                                              -----------           -----------

                                                1,773,000             1,709,000
                                              -----------           -----------

       NET LOSS                               $  (127,000)          $   (78,000)
                                              ===========           ===========
</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 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-


                                       7
<PAGE>   10

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 2001

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

       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 affiliates of Casden Properties Inc. The
       sale resulted in cash proceeds to the Partnership of $1,950,000, which
       was 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.

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, 2001 and 2000 was approximately $32,000 and $32,000, respectively.

       The Partnership reimburses NAPICO for certain expenses. The reimbursement
       paid to NAPICO was approximately $3,600 and $4,100 for the three months
       ended March 31, 2001 and 2000, 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 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


                                       8
<PAGE>   11

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 2001

NOTE 4 - CONTINGENCIES (CONTINUED)

       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. 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 other
       assets and liabilities reported on the balance sheets that require such
       disclosure approximates fair value due to their short-term maturity.


                                       9
<PAGE>   12

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 2001


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 in March 12, 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.

       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 may not


                                       10
<PAGE>   13

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 2001

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

       RESULTS OF OPERATIONS (CONTINUED)

       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 affiliates 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 $69,505 to the
       general partners, which included using proceeds from the sale of the
       partnership interests.


                                       11
<PAGE>   14

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 2001


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. 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
              March 31, 2001.


                                       12
<PAGE>   15

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 2001


                                   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 15, 2001
                                        --------------------------------------


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



                                   Date:  MAY 15, 2001
                                        --------------------------------------


                                       13