<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, 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 MARCH 31, 2000



<TABLE>

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

             Item 1.  Financial Statements

                      Balance Sheets, March 31, 2000 and December 31, 1999......................................1

                      Statements of Operations,
                              Three Months Ended March 31, 2000 and 1999 .......................................2

                      Statement of Partners' Equity (Deficiency),
                              Three Months Ended March 31, 2000 ................................................3

                      Statements of Cash Flows,
                              Three Months Ended March 31, 2000 and 1999 .......................................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, 2000 AND DECEMBER 31, 1999

                                     ASSETS
<TABLE>
<CAPTION>

                                                                             2000             1999
                                                                         (Unaudited)        (Audited)
                                                                         ------------      -----------

<S>                                                                      <C>               <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)                             $   941,213       $   894,213

CASH AND CASH EQUIVALENTS (Note 1)                                         5,595,507         5,571,366

DUE FROM NAPICO (Note 3)                                                       2,144             2,144
                                                                         -----------       -----------

          TOTAL ASSETS                                                   $ 6,538,864       $ 6,467,723
                                                                         ===========       ===========


                                   LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:

     Accounts payable (Note 2)                                           $     6,330       $     6,161
                                                                         -----------       -----------

COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)

PARTNERS' EQUITY (DEFICIENCY):
    General partners                                                        (133,651)         (134,361)
    Limited partners                                                       6,666,185         6,595,923
                                                                         -----------       -----------

                                                                           6,532,534         6,461,562
                                                                         -----------       -----------
           TOTAL LIABILITIES AND PARTNERS' EQUITY                        $ 6,538,864       $ 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

               FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                           2000            1999
                                                         ---------       ---------

<S>                                                      <C>             <C>
INTEREST AND OTHER INCOME                                $  67,328       $  37,609
                                                         ---------       ---------

OPERATING EXPENSES:
         Legal and accounting                               34,416          34,215
         Management fees - general partner (Note 3)         32,324          44,247
         Administrative  (Note 3)                           11,235          37,521
                                                         ---------       ---------

               Total operating expenses                     77,975         115,983
                                                         ---------       ---------

LOSS FROM OPERATIONS                                       (10,647)        (78,374)

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

DISTRIBUTIONS FROM LIMITED
      PARTNERSHIPS RECOGNIZED AS
      INCOME (Note 2)                                       34,619          18,112

EQUITY IN INCOME OF LIMITED
      PARTNERSHIPS AND AMORTI-
       ZATION OF ACQUISITION
       COSTS (Note 2)                                       47,000          55,000
                                                         ---------       ---------

NET INCOME (LOSS)                                        $  70,972       $(384,610)
                                                         =========       =========

NET INCOME (LOSS) PER LIMITED PARTNERSHIP
     INTEREST (Note 1)                                   $       6       $     (34)
                                                         =========       =========

</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, 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 income for the three months
      ended March 31, 2000                        710           70,262          70,972
                                           ----------       ----------      ----------

EQUITY (DEFICIENCY),

      March 31, 2000                       $ (133,651)      $6,666,185      $6,532,534
                                           ==========       ==========      ==========



</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, 2000 AND 1999
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                              2000               1999
                                                                          ------------       -------------
<S>                                                                       <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net income (loss)                                                 $     70,972       $   (384,610)
        Adjustments to reconcile net income (loss)  to net cash
          provided by (used in) operating activities:
            Equity in income of limited partnerships and
                amortization of acquisition costs                              (47,000)           (55,000)
            Increase (decrease) in interest and other payables                     169           (301,254)
                                                                          ------------       ------------

                 Net cash provided by (used in) operating activities            24,141           (740,864)
                                                                          ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Sales proceeds                                                            --            1,950,530
                                                                          ------------       ------------

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

NET INCREASE (DECREASE) IN CASH AND CASH

        EQUIVALENTS                                                             24,141         (5,740,865)

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

CASH AND CASH EQUIVALENTS, END OF PERIOD                                  $  5,595,507       $  5,590,938
                                                                          ============       ============

</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, 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 March 31, 2000 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.

     USE OF ESTIMATES

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

     METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS

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

     NET INCOME PER LIMITED PARTNERSHIP INTEREST

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








                                       5
<PAGE>   8

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 2000


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     CASH AND CASH EQUIVALENTS

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

     INCOME TAXES

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

     IMPAIRMENT OF LONG-LIVED ASSETS

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

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS

     As of March 31, 2000, the Partnership holds limited partnership interests
     in 12 limited partnerships The limited partnerships as of March 31, 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 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, 2000


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, 2000:

     Balance, beginning of period                                     $894,213
     Amortization of acquisitions costs                                 (1,000)
     Equity in income of limited partnerships                           48,000
                                                                      --------

     Balance, end of period                                           $941,213
                                                                      ========

     The following are unaudited combined estimated statements of operations for
     the three months ended March 31, 2000 and 1999 for the limited partnerships
     in which the Partnership has investments:

                                         Three months              Three months
                                             ended                     ended
                                        March 31, 2000            March 31, 1999
                                        --------------            --------------
        REVENUES
             Rental and other             $1,631,000                $2,056,000
                                          ----------                ----------

        EXPENSES
             Depreciation                    316,000                   408,000
             Interest                        447,000                   560,000
             Operating                       946,000                 1,115,000
                                        ------------                ----------

                                           1,709,000                 2,083,000
                                         -----------                ----------

        NET LOSS                        $    (78,000)               $  (27,000)
                                        ============                ==========

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

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








                                       7
<PAGE>   10

                        REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 2000


NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

     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.

     On September 11, 1998, HUD issued interim regulations implementing MAHRAA
     and final regulations are expected to be issued in 2000.

     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, 2000 and 1999 was approximately $32,324 and $44,247, respectively.

     The Partnership reimburses NAPICO for certain expenses. The reimbursement
     paid to NAPICO was approximately $4,133 and $4,122 for the three months
     ended March 31, 2000 and 1999, respectively, and is included in
     administrative expenses.









                                       8
<PAGE>   11
                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 MARCH 31, 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 (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 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, 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 distributions 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.









                                       10
<PAGE>   13

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 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 on the
     existing terms. In connection with renewals of the HAP Contracts under such
     new law and policy, the amount of rental assistance payments under renewed
     HAP Contracts will be based on market rentals instead of above market
     rentals, which was generally the case under existing HAP Contracts. The
     payments under the renewed HAP Contracts are not expected to be in an
     amount that would provide sufficient cash flow to permit owners of
     properties subject to HAP Contracts to meet the debt service requirements
     of existing loans insured by the Federal Housing Administration of HUD
     ("FHA") unless such mortgage loans are restructured. In order to address
     the reduction in payments under HAP Contracts as a result of this new
     policy, the Multi-family Assisted Housing Reform and Affordability Act of
     1997 ( "MAHRAA"), which was adopted in October 1997, provides for the
     restructuring of mortgage loans insured by the FHA with respect to
     properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
     mortgage loan can be restructured into a first mortgage loan which will be
     amortized on a current basis and a low interest second mortgage loan
     payable to FHA which will only be payable on maturity of the first mortgage
     loan. This restructuring results in a reduction in annual debt service
     payable by the owner of the FHA-insured mortgage loan and is expected to
     result in an insurance payment from FHA to the holder of the FHA-insured
     loan due to the reduction in the principal amount. MAHRAA also phases out
     project-based subsidies on selected properties serving families not located
     in rental markets with limited supply, converting such subsidies to a
     tenant-based subsidy.

     On September 11, 1998, HUD issued interim regulations implementing MAHRAA
     and final regulations are expected to be issued in 2000.

     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, 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 (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 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, 2000.










                                       12
<PAGE>   15

                       REAL ESTATE ASSOCIATES LIMITED III
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 MARCH 31, 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.
                                         General Partner



                                         --------------------------------------
                                         Bruce Nelson
                                         President


                                  Date:
                                       ----------------------------------------



                                         --------------------------------------
                                         Paul Patierno
                                         Chief Financial Officer



                                  Date:
                                        ---------------------------------------









                                       13