10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

Form 10-QSB

(Mark One)

[X]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

[ ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________to _________

Commission file number 0-10260

SHELTER PROPERTIES III

(Exact name of small business issuer as specified in its charter)

   South Carolina

57-0718508

(State or other jurisdiction of

   (I.R.S. Employer

 incorporation or organization)

  Identification No.)

55 Beattie Place, P.O. Box 1089

Greenville, South Carolina  29602

(Address of principal executive offices)

(864) 239-1000

(Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 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 ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No   X_

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

SHELTER PROPERTIES III

CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION

(Unaudited)

(in thousands)

September 30, 2007

Assets
Cash and cash equivalents	$  1,047
Receivables and deposits	8
	1,055
Liabilities
Accounts payable	42
Other liabilities	84
Estimated costs during the period of liquidation	71
	197
Net assets in liquidation	$    858

See Accompanying Notes to Consolidated Financial Statements

SHELTER PROPERTIES III

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION

(Unaudited)

(in thousands)

	For the Three Months Ended
	September 30, 2007
Net assets in liquidation at July 1, 2007	$  5,124
Revenues – interest income	14
Adjustment to estimated costs to be incurred through
June 30, 2008	6
Costs incurred during liquidation period	(7)
Distributions to partners	(4,279)
Net assets in liquidation at September 30, 2007	$    858

See Accompanying Notes to Consolidated Financial Statements

SHELTER PROPERTIES III

CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS

(Unaudited)

(in thousands, except per unit data)

	Six Months	Three Months	Nine Months
	Ended	Ended	Ended
	June 30,	September 30,	September 30,
	2007	2006	2006
Income from continuing operations	$     --	$    --	$    --
Loss from discontinued operations (Note A):
Revenues
Rental income	1,442	725	2,117
Other income	172	83	246
Total revenues	1,614	808	2,363
Expenses
Operating	1,138	487	1,384
General and administrative	94	38	120
Depreciation	327	159	461
Interest	378	175	518
Property taxes	124	64	192
Loss on extinguishment of debt (Note C)	1,366	--	--
Total expenses	3,427	923	2,675
Loss from discontinued operations	(1,813)	(115)	(312)
Casualty gain (Note E)	--	--	10
Gain on sale of discontinued operations
(Note C)	11,858	--	--
Net income (loss)	$ 10,045	$  (115)	$  (302)
Net income (loss) allocated to general
partner	$     83	$    (1)	$    (3)
Net income (loss) allocated to limited
partners	9,962	(114)	(299)
	$ 10,045	$  (115)	$  (302)
Per limited partnership unit:
Loss from discontinued operations	$ (32.63)	$ (2.07)	$ (5.44)
Gain on sale of discontinued
operations	213.75	--	--
	$ 181.12	$ (2.07)	$ (5.44)

See Accompanying Notes to Consolidated Financial Statements

SHELTER PROPERTIES III

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ (DEFICIT) CAPITAL/NET ASSETS IN LIQUIDATION

(Unaudited)

(in thousands, except unit data)

	Limited
	Partnership	General	Limited
	Units	Partner	Partners	Total
Original capital contributions	55,000	$     2	$27,500	$27,502
Partners' deficit
at December 31, 2006	55,000	$   (83)	$(4,733)	$(4,816)
Net income for the six months
ended June 30, 2007	--	83	9,962	10,045
Partners' capital at June 30, 2007	55,000	$    --	$ 5,229	5,229
Adjustment to liquidation basis
(Note B)				(105)
Net assets in liquidation at
June 30, 2007				$ 5,124

See Accompanying Notes to Consolidated Financial Statements

SHELTER PROPERTIES III

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Six Months Ended	Nine Months Ended
	June 30, 2007	September 30, 2006
Cash flows from operating activities:
Net income (loss)	$ 10,045	$  (302)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation	327	461
Amortization of loan costs	6	10
Bad debt expense	40	49
Loss on extinguishment of debt	1,366	--
Gain on sale of discontinued operations	(11,858)	--
Casualty gain	--	(10)
Change in accounts:
Receivables and deposits	(138)	(48)
Other assets	78	(22)
Accounts payable	286	(26)
Tenant security deposit liabilities	(81)	3
Accrued property taxes	--	154
Other liabilities	(132)	33
Due to affiliates	(9)	112
Net cash (used in) provided by operating
activities	(70)	414
Cash flows from investing activities:
Property improvements and replacements	(780)	(473)
Net deposits to restricted escrows	(1)	(1)
Net proceeds from sale of discontinued operations	17,237	--
Insurance proceeds received	--	14
Net cash provided by (used in) investing
activities	16,456	(460)
Cash flows from financing activities:
Payments on mortgage notes payable	(176)	(249)
Repayment of mortgage note payable	(8,287)	--
Prepayment penalty paid	(1,192)	--
Advances from affiliates	564	239
Payments on advances from affiliate	(1,593)	--
Net cash used in financing activities	(10,684)	(10)
Net increase (decrease) in cash and cash equivalents	5,702	(56)
Cash and cash equivalents at beginning of period	43	138
Cash and cash equivalents at end of period	$  5,745	$    82
Supplemental disclosure of cash flow information:
Cash paid for interest	$    491	$   470
Supplemental disclosure of non-cash activity:
Property improvements and replacements included in
accounts payable	$    200	$    33

Included in property improvements and replacements for the six months ended June 30, 2007 and nine months ended September 30, 2006 are approximately $137,000 and $38,000 of property improvements and replacements which were included in accounts payable at December 31, 2006 and 2005, respectively.

See Accompanying Notes to Consolidated Financial Statements

SHELTER PROPERTIES III

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note A – Basis of Presentation

As of June 30, 2007, Shelter Properties III (the “Partnership” or “Registrant”) adopted the liquidation basis of accounting due to the sale of its remaining investment properties (as discussed in “Note C – Disposition of Investment Properties”). The general partner responsible for management of the Partnership’s business is Shelter Realty III Corporation, a South Carolina corporation (“the Corporate General Partner”) a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust.

As a result of the decision to liquidate the Partnership, the Partnership changed its basis of accounting for its consolidated financial statements at June 30, 2007, to the liquidation basis of accounting.  Consequently, assets have been valued at estimated net realizable value and liabilities are presented at their estimated settlement amounts, including estimated costs associated with carrying out the liquidation of the Partnership. The valuation of assets and liabilities necessarily requires many estimates and assumptions and there are substantial uncertainties in carrying out the liquidation. The actual realization of assets and settlement of liabilities could be higher or lower than amounts indicated as they are based upon the Corporate General Partner’s estimates as of the date of the consolidated financial statements.

The Corporate General Partner estimates that the liquidation process will be completed by June 30, 2008.  Because the success in realization of assets and the settlement of liabilities is based on the Corporate General Partner’s best estimates, the liquidation period may be shorter than projected or it may be extended beyond the projected date of liquidation.

The accompanying unaudited consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of the Corporate General Partner, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  For further information, refer to the consolidated financial statements and footnotes included in the Partnership’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the accompanying consolidated statements of discontinued operations for the six months ended June 30, 2007 and the three and nine months ended September 30, 2006 are presented to reflect the operations of both of the Partnership’s investment properties as discontinued operations as a result of the sale of both of the investment properties on June 29, 2007.

Certain reclassifications have been made to the 2006 balances to conform to the 2007 presentation.

Note B – Adjustment to Liquidation Basis of Accounting

In accordance with the liquidation basis of accounting, at June 30, 2007, assets were adjusted to their estimated net realizable value and liabilities were adjusted to their estimated settlement amount. The net adjustment required to convert to the liquidation basis of accounting was a decrease in net assets of approximately $105,000, which is included in the Consolidated Statement of Changes in Partners’ (Deficit) Capital/Net Assets in Liquidation. The net adjustments are summarized as follows:

	Decrease in
	Net Assets
	(in thousands)
Adjustment of other assets and liabilities, net	$  105

Note C – Disposition of Investment Properties

On June 29, 2007, the Partnership sold its last remaining investment properties, Essex Park Apartments and Willowick Apartments, to third parties. In addition to Essex Park Apartments and Willowick Apartments, affiliates of the third parties also purchased eight other apartment properties; all of which were owned by entities affiliated with AIMCO Properties, L.P., an affiliate of the Corporate General Partner of the Partnership. The total sales price for all ten apartment properties was $95,800,000 of which $10,900,000 and $6,500,000 represent the portions of the sales price allocated to Essex Park Apartments and Willowick Apartments, respectively.  

The net proceeds realized by the Partnership for Essex Park Apartments was approximately $10,771,000 after payment of closing costs.  The Partnership used approximately $5,744,000 to repay the mortgage encumbering the property and approximately $826,000 for a prepayment penalty.  The Partnership realized a gain of approximately $6,604,000 as a result of the sale.  The property’s operations of approximately $235,000 and $84,000 are included as loss from discontinued operations and include revenues of approximately $1,062,000 and $1,587,000 for the six months ended June 30, 2007 and the nine months ended September 30, 2006, respectively.  In addition, the Partnership recorded a loss on extinguishment of debt of approximately $941,000 as a result of the write-off of unamortized loan costs of approximately $115,000 and a prepayment penalty of approximately $826,000 during the six months ended June 30, 2007.  This amount is included in loss from discontinued operations.

The net proceeds realized by the Partnership for Willowick Apartments was approximately $6,466,000 after payment of closing costs.  The Partnership used approximately $2,543,000 to repay the mortgage encumbering the property and approximately $366,000 for a prepayment penalty. The Partnership realized a gain of approximately $4,940,000 as a result of the sale.  The property’s operations of approximately $40,000 and $59,000 are included as loss from discontinued operations and include revenues of approximately $550,000 and $774,000 for the six months ended June 30, 2007 and the nine months ended September 30, 2006, respectively.  In addition, the Partnership recorded a loss on extinguishment of debt of approximately $425,000 as a result of the write-off of unamortized loan costs of approximately $59,000 and a prepayment penalty of approximately $366,000 during the six months ended June 30, 2007.  This amount is included in l oss from discontinued operations.

Note D - Transactions with Affiliated Parties

The Partnership has no employees and depends on the Corporate General Partner and its affiliates for the management and administration of all Partnership activities.  The Partnership Agreement provides for certain payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.

Affiliates of the Corporate General Partner received 5% of gross receipts from the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $81,000 and $117,000 during the six months ended June 30, 2007 and the nine months ended September 30, 2006 respectively, which is included in operating expenses.

An affiliate of the Corporate General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $154,000 and $110,000 for the nine months ended September 30, 2007 and 2006, respectively, which is included in estimated costs to liquidate, general and administrative expenses and gain on sale of discontinued operations.  The portion of these reimbursements included in gain on sale of discontinued operations for the six months ended June 30, 2007 and the nine months ended September 30, 2006 are construction management services provided by an affiliate of the Corporate General Partner of approximately $62,000 and $37,000, respectively.

During 1986, a liability of approximately $185,000 was incurred to the general partners for sales commissions earned.  In connection with the sale of North River Village Apartments in 2002, the Corporate General Partner earned a commission of approximately $68,000 for its assistance in the sale.  In connection with the sale of Colony House Apartments in 2004, the Corporate General Partner earned a commission of approximately $61,000.  Payment of such commissions is subordinate to the limited partners receiving a cumulative 7% return on their investment. During the six months ended June 30, 2007, the Corporate General Partner determined that the limited partners would not receive both their adjusted capital investment and applicable return from the sale of the Partnership’s remaining investment properties. Therefore, the Corporate General Partner reversed the sales commissions previously accrued and mentioned above. This amount o f approximately $314,000 is included in gain on sale of discontinued operations for the six months ended June 30, 2007.

Pursuant to the Partnership Agreement, an affiliate of the Corporate General Partner advanced the Partnership approximately $564,000 and $239,000 during the six months ended June 30, 2007 and the nine months ended September 30, 2006 for operating expenses at both Essex Park and Willowick Apartments and for property taxes at Essex Park Apartments. Interest on advances was charged at the prime rate plus 2% and amounted to approximately $70,000 and $40,000 for the six months ended June 30, 2007 and the nine months ended September 30, 2006, respectively. During the six months ended June 30, 2007, the Partnership repaid advances and accrued interest of approximately $1,733,000. There were no such repayments during the nine months ended September 30, 2006.

The Partnership insured its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty, general liability, and vehicle liability.  The Partnership insured its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Corporate General Partner.  During the nine months ended September 30, 2007 and 2006, the Partnership was charged by AIMCO and its affiliates approximately $100,000 and $76,000, respectively, for insurance coverage and fees associated with policy claims administration.  

Note E – Casualty Event

During December 2005, one of the Partnership’s investment properties, Willowick  Apartments, incurred emergency clean up costs related to an ice storm.  During the nine months ended September 30, 2006, the Partnership received approximately $12,000 in insurance proceeds for the approximately $18,000 in clean up costs incurred and both amounts are included in operating expenses for the nine months ended September 30, 2006.

During May 2006, one of the Partnership’s investment properties, Essex Park Apartments, incurred approximately $25,000 in wind damage.  During the nine months ended September 30, 2006, the Partnership received insurance proceeds of approximately $14,000 and wrote off undepreciated damaged assets of approximately $4,000 resulting in a casualty gain of approximately $10,000.

Note F - Contingencies

In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Corporate General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain Corporate General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire l imited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 28, 2002, the trial court granted defendants motion to strike the complaint.  Plaintiffs took an appeal from this order.

On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the “Appeal”) seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On May 4, 2004, the Objector filed a second appeal challenging the court’s use of a referee and its order requiring Objector to pay those fees.

On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.  With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court’s order and remanded to the trial court for further findings on the basis that the “state of the record is insufficient to permit meaningful appellate review”.  The matter was transferred back to the trial court on June 21, 2005.  With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. With respect to the related Heller appeal, on July 28, 2005, the Court of Appeals reversed the trial court’s order striking the first amended complaint.

On August 18, 2005, Objector and his counsel filed a motion to disqualify the trial court based on a peremptory challenge and filed a motion to disqualify for cause on October 17, 2005, both of which were ultimately denied and/or struck by the trial court.  On or about October 13, 2005 Objector filed a motion to intervene and on or about October 19, 2005 filed both a motion to take discovery relating to the adequacy of plaintiffs as derivative representatives and a motion to dissolve the anti-suit injunction in connection with settlement.  On November 14, 2005, Plaintiffs filed a Motion For Further Findings pursuant to the remand ordered by the Court of Appeals. Defendants joined in that motion.  On February 3, 2006, the Court held a hearing on the various matters pending before it and ordered additional briefing from the parties and Objector.  On June 30, 2006, the trial court entered an order confirming its approval of the cla ss action settlement and entering judgment thereto after the Court of Appeals had remanded the matter for further findings.  The substantive terms of the settlement agreement remain unchanged.  The trial court also entered supplemental orders on July 1, 2006, denying Objector’s Motion to File a Complaint in Intervention, Objector’s Motion for Leave of Discovery and Objector’s Motion to Dissolve the Anti-Suit Injunction.  Notice of Entry of Judgment was served on July 10, 2006. On August 31, 2006, the Objector filed a Notice of Appeal to the Court’s June 30, 2006 and July 1, 2006 orders.  On December 14, 2006, Objector filed his Appellant’s Brief.  The Partnership and its affiliates, as well as counsel for the Settlement Class, both filed Respondents’ Briefs on May 17, 2007.  Objector filed his response on August 3, 2007.  No hearing date has yet been scheduled.

The Corporate General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnership’s overall operations.

The Partnership is unaware of any other pending or outstanding litigation matters that are not of a routine nature arising in the ordinary course of business.

Item 2.

Management's Discussion and Analysis or Plan of Operation

The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, and possible environmental liabilities. Readers should carefully review the Registrant's consolidated financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission.

As of June 30, 2007, the Partnership adopted the liquidation basis of accounting due to the sale of its remaining investment properties, Essex Park Apartments and Willowick Apartments, on June 29, 2007.

On June 29, 2007, the Partnership sold its last remaining investment properties, Essex Park Apartments and Willowick Apartments, to third parties. In addition to Essex Park Apartments and Willowick Apartments, affiliates of the third parties also purchased eight other apartment properties; all of which were owned by entities affiliated with AIMCO Properties, L.P., an affiliate of the Corporate General Partner of the Partnership. The total sales price for all ten apartment properties was $95,800,000 of which $10,900,000 and $6,500,000 represent the portions of the sales price allocated to Essex Park Apartments and Willowick Apartments, respectively.  

The net proceeds realized by the Partnership for Essex Park Apartments was approximately $10,771,000 after payment of closing costs.  The Partnership used approximately $5,744,000 to repay the mortgage encumbering the property and approximately $826,000 for a prepayment penalty.  The Partnership realized a gain of approximately $6,604,000 as a result of the sale.  The property’s operations of approximately $235,000 and $84,000 are included as loss from discontinued operations and include revenues of approximately $1,062,000 and $1,587,000 for the six months ended June 30, 2007 and the nine months ended September 30, 2006, respectively.  In addition, the Partnership recorded a loss on extinguishment of debt of approximately $941,000 as a result of the write-off of unamortized loan costs of approximately $115,000 and a prepayment penalty of approximately $826,000 during the six months ended June 30, 2007.  This amount is included in loss from discontinued operations.

The net proceeds realized by the Partnership for Willowick Apartments was approximately $6,466,000 after payment of closing costs.  The Partnership used approximately $2,543,000 to repay the mortgage encumbering the property and approximately $366,000 for a prepayment penalty. The Partnership realized a gain of approximately $4,940,000 as a result of the sale. The property’s operations of approximately $40,000 and $59,000 are included as loss from discontinued operations and include revenues of approximately $550,000 and $774,000 for the six months ended June 30, 2007 and the nine months ended September 30, 2006, respectively.  In addition, the Partnership recorded a loss on extinguishment of debt of approximately $425,000 as a result of the write-off of unamortized loan costs of approximately $59,000 and a prepayment penalty of approximately $366,000 during the six months ended June 30, 2007.  This amount is included in loss fr om discontinued operations.

As a result of the decision to liquidate the Partnership, the Partnership changed its basis of accounting for its consolidated financial statements at June 30, 2007, to the liquidation basis of accounting.  Consequently, assets have been valued at estimated net realizable value and liabilities are presented at their estimated settlement amounts, including estimated costs associated with carrying out the liquidation of the Partnership. The valuation of assets and liabilities necessarily requires many estimates and assumptions and there are substantial uncertainties in carrying out the liquidation. The actual realization of assets and settlement of liabilities could be higher or lower than amounts indicated as they are based upon the Corporate General Partner’s estimates as of the date of the consolidated financial statements.

During the three months ended September 30, 2007, net assets in liquidation decreased by approximately $4,266,000. The decrease in net assets in liquidation is primarily due to a distribution to partners, and to a lesser extent, costs incurred during the liquidation period partially offset by the receipt of interest income for the period and an increase in the estimated costs to be incurred during the liquidation period.

The consolidated statement of net assets in liquidation as of September 30, 2007 includes approximately $71,000 of costs that the Corporate General Partner estimates will be incurred during the period of liquidation, based on the assumption that the liquidation process will be completed by June 30, 2008. Because the success in realization of assets and the settlement of liabilities is based on the Corporate General Partner’s best estimates, the liquidation period may be shorter than projected or it may be extended beyond June 30, 2008 the projected date of liquidation.

The Partnership distributed the following amounts during the nine months ended September 30, 2007 and 2006 (in thousands, except per unit data):

	Nine months ended	Per Limited	Nine months ended	Per Limited
	September 30,	Partnership	September 30,	Partnership
	2007	Unit	2006	Unit
Sale (1)	$4,279	$77.80	$   --	$   --

(1)

From the sale proceeds of Essex Park and Willowick Apartments in June 2007.

The Partnership’s cash available for distribution will be reviewed on a quarterly basis.  Future cash distributions will depend on the amount of cash remaining after fully liquidating the Partnership.

The Partnership Agreement provides for partners to receive distributions from the net proceeds of the sales of properties, the net proceeds from refinancings and net cash from operations as those terms are defined in the Partnership Agreement. The Partnership Agreement requires that the limited partners be furnished with a statement of Net Cash from Operations as such term is defined in the Partnership Agreement. Net Cash from Operations should not be considered an alternative to net income (loss) as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. Below is a reconciliation of net cash (used in) provided by operating activities as disclosed in the consolidated statements of cash flows included in “Item 1. Financial Statements” to Net Cash from Operations as defined in the Partnership Agreement.

	For the Six	For the Nine
	Months Ended	Months Ended
	June 30,	September 30,
	2007	2006
	(in thousands)
Net cash (used in) provided by operating activities	$   (70)		$  414
Payments on mortgage notes payable	(176)		(249)
Property improvements and replacements	(780)		(473)
Net increase in restricted escrow	(1)		(1)
Changes in reserves for net operating
assets/liabilities	(44)		(255)
Net cash used in operations	$(1,071)		$ (564)

Other

In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 36,382 limited partnership units (the "Units") in the Partnership representing 66.15% of the outstanding Units at September 30, 2007. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 66.15% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the Corporate General Partner owes fiduciary duties to the limited partners of the Partnership, the Corporate General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Corporate General Partner, as corporate general partner, to the Partnership and its limited partners may come into conflict with the duties of the Corporate General Partner to AIMCO as its sole stockholder.

ITEM 3.

CONTROLS AND PROCEDURES

(a)

Disclosure Controls and Procedures. The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the Corporate General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Corporate General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure con trols and procedures are effective.

(b)

Internal Control Over Financial Reporting. There have not been any changes in the Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Corporate General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain Corporate General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire l imited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 28, 2002, the trial court granted defendants motion to strike the complaint.  Plaintiffs took an appeal from this order.

On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the “Appeal”) seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On May 4, 2004, the Objector filed a second appeal challenging the court’s use of a referee and its order requiring Objector to pay those fees.

On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.  With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court’s order and remanded to the trial court for further findings on the basis that the “state of the record is insufficient to permit meaningful appellate review”.  The matter was transferred back to the trial court on June 21, 2005.  With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. With respect to the related Heller appeal, on July 28, 2005, the Court of Appeals reversed the trial court’s order striking the first amended complaint.

On August 18, 2005, Objector and his counsel filed a motion to disqualify the trial court based on a peremptory challenge and filed a motion to disqualify for cause on October 17, 2005, both of which were ultimately denied and/or struck by the trial court.  On or about October 13, 2005 Objector filed a motion to intervene and on or about October 19, 2005 filed both a motion to take discovery relating to the adequacy of plaintiffs as derivative representatives and a motion to dissolve the anti-suit injunction in connection with settlement.  On November 14, 2005, Plaintiffs filed a Motion For Further Findings pursuant to the remand ordered by the Court of Appeals. Defendants joined in that motion.  On February 3, 2006, the Court held a hearing on the various matters pending before it and ordered additional briefing from the parties and Objector.  On June 30, 2006, the trial court entered an order confirming its approval of the cla ss action settlement and entering judgment thereto after the Court of Appeals had remanded the matter for further findings.  The substantive terms of the settlement agreement remain unchanged.  The trial court also entered supplemental orders on July 1, 2006, denying Objector’s Motion to File a Complaint in Intervention, Objector’s Motion for Leave of Discovery and Objector’s Motion to Dissolve the Anti-Suit Injunction.  Notice of Entry of Judgment was served on July 10, 2006. On August 31, 2006, the Objector filed a Notice of Appeal to the Court’s June 30, 2006 and July 1, 2006 orders.  On December 14, 2006, Objector filed his Appellant’s Brief.  The Partnership and its affiliates, as well as counsel for the Settlement Class, both filed Respondents’ Briefs on May 17, 2007.  Objector filed his response on August 3, 2007.  No hearing date has yet been scheduled.

The Corporate General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnership’s overall operations.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

See Exhibit Index.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SHELTER PROPERTIES III
	By:   Shelter Realty III Corporation
	Corporate General Partner
Date: November 19, 2007	By:   /s/Martha L. Long
	Martha L. Long
	Senior Vice President
Date: November 19, 2007	By:   /s/Stephen B. Waters
	Stephen B. Waters
	Vice President

SHELTER PROPERTIES III

EXHIBIT INDEX

Exhibit

Description

3

See Exhibit 4(a)

4      (a)

Amended and Restated Certificate and Agreement of Limited Partnership, [included as Exhibit A to the Prospectus of Registrant dated September 2, 1981 contained in Amendment No. 1 to Registration Statement No. 2-72567 of Registrant filed September 2, 1981 (the "Prospectus") and incorporated herein by reference].

       (b)

Subscription Agreements and Signature Pages [Filed with Amendment No. 1 of Registration Statement No. 2-72567 of Registrant and incorporated herein by reference].

       (d)

Modification Agreement between Citibank, N.A. and Southern Associates Limited Partnership and a Title to Real Estate between Southern Associates Limited Partnership and Shelter Properties III to acquire Essex Park Apartments filed as Exhibit 4(d), respectively, to Form 10-K of Registrant for the year ended December 31, 1987 and incorporated herein by reference.

10(i)

Contracts related to acquisition/disposition of properties:

       (b)

Purchase Agreement dated July 31, 1981, between Southern Associates Limited Partnership and U.S. Shelter Corporation to purchase Essex Park Apartments filed as Exhibit 12(b) to Amendment No. 1 of Registration Statement No. 2-72567 of Registrant filed September 2, 1981 and incorporated herein by reference.

       (e)

Purchase Agreement dated May 14, 1982 between Lincoln Willowick Greenville Associates and U.S. Shelter Corporation to purchase Willowick Apartments.  [Filed with Current Report on Form 8-K of Registrant dated May 14, 1982 and incorporated herein by reference.]

(g)

Amendment to Purchase and Sale Contract between Shelter Properties III, a South Carolina Limited Partnership, and the affiliated Selling Partnerships and Northview Realty Group, Inc., a Canadian corporation, dated June 5, 2007. (Filed with Current Report on Form 8-K of Registrant dated June 13, 2007 and incorporated herein by reference).

(h)

Second Amendment to Purchase and Sale Contract between Shelter Properties III, a South Carolina Limited Partnership, and the affiliated Selling Partnerships and Northview Realty Group, Inc., a Canadian corporation, dated June 6, 2007. (Filed with Current Report on Form 8-K of Registrant dated June 13, 2007 and incorporated herein by reference).

(i)

Third Amendment to and Reinstatement of Purchase and Sale Contract between Shelter Properties III, a South Carolina Limited Partnership, and the affiliated Selling Partnerships and Northview Realty Group, Inc., a Canadian corporation, dated June 15, 2007. (Filed with Current Report on Form 8-K of Registrant dated June 13, 2007 and incorporated herein by reference).

10(iii)

Contracts related to refinancing of debt:

(m)

Multifamily Note dated December 15, 2000 between Shelter Properties III and Reilly Mortgage Group, Inc., a District of Columbia corporation securing Essex Park Apartments and Willowick Apartments (filed on Current Report on Form 8-K dated February 1, 2001 and incorporated herein by reference).

(n)

Multifamily Deed of Trust, Assignment of Rents, and Security Agreement dated December 15, 2000 between Shelter Properties III and Reilly Mortgage Group, Inc., a District of Columbia corporation, securing Essex Park Apartments and Willowick Apartments (filed on Current Report on Form 8-K dated February 1, 2001 and incorporated herein by reference).

31.1

Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99     (a)

Prospectus of Registrant dated September 2, 1981 [included in Registration Statement No. 2-72567, of Registrant] and incorporated herein by reference.

EX-31

Exhibit 31.1

CERTIFICATION

I, Martha L. Long, certify that:

1.

I have reviewed this quarterly report on Form 10-QSB of Shelter Properties III;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.

The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and

5.

The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date:  November 19, 2007

/s/Martha L. Long

Martha L. Long

Senior Vice President of Shelter Realty III Corporation, equivalent of the chief executive officer of the Partnership

EX-31

Exhibit 31.2

CERTIFICATION

I, Stephen B. Waters, certify that:

1.

I have reviewed this quarterly report on Form 10-QSB of Shelter Properties III;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4.

The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and

5.

The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date:  November 19, 2007

/s/Stephen B. Waters

Stephen B. Waters

Vice President of Shelter Realty III Corporation, equivalent of the chief financial officer of the Partnership

EX-32

Exhibit 32.1

Certification of CEO and CFO

Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-QSB of Shelter Properties III (the "Partnership"), for the quarterly period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the chief executive officer of the Partnership, and Stephen B. Waters, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

      /s/Martha L. Long

Name: Martha L. Long

Date: November 19, 2007

      /s/Stephen B. Waters

Name: Stephen B. Waters

Date: November 19, 2007

This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act, as amended.