<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                  ------------
                                   FORM 10-Q

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

     ----------------------------------------------------------------------

For Quarter Ended June 30, 1997         Commission File Number 0-14052


                    NEW ENGLAND LIFE PENSION PROPERTIES III;
                       A REAL ESTATE LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)



     Massachusetts                                04-2847256
(State or other jurisdiction of     (I.R.S. Employer Identification No.)
incorporation or organization)

     225 Franklin Street, 25th Fl.
     Boston, Massachusetts                               02110
(Address of principal executive offices)              (Zip Code)

              Registrant's telephone number, including area code:
                                 (617) 261-9000



----------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (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
<PAGE>
 
                    NEW ENGLAND LIFE PENSION PROPERTIES III;
                       A REAL ESTATE LIMITED PARTNERSHIP

                                   FORM 10-Q

                        FOR QUARTER ENDED JUNE 30, 1997

                                     PART I

                             FINANCIAL INFORMATION
                             ----------------------
<PAGE>
 
BALANCE SHEETS
(Unaudited)

<TABLE>
<CAPTION>
                                       June 30, 1997    December 31, 1996       
                                     -----------------  -------------------
<S>                                    <C>              <C>                
                                                                           
ASSETS                                                                     
                                                                           
Real estate investments:                                                   
   Joint ventures                      $    17,511,060  $   17,762,647     
   Property, net                             1,177,741       1,265,968     
                                       ---------------  --------------     
                                            18,688,801      19,028,615     
                                                                           
                                                                           
Cash and cash equivalents                    1,481,196       1,260,892     
Short-term investments                         990,191       1,169,666     
                                       ---------------  --------------     
                                       $    21,160,188  $   21,459,173     
                                       ===============  ==============     
                                                                          
                                                                          
LIABILITIES AND PARTNERS' CAPITAL                                         
                                                                          
Accounts payable                       $        87,219  $       74,172    
Accrued management fee                          45,655          45,792    
                                       ---------------  --------------    
Total liabilities                              132,874         119,964    
                                       ---------------  --------------      
 
Partners' capital (deficit):
    Limited partners ($485.54 per
      unit; 75,000 units authorized,
      68,414 units issued and
      outstanding)                          21,082,568      21,391,344
    General partners                           (55,254)        (52,135)
                                       ---------------  --------------      
Total partners' capital                     21,027,314      21,339,209
                                       ---------------  --------------      
 
                                       $    21,160,188  $   21,459,173
                                       ===============  ==============      
</TABLE>

                (See accompanying notes to financial statements)
<PAGE>
 
STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE>  
<CAPTION> 
                                          Quarter Ended      Six Months Ended     Quarter Ended      Six Months Ended   
                                          June 30, 1997        June 30, 1997      June 30, 1996        June 30, 1996  
                                         ---------------    ------------------   ---------------    ------------------
<S>                                      <C>                <C>                  <C>                <C>                
 INVESTMENT ACTIVITY                                                                                                  
                                                                                                                      
 Property rentals                        $         74,533   $        137,318     $         45,232   $         90,608  
 Property operating expenses                      (20,762)           (38,060)             (33,673)           (66,114) 
 Depreciation and amortization                    (33,424)           (66,849)             (28,571)           (37,033) 
                                         ----------------   ----------------     ----------------   ----------------    
                                                   20,347             32,409              (17,012)           (12,539)
 
 Joint venture earnings                           336,469            757,730              431,805            819,552
 Amortization                                      (2,366)            (4,732)              (2,366)            (4,732)
                                         ----------------   ----------------     ----------------   ----------------     
 
   Total real estate operations                   354,450            785,407              412,427            802,281
                                         ----------------   ----------------     ----------------   ----------------       

 Interest on cash equivalents
   and short-term investments                      32,578             58,829               43,959             87,503
                                         ----------------   ----------------     ----------------   ----------------        
   Total investment activity                      387,028            844,236              456,386            889,784
                                         ----------------   ----------------     ----------------   ----------------         

 Portfolio Expenses
 
 General and administrative                        85,839            140,196               62,311            114,261
 Management fee                                    45,655             91,310               46,339             92,677
                                         ----------------   ----------------     ----------------   ----------------        
                                                  131,494            231,506              108,650            206,938
                                         ----------------   ----------------     ----------------   ----------------         
 Net Income                              $        255,534   $        612,730     $        347,736   $        682,846
                                         ================   ================     ================   ================ 

 Net income per limited partnership
   unit                                  $           3.70   $           8.87     $           5.03   $           9.88
                                         ================   ================     ================   ================ 

 Cash distributions per
   limited partnership unit              $           6.68   $          13.38     $           6.78   $          12.94
                                         ================   ================     ================   ================  
</TABLE> 
<PAGE>
 
<TABLE> 
<S>                                      <C>                <C>                  <C>                <C>                
 Number of limited partnership
   units outstanding during the period             68,414             68,414               68,414             68,414
                                         ================   ================     ================   ================  
</TABLE>

                (See accompanying notes to financial statements)
<PAGE>
 
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)

<TABLE>
<CAPTION>
 
 
                       Quarter Ended              Six Months Ended              Quarter Ended                 Six Months Ended
                       June 30, 1997               June 30, 1997                June 30, 1996                  June 30, 1996
                   --------------------        ---------------------        -----------------------       ----------------------
                                                                      
                   General       Limited       General        Limited       General          Limited      General         Limited
                  Partners      Partners      Partners       Partners      Partners         Partners     Partners        Partners
                 ----------    ----------    ----------     ----------    ----------       ----------   ----------      ---------- 
                                                                      
 <S>            <C>         <C>             <C>          <C>             <C>           <C>             <C>           <C> 
 Balance at                                                           
 beginning of                                                         
 period         $ (53,193)  $ 21,286,594    $ (52,135)   $ 21,391,344    $ (44,225)    $ 22,694,377    $ (43,319)    $ 22,784,048
                                                                      
                                                                      
 Cash                                                                 
 distributions     (4,616)      (457,005)      (9,246)       (915,379)      (4,684)        (463,847)      (8,941)        (885,277)
                                                                      
                                                                      
 Net income         2,555        252,979        6,127         606,603        3,477          344,259        6,828          676,018
                ---------   ------------    ---------    ------------    ---------     ------------    ---------     ------------
                                                                      
                                                                      
 Balance at                                                           
 end of period  $ (55,254)  $ 21,082,568    $ (55,254)   $ 21,082,568    $ (45,432)    $ 22,574,789    $ (45,432)    $ 22,574,789
                =========   ============    =========    ============    =========     ============    =========     ============

</TABLE> 

                (See accompanying notes to financial statements)
<PAGE>
 
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>



                                             Six Months Ended June 30,
                                             -------------------------
                                                1997           1996
                                             -----------   -----------
 
<S>                                         <C>            <C>
Net cash provided by operating activities   $    974,797   $   894,465
                                             -----------    ---------- 
                                                         
Cash flows from investing activities:                    
    Capital expenditures on owned property             -        (9,404)
    Decrease in short-term                               
         investments, net                        170,132     1,075,996
                                             -----------   -----------
            Net cash provided by                         
            investing activities                 170,132     1,066,592
                                             -----------   -----------
                                                         
Cash flows from financing activity:                      
    Distributions to partners                   (924,625)     (894,218)
                                             -----------   -----------
                                                         
            Net increase in                              
            cash and cash equivalents            220,304     1,066,839
                                                         
Cash and cash equivalents:                               
    Beginning of period                        1,260,892     1,399,905
                                             -----------   -----------
                                                         
    End of period                           $  1,481,196  $  2,466,744
                                             ===========   ===========
</TABLE>

                (See accompanying notes to financial statements)
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS (Unaudited)

   In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the Partnership's financial
position as of June 30, 1997 and December 31, 1996 and the results of its
operations, its cash flows and partners' capital (deficit) for the interim
periods ended June 30, 1997 and 1996.  These adjustments are of a normal
recurring nature.

   See notes to financial statements included in the Partnership's 1996 Annual
Report on Form 10-K for additional information relating to the Partnership's
financial statements.

NOTE 1 - ORGANIZATION AND BUSINESS
----------------------------------

   New England Life Pension Properties III; A Real Estate Limited Partnership
(the "Partnership") is a Massachusetts limited partnership organized for the
purpose of investing primarily in newly constructed and existing income
producing real properties.  It primarily serves as an investment for qualified
pension and profit sharing plans and other entities intended to be exempt from
federal income tax.  The Partnership commenced operations in July, 1985 and
acquired the three investments it currently owns prior to the end of 1988. The
Partnership intends to dispose of its investments within twelve years of their
acquisition, and then liquidate; however, the managing general partner could
extend the investment period if it is in the best interest of the limited
partners.

NOTE 2 - REAL ESTATE JOINT VENTURES
-----------------------------------

   The following summarized financial information is presented in the aggregate
for the two joint ventures:

                             Assets and Liabilities
                             ----------------------
<TABLE>
<CAPTION>
 
 
                                     June 30, 1997     December 31, 1996
                                     -------------     -----------------
<S>                                  <C>               <C>
Assets                                                 
                                                       
  Real property, at cost less                          
     accumulated depreciation                          
     of $5,065,192 and $4,812,441     $ 15,096,758          $ 15,325,895
  Other assets                             666,293               659,368
                                       -----------           -----------
                                        15,763,051            15,985,263
                                                       
Liabilities                                140,532               115,892
                                       -----------           -----------
                                                       
Net Assets                            $ 15,622,519          $ 15,869,371
                                       ===========           ===========
</TABLE>
<PAGE>
 
                             Results of Operations
<TABLE>
<CAPTION>
                                   Six Months ended June 30,
                                   -------------------------
                                       1997         1996
                                       ----         ----
<S>                                <C>           <C>
Revenue
  Rental income                      $1,555,477   $1,601,362
  Other                                   1,812        1,600
                                     ----------   ----------
                                      1,557,289    1,602,962
                                     ----------   ----------
 
Expenses
  Operating expenses                    546,807      513,388
  Depreciation and amortization         252,752      270,022
                                     ----------   ----------
                                        799,559      783,410
                                     ----------   ----------
 
  Net income                         $  757,730   $  819,552
                                     ==========   ==========
</TABLE>

     Liabilities and expenses exclude amounts owed and attributable to the
Partnership on behalf of its various financing arrangements with the joint
ventures.

NOTE 3 - PROPERTY
-----------------

     The following is a summary of the Partnership's investment in one wholly-
owned property:
<TABLE>
<CAPTION>
 
                                        June 30, 1997   December 31, 1996
                                        --------------  ------------------
<S>                                     <C>             <C>
 
  Land                                     $  347,772          $  347,772
  Buildings and improvements                1,031,512           1,031,512
  Accumulated depreciation
     and amortization                        (197,880)           (138,503)
  Net operating assets (liabilities)           (3,663)             25,187
                                           ----------          ----------
                                           $1,177,741          $1,265,968
                                           ==========          ==========
</TABLE>
 
NOTE 4 - SUBSEQUENT EVENT
-------------------------

     Distributions of cash from operations relating to the quarter ended June
30, 1997 were made on July 24, 1997 in the aggregate amount of $461,621 ($6.68
per limited partnership unit).
<PAGE>
 
Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------

Liquidity and Capital Resources
-------------------------------

     The Partnership completed its offering of units of limited partnership
interest in December, 1985 and a total of 68,414 units were sold. The
Partnership received proceeds of $61,950,285, net of selling commissions and
other offering costs, which were invested in real estate, used to pay related
acquisition costs, or retained as working capital reserves. The Partnership made
nine real estate investments, six of which were sold prior to 1994. As a result
of the sales, capital of $35,196,266 has been returned to the limited partners
through June 30, 1997.

     At June 30, 1997, the Partnership had $2,471,387 in cash, cash equivalents
and short-term investments, of which $461,621 was used for operating cash
distributions to partners on July 24, 1997; the remainder is being retained as
working capital reserves. On October 24, 1996, the Partnership made a capital
distribution of $519,946 ($7.60 per limited partnership unit) representing
undistributed proceeds from the sales of various properties prior to 1994. The
adjusted capital contribution after this distribution was $485.54 per unit. Also
on October 24, 1996, the Partnership made a special operating cash distribution
of $364,186 ($5.27 per limited partnership unit) attributable to a discretionary
reduction of previously accumulated cash reserves. The source of future
liquidity and cash distributions to partners will primarily be cash generated by
the Partnership's investments and proceeds from the sale of investments.
Distributions of cash from operations for the first two quarters of 1997 and
1996 were made at the annualized rate of 5.5% on the adjusted capital
contribution.

     The carrying value of real estate investments in the financial statements
at June 30, 1997 is at depreciated cost, or if the investment's carrying value
is determined not to be recoverable through expected undiscounted future cash
flows, the carrying value is reduced to estimated fair market value. The fair
market value of such investments is further reduced by the estimated cost of
sale for properties held for sale. Carrying value may be greater or less than
current appraised value. At June 30, 1997, the appraised value of each real
estate investment exceeded its related carrying value; the aggregate excess was
approximately $5,400,000. The current appraised value of real estate investments
has been determined by the managing general partner and is generally based on a
combination of traditional appraisal approaches performed by the Partnership's
advisor and independent appraisers. Because of the subjectivity inherent in the
valuation process, the current appraised value may differ significantly from
that which could be realized if the real estate were actually offered for sale
in the marketplace.

Results of Operations
---------------------

     Form of Real Estate Investments

     North Cabot Industrial Park is a wholly-owned property. Bayberry Apartments
and 270 Technology Center are structured as joint ventures with real estate
management/development firms.
<PAGE>
 
     Operating Factors

     Occupancy at North Cabot Industrial Park remained at 100% during the second
quarter of 1997. (Occupancy was 87% at June 30, 1996.)

     Occupancy at Bayberry Apartments increased to 96% during the second
quarter. (Occupancy was 89% at December 31, 1996 and 95% at June 30, 1996.)

     Occupancy at 270 Technology Park declined to 82% during the second quarter
of 1997 as a tenant representing 18% of the space vacated upon expiration of
their lease on March 31, 1997. (Occupancy was 98% at June 30, 1996.)

     Investment Results

     Interest on cash equivalents and short-term investments decreased by
approximately $29,000, or 33%, between the first six months of 1996 and 1997,
primarily due to lower invested balances as a result of additional distributions
from reserves in October 1996, partially offset by higher short-term yields in
1997.

     Real estate operating results were $785,407 for the first six months of
1997 as compared to $802,281 for the comparable period of 1996. The decline is
primarily due to reduced operating income at 270 Technology Park as a result of
the occupancy decrease mentioned above. At North Cabot, higher revenue
attributable to the increase in occupancy was partially offset by increased
amortization expense, commencing in mid-1996, related to certain tenant
improvements. In addition, there were tenant related write-offs and legal
expenses of approximately $21,000 in 1996 at North Cabot.

     Cash from operations increased by approximately $80,000 between the two 
six-months periods while net income declined by $70,000 over the comparable
period. The difference is primarily attributable to the funding of approximately
$86,000 of tenant improvements at North Cabot in early 1996 which were accrued
in 1995, along with an increase in Partnership operating liabilities.

     Portfolio Expenses

     General and administrative expenses primarily consist of real estate
appraisal, legal, accounting, printing and servicing agent fees. These expenses
increased by approximately $26,000 or 23%, between the first six months of 1996
and 1997 primarily due to an increase in accounting fees.

     The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the managing general partner. Management fees decreased slightly
between the two six month periods consistent with the decrease in distributable
cash flow.
<PAGE>
 
                   NEW ENGLAND LIFE PENSION PROPERTIES III;
                       A REAL ESTATE LIMITED PARTNERSHIP

                                   FORM 10-Q

                        FOR QUARTER ENDED JUNE 30, 1997

                                    PART II

                               OTHER INFORMATION
                              -------------------



     Item 6. Exhibits and Reports on Form 8-K

                    a.     Exhibits:   None.

                    b.     Reports on Form 8-K:  No Current Reports on
                           Form 8-K were filed during the quarter ended
                           June 30, 1997.
<PAGE>
 
                                  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.


                              NEW ENGLAND LIFE PENSION PROPERTIES III;
                              A REAL ESTATE LIMITED PARTNERSHIP
                              (Registrant)


August 12, 1997
                              /s/ James J. Finnegan
                              -------------------------------
                                James J. Finnegan
                                Managing Director and General Counsel
                                of Managing General Partner,
                                Copley Properties Company III, Inc.



August 12, 1997
                             /s/ Karin J. Lagerlund
                             --------------------------------
                               Karin J. Lagerlund
                               Principal Financial and Accounting
                               Officer of Managing General Partner,
                               Copley Properties Company III, Inc.