SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended March 31, 1997

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

                         Commission File Number 0-16816

                           SUMMIT TAX EXEMPT L.P. III
             (Exact names of registrant as specified in its charter)

          Delaware                                        13-3442249
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                         Identification No.)

625 Madison Avenue, New York, New York                      10022
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code (212) 421-5333

     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  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>


                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                        STATEMENTS OF FINANCIAL CONDITION
                                   (unaudited)


                                                   ============    ============
                                                     March 31,      December 31,
                                                       1997            1996
                                                   ------------    ------------
ASSETS

Participating first mortgage bonds-at fair value   $ 44,769,792    $ 44,769,792
Temporary investments                                   100,000         300,000
Cash and cash equivalents                               274,370          59,832
Interest receivable, net                                127,677         164,883
Deferred bond selection fees, net                       652,347         667,755
Other assets                                              3,869               0
                                                   ------------    ------------

Total assets                                       $ 45,928,055    $ 45,962,262
                                                   ============    ============

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
   Accounts payable and accrued expenses           $    118,813    $    124,106
   Due to affiliates                                    214,341         100,261
                                                   ------------    ------------

Total liabilities                                       333,154         224,367
                                                     ------------    ----------

Contingencies

Partners' capital (deficit):
   BUC$holders (3,081,625 BUC$
     issued and outstanding)                         48,949,762      49,089,896
   General Partners                                    (174,653)       (171,793)
   Net unrealized loss on participating first
     mortgage bonds                                  (3,180,208)     (3,180,208)
                                                   ------------    ------------

Total partners' capital                              45,594,901      45,737,895
                                                   ------------    ------------

Total liabilities and partners' capital            $ 45,928,055    $ 45,962,262
                                                   ============    ============


                 See accompanying notes to financial statements


                                       2
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                              STATEMENTS OF INCOME
                                   (unaudited)


                                                         =======================
                                                           Three Months Ended
                                                               March 31,
                                                         -----------------------
                                                           1997           1996
                                                         -----------------------
REVENUES:
   Interest income:
     Participating first mortgage bonds                  $705,517       $699,417
     Temporary investments                                  2,393          3,314
                                                         --------       --------
   Total revenues                                         707,910        702,731
                                                         --------       --------
EXPENSES:
   General and administrative                              46,706         46,690
   Loan servicing fees                                     32,332         32,691
   Amortization of deferred bond
     selection fees                                        15,408         15,407
                                                         --------       --------
   Total expenses                                          94,446         94,788
                                                         --------       --------
   Net Income                                            $613,464       $607,943
                                                         ========       ========

ALLOCATION OF NET INCOME:
   BUC$holders                                           $537,824       $531,709
                                                         ========       ========
   General Partners:
     Special distribution                                $ 64,664       $ 65,383
     Other                                                 10,976         10,851
                                                         --------       --------

                                                         $ 75,640       $ 76,234
                                                         ========       ========
Net Income per BUC                                       $    .17       $    .17
                                                         ========       ========


                 See accompanying notes to financial statements


                                       3
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
               STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
                                   (unaudited)

<TABLE>
<CAPTION>
                                        ==================================================================================
                                                                                                       Net Unrealized
                                                                                                          Loss on
                                                                                     General          Participating First
                                              Total          BUC$holders             Partners          Mortgage Bonds
                                        ----------------------------------------------------------------------------------
<S>                                     <C>                  <C>                  <C>                  <C>          
Partners' capital (deficit) -
   January 1, 1997                      $ 45,737,895         $ 49,089,896         $   (171,793)        $ (3,180,208)
Net income                                   613,464              537,824               75,640                    0
Distributions                               (756,458)            (677,958)             (78,500)                   0
Partners' capital (deficit) -           $ 45,594,901         $ 48,949,762         $   (174,653)        $ (3,180,208)
   March 31, 1997
</TABLE>

                 See accompanying notes to financial statements


                                       4
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                            (a limited partnership)
                            STATEMENTS OF CASH FLOWS
                                  (unaudited)

                                                        =======================
                                                            Three Months Ended
                                                                 March 31,
                                                        -----------------------
                                                             1997          1996
                                                        -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received, net                                  $ 745,116     $ 702,731
Amount received which is due to affiliate                       0        39,517
Fees and expenses paid                                    (38,784)      (14,760)
                                                        ---------     ---------
Net cash provided by operating activities                 706,332       727,488
                                                        ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Net sale of temporary investments                         200,000        25,000

CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid                                       (691,794)     (691,794)
                                                        ---------     ---------

Net increase in cash and cash equivalents                 214,538        60,694

Cash and cash equivalents at beginning of period           59,832       347,908
                                                        ---------     ---------

Cash and cash equivalents at end of period              $ 274,370     $ 408,602
                                                        =========     =========
SCHEDULE RECONCILING NET INCOME TO NET CASH
   FLOW PROVIDED BY OPERATING ACTIVITIES:
Net income                                              $ 613,464     $ 607,943
                                                        ---------     ---------
Adjustments to reconcile net income to net cash
   provided by operating activities:

Amortization of deferred bond selection fees               15,408        15,407
Changes in:
   Interest receivable, net                                37,206             0
   Other assets                                            (3,869)        4,209
   Accounts payable and accrued expenses                   (5,293)       15,961
   Due to affiliates                                       49,416        83,968
                                                        ---------     ---------

Total adjustments                                          92,868       119,545
                                                        ---------     ---------

Net cash provided by operating activities               $ 706,332     $ 727,488
                                                        =========     =========
SUPPLEMENTAL SCHEDULE OF FINANCING ACTIVITIES

Distributions to partners                               $(756,458)    $(757,177)
Increase in distributions payable                          64,664        65,383
                                                        ---------     ---------

Distributions paid to partners                          $(691,794)    $(691,794)
                                                        =========     ========= 

                 See accompanying notes to financial statements


                                       5
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1997
                                   (unaudited)

NOTE 1 - General

     These financial statements have been prepared without audit. In the opinion
of management,  the financial statements contain all adjustments  (consisting of
only normal  recurring  adjustments)  necessary to present  fairly the financial
position of Summit Tax Exempt L.P. III (the  "Partnership") as of March 31, 1997
and the results of its  operations and its cash flows for the three months ended
March 31, 1997 and 1996. However,  the operating results for the interim periods
may not be indicative of the results expected for the full year.

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting  principles
have been omitted.  It is suggested that these  financial  statements be read in
conjunction  with the financial  statements  and notes  thereto  included in the
Partnership's  Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1996.

NOTE 2 - Participating First Mortgage Bonds ("FMBs")

     The Partnership  accounts for its investments in the FMBs as "available for
sale" debt securities under the provisions of Statement of Financial  Accounting
Standards  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
Securities" ("SFAS 115"). Accordingly,  investments in FMBs are carried at their
estimated fair values,  with unrealized  gains and losses reported in a separate
component of partners' capital.

     Because the FMBs are not readily marketable, the Partnership estimates fair
value for each bond as the  present  value of its  expected  cash flows  using a
discount rate for comparable tax-exempt investments.  This process is based upon
projections of future economic events affecting the real estate  collateralizing
the bonds,  such as property  occupancy  rates,  rental  rates,  operating  cost
inflation  and  market  capitalization  rates,  and  upon  determination  of  an
appropriate  market  rate of  interest,  all of which  are  based on good  faith
estimates and assumptions developed by the Partnership's management.  Changes in
market  conditions and circumstances may occur which would cause these estimates
and assumptions to change, therefore, actual results may vary from the estimates
and the variance may be material.

     Effective  January 1, 1997,  a  forbearance  agreement  with respect to the
Players Club FMB was  modified  and  extended  due to a  continuous  weak rental
market and to ensure that real estate tax payments and capital  improvements are
made.  The minimum  pay rate for Players  Club was reduced to 6.5% and 6.25% for
the  periods  January 1, 1997  through  January  31,  1997 and  February 1, 1997
through  December 31, 1997,  respectively.  Thereafter,  it is expected that the
stated rate of 8% will be reinstated.

     With respect to all FMBs, the difference  between the stated interest rates
and the actual rates paid (whether  deferred and payable out of future cash flow
or,  ultimately,  from sale or refinancing  proceeds) on FMBs is not accrued for
financial  statement  purposes.   Unrecorded  contractual  interest  income  was
approximately  $407,000  and  $417,000 for the three months ended March 31, 1997
and 1996, respectively.-

     The cost basis of the FMBs was  $47,950,000  at March 31, 1997 and December
31, 1996. The net unrealized loss on FMBs consists of gross unrealized gains and
losses of $0 and $3,180,208,  respectively,  at both March 31, 1997 and December
31, 1996.


                                       6
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1997
                                   (unaudited)

NOTE 2 - Participating First Mortgage Bonds ("FMBs") (continued)

Descriptions  of the various FMBs owned by the Partnership at March 31, 1997 are
as follows:

<TABLE>
<CAPTION>
                                      Annualized
                                      Interest Rate
                                      Paid for the      Minimum                             
                                      three months      Annual                                                            Carrying
                                         ended        Pay Rate at    Stated                                               Amount at
                                        March 31,       March       Interest                Maturity                       March 31,
Property          Location               1997*        31, 1997*      Rate*      Call Date    Date        Face Amount       1997(C)
--------          --------            -------------   -----------   --------    ---------   --------     -----------      ---------
                                                                  
<S>               <C>                    <C>            <C>          <C>        <C>         <C>          <C>           <C>         
Player's Club(A)  Fort Myers, FL         6.42%          6.25%        8.00%      Aug. 1999   Aug. 2007    $ 7,200,000   $  6,843,428
Lakepointe        Stone Mountain, GA     6.00           6.00         8.50       Jan. 2000   Oct. 2007     15,100,000     14,159,707
Sunset Village    Lancaster, CA          4.01           (B)          8.50       Mar. 2000   Mar. 2008     11,375,000      9,085,396
Sunset Creek      Lancaster, CA          4.40           (B)          8.50       Mar. 2000   Mar. 2008      8,275,000      6,004,427
Orchard Mill      Atlanta, GA            7.53(D)        5.00         9.00       Apr. 2001   Mar. 2008     10,500,000      8,676,834
                                                                                                         -----------   ------------
                                                                  
                                                                                                         $52,450,000   $ 44,769,792
                                                                                                         ===========   ============
</TABLE>

*The  annualized  interest  rate paid  represents  the interest  recorded by the
Partnership while the stated interest rate represents the coupon rate of the FMB
and the minimum annual pay rate  represents the minimum rate required to be paid
under the respective forbearance agreements.

(A)  Summit Tax Exempt  L.P.  II, of which the general  partners  are either the
     same or affiliates of the General Partners of the Partnership, acquired the
     other $2,500,000 of the Player's Club Bond issue.

(B)  Interest on this FMB is paid to the extent of the property's net cash flow.

(C)  FMBs are carried at their estimated fair values at March 31, 1997.

(D)  Includes receipt of deferred base interest related to prior periods.


                                       7
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1997
                                   (unaudited)

NOTE 3 - Related Parties

     Prudential-Bache  Properties,  Inc. ("PBP") and the Related General Partner
(collectively, the "General Partners") and their affiliates perform services for
the Partnership which include,  but are not limited to: accounting and financial
management;  registrar,  transfer and assignment  functions;  asset  management;
investor communications; printing and other administrative services. The General
Partners  and their  affiliates  receive  reimbursements  for costs  incurred in
connection with these services, the amount of which is limited by the provisions
of the Agreement of Limited Partnership (the "Partnership Agreement"). The costs
and  expenses  were: 

                                                            Three Months  Ended 
                                                                 March  31,  
                                                           ---------------------
                                                            1997           1996 
                                                           ---------------------
PBP and affiliates:
  General and administrative                               $10,683       $15,112
                                                           -------       -------
Related General Partner and  affiliates:
  Loan servicing  fees                                      32,332        32,691
  General and  administrative                                6,345        15,000
                                                           -------       -------
                                                            38,677        47,691
                                                           -------       -------
                                                           $49,360       $62,803
                                                           =======       =======
          
     An affiliate of the Related  General  Partner  receives loan servicing fees
(see above) in an amount of .25% per annum of the principal  amount  outstanding
of mortgage loans serviced by the affiliate.

     During  January  1996,  a division of  Prudential  Securities  Incorporated
("PSI"),  an  affiliate  of PBP,  was  responsible  for the  purchase,  sale and
safekeeping  of  the  Partnership's  temporary  investments.  This  account  was
maintained in accordance with the Partnership Agreement.

     PSI owns 17,700 BUC$ at March 31, 1997.

     The Player's Club property  (securing a $7,200,000 FMB in this Partnership)
also secures an FMB for  $2,500,000  held by Summit Tax Exempt L.P. II, of which
the general  partners are either the same or affiliates of the General  Partners
of this  Partnership.  The  original  owner  of the FMB is an  affiliate  of the
Related General Partner.

     Effective  as of August 1,  1995,  the  original  owner and  obligor of the
Sunset Creek and Sunset  Village FMBs  transferred  the deeds to the  underlying
properties  to  an  affiliate  of  the  Related   General  Partner  for  limited
consideration.   Purusant  to  the  agreement,  the  Related  General  Partner's
affiliate,  who has not made an equity  investment in the  underlying  property,
assumed  the  day-to-day  responsibilities  and  obligations  of  operating  the
properties.


                                       8
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1997
                                   (unaudited)

NOTE 4 - Contingencies

     On or about October 18, 1993, a putative class action,  captioned Kinnes et
al. v. Prudential  Securities Group, Inc. et al.  (CV-93-654),  was filed in the
United States District Court for the District of Arizona,  purportedly on behalf
of investors in the Partnership,  against the Partnership, PBP, PSI and a number
of other  defendants.  On November 16, 1993, a putative  class action  captioned
Connelly et al. v.  Prudential-Bache  Securities Inc. et al. (93 Civ. 713) , was
filed in the  United  States  District  Court  for the  District  of  Arizona  ,
purportedly on behalf of investors in the Partnership  against the  Partnership,
PBP, PSI and a number of other defendants.  On January 3, 1992, a putative class
action,  captioned  Levine v.  Prudential-Bache  Properties Inc. et al. (92 Civ.
52), was filed in the United States District Court for the Northern  District of
Illinois  purportedly  on behalf of  investors  in the  Partnership  against the
General  Partners,  PSI and a number  of  other  defendants.  Subsequently,  the
Related General Partner was dismissed from the Levine litigation.

     By order of the Judicial Panel on Multidistrict  Litigation dated April 14,
1994,  the Kinnes case,  by order dated May 4, 1994,  the  Connelly  case and by
order dated July 13, 1994, the Levine case,  were  transferred to a single judge
of the United States  District Court for the Southern  District of New York (the
"Court")  and  consolidated  for  pretrial  proceedings  under the caption In re
Prudential Securities  Incorporated Limited Partnerships  Litigation (MDL Docket
1005) (the "Class Action"). On June 8, 1994, plaintiffs in the transferred cases
filed a complaint that consolidated the previously filed complaints and named as
defendants,  among others,  PSI, certain of its present and former employees and
the  General  Partners.  The  Partnership  was  not  named  a  defendant  in the
consolidated  complaint,  but the name of the  Partnership  was  listed as being
among the limited partnerships at issue in the case.

     On August 9, 1995 PBP, PSI and other Prudential  defendants  entered into a
Stipulation  and  Agreement  of Partial  Compromise  and  Settlement  with legal
counsel  representing   plaintiffs  in  the  consolidated   actions.  The  court
preliminarily  approved the settlement  agreement by order dated August 29, 1995
and,  following a hearing held  November 17, 1995,  found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
Court gave final approval to the settlement,  certified a class of purchasers of
specific limited partnerships,  including the Partnership,  released all settled
claims  by  members  of the  class  against  the  PSI  settling  defendants  and
permanently  barred and enjoined class members from  instituting,  commencing or
prosecuting any settled claim against the released parties.  The full amount due
under the  settlement  agreement  has been paid by PSI.  The Levine and Connelly
cases were dismissed  with  prejudice as to the  Prudential  defendants by court
order dated October 25, 1996. The  consolidated  action remains  pending against
the Related General Partner and certain of its affiliates.

     On December 31, 1996,  the Court issued a preliminary  approval  order (the
"Order") with respect to  settlement  (the  "Related  Settlement")  of the Class
Action  against the  Related  General  Partner  and  certain of its  affiliates.
Pursuant to the  stipulation  of  settlement  entered  into with counsel for the
class on December 24, 1996, the proposed Related Settlement contemplates,  among
other matters, the reorganization (the  "Reorganization") of the Partnership and
two other partnerships co-sponsored by affiliates of the Related General Partner
and PBP.


                                       9
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1997
                                   (unaudited)

NOTE 4 - Contingencies (continued)

     The  proposed  Related   Settlement  and   Reorganization  are  subject  to
objections by the BUC$holders and limited partners of the Partnership as well as
each of the other concerned  partnerships  and final approval of the Court after
review of the proposals at a fairness hearing.

     Under the proposed Reorganization plan, the BUC$holders of the Partnership,
and Summit Tax Exempt Bond Fund L.P. and Summit Tax Exempt L.P. II, will receive
shares in a newly formed business trust. It is anticipated  that the shares will
be  allocated  proportionately  among  the  partnerships  and  their  respective
investors  based upon appraisals and other factors as supported by a third-party
fairness opinion. Detailed information about the proposed Related Settlement and
Reorganization  will be sent to BUC$holders in the near future. The terms of the
Reorganization  include,  among other matters,  the acquisition by affiliates of
the Related Capital Company ("RCC") of PBP's general partner  interest (the "PBP
Interest"),  transfer  to the  BUC$holders  of  one-half  of the  PBP  Interest,
reduction  of the sum of the  aggregate  annual fees  currently  payable to both
General  Partners by 25%, filing an application to list the new company's shares
on an  exchange  and  the  creation  of  an  infinite,  as  opposed  to  finite,
life-operating business.

     In connection with the proposed Related Settlement and  Reorganization,  on
December 19, 1996, PBP and RCC entered into an agreement for the purchase by RCC
or its  affiliates  of the PBP  Interest.  The  agreement is subject to numerous
conditions,  including the effectiveness of the Related  Settlement of the Class
Action and the approval of the sale and  withdrawal of PBP as a general  partner
of the Partnership by the Court.

     Pending  final  approval  of the  Related  Settlement,  the  Court's  Order
prohibits class members  (including the BUC$holders)  from, among other matters,
(i)  transferring  their BUC$  unless the  transferee  agrees to be bound by the
Related Settlement;  (ii) granting a proxy to object to the  Reorganization;  or
(iii) commencing a tender offer for the BUC$. In addition,  the General Partners
are enjoined from (i) recording any transfers made in violation of the Order and
(ii)  providing the list of investors in any of the  partnerships  which are the
subject of the Reorganization to any person conducting a tender offer.

     There  can be no  assurance  that  the  conditions  to the  closing  of the
proposed Related Settlement and  Reorganization  will be satisfied nor as to the
time frame in which a closing  may occur.  In the event a  settlement  cannot be
reached, the Related General Partner believes it has meritorious defenses to the
consolidated complaint and intends to vigorously defend this action.

NOTE 5 - Subsequent Events

     On May 12, 1997,  Summit Tax Exempt L.P. II, of which the general  partners
are either the same or affiliates of the General  Partners of this  Partnership,
loaned the obligor of the Players  Club  $280,000 to cover the  shortfall on its
1996 real estate tax payment and to fund a capital improvement account. The note
will  be  self-amortizing  at an  annual  interest  rate  of 8% for a term of 48
months.

     In May 1997, a distribution of approximately  $678,000 and $14,000 was paid
to the BUC$holders  and General  Partners,  respectively,  for the quarter ended
March 31, 1997.


                                       10
<PAGE>


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

Liquidity and Capital Resources

     Summit  Tax  Exempt  L.P.  III (the  "Partnership")  has  invested  in five
tax-exempt  participating  first mortgage bonds ("FMBs") issued by various state
or local  governments or their agencies or authorities.  The FMBs are secured by
participating first mortgage loans on the properties.

     At the  beginning  of the  year,  the  Partnership  had cash and  temporary
investments of approximately  $360,000.  After receipt of the net cash flow from
operations  of  approximately  $706,000  and the  payment  of  distributions  of
approximately  $693,000,  the Partnership had approximately $374,000 in cash and
temporary  investments  at March 31, 1997.  The first  quarter  distribution  of
$678,000  ($.22 per BUC) was paid to BUC$holders in May 1997 from cash flow from
operations.  Interest  payments from FMBs are anticipated to provide  sufficient
liquidity to fund in future years the Partnership's operating expenditures, debt
service and distributions.  The restructuring of the FMBs in prior years and any
future   restructurings   may  result  in  the  General  Partners  reducing  the
distributions to BUC$holders in future periods.

     Effective  January 1, 1997,  a  forbearance  agreement  with respect to the
Players Club FMB was  modified  and  extended  due to a  continuous  weak rental
market and to ensure that real estate tax payments and capital  improvements are
made.  The minimum  pay rate for Players  Club was reduced to 6.5% and 6.25% for
the  periods  January 1, 1997  through  January  31,  1997 and  February 1, 1997
through  December 31, 1997,  respectively.  Thereafter,  it is expected that the
stated rate of 8% will be reinstated.

     For a discussion of the proposed settlement of the Class Action relating to
the Partnership, see Note 4 to the financial statements.

     Management  is  not  aware  of  any  trends  or  events,   commitments   or
uncertainties,  which have not otherwise  been disclosed that will or are likely
to impact liquidity in a material way. The Partnership's investments in FMBs are
secured  by a  Partnership  interest  in  properties  which are  diversified  by
location so that if one area of the  country is  experiencing  downturns  in the
economy,  the remaining  properties may be experiencing  upswings.  However, the
geographic  diversification  of the portfolio may not protect  against a general
downturn in the national economy.

Results of Operations

     Net income increased  approximately $6,000 for the three months ended March
31,  1997  as  compared  to the  corresponding  period  in 1996  for the  reason
discussed below.

     Interest  income  from FMBs  increased  approximately  $6,000 for the three
months ended March 31,  1997,  as compared to the  corresponding  period in 1996
primarily due to increased debt service payments  received from the Orchard Mill
(including the receipt of deferred base interest  relating to prior periods) and
Sunset  Creek  FMBs,  partially  offest by a decrease in debt  service  payments
received from the Player's Club FMB.

General

     The  determination  as to  whether  it is  in  the  best  interest  of  the
Partnership to enter into forbearance  agreements on the FMBs or, alternatively,
to pursue its remedies under the loan documents, including foreclosure, is based
upon several factors including, but not limited to, property performance,  owner
cooperation and projected legal costs.


                                       11
<PAGE>


     From time to time,  certain  property owners have elected to supplement the
cash  flow  generated  by the  properties  to meet  the  required  FMB  interest
payments.  There can be no assurance  that in the future any property owner will
elect to supplement property cash flow to satisfy bond interest requirements, if
necessary. No property owner made supplementary payments during the three months
ended March 31, 1997 and 1996.

Property Information

The following table lists the FMBs the Partnership  owns together with occupancy
rates of the underlying properties as of March 31, 1997:

<TABLE>
<CAPTION>
                                                                                                      Annualized
                                                                                                       Interest           Minimum
                                                                                                       Rate Paid          Annual
                                                                                                     for the three       Pay Rate
                                                                                      Stated          months ended          at
                                                                                      Interest          March 31,        March 31,
Property                                    Face Amount          Occupancy             Rate*              1997*            1997*
--------                                    -----------          ---------             -----          ------------       ---------
<S>                                        <C>                      <C>                <C>                <C>              <C>  
Player's Club, Fort Myers, FL (A)          $  7,200,000             82.0%              8.00%              6.42%            6.25%
Lakepointe, Stone Mountain, GA               15,100,000             89.7               8.50               6.00             6.00
Sunset Village, Lancaster, CA                11,375,000             95.0               8.50               4.01              (B)
Sunset Creek, Lancaster, CA                   8,275,000             93.0               8.50               4.40              (B)
Orchard Mill, Atlanta, GA                    10,500,000             96.0               9.00               7.53(C)          5.00
                                           ------------
                                           $ 52,450,000
                                           ============
</TABLE>

*The  annualized  interest  rate paid  represents  the interest  recorded by the
Partnership while the stated interest rate represents the coupon rate of the FMB
and the minimum annual pay rate  represents the minimum rate required to be paid
under the respective forbearance agreements.

(A)  Summit Tax Exempt  L.P.  II, of which the general  partners  are either the
     same or affiliates of the General Partners of the Partnership, acquired the
     other $2,500,000 of the Player's Club Bond issue.

(B)  Interest on this FMB is paid to the extent of the property's net cash flow.

(C)  Includes receipt of deferred base interest related to prior periods.


                                       12
<PAGE>


                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings - Incorporated by reference to Note 4 to the financial
statements  filed  herewith  in Item 1 of Part 1 of the  Registrant's  Quarterly
Report.

Item 2. Changes in Securities - None

Item 3. Defaults Upon Senior Securities - None

Item 4. Submission of Matters to a Vote of Security Holders - None

Item 5. Other Information

     Thomas F. Lynch, III ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director of Prudential-Bache  Properties,
Inc.  effective May 2, 1997.  Effective May 2, 1997, Brian J. Martin was elected
President,  Chief  Executive  Officer,  Chairman of the Board of  Directors  and
Director of Prudential-Bache Properties, Inc.

Item 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits:

       4(a)   Partnership  Agreement,  incorporated by reference to Exhibit A to
              the  Prospectus  of  Registrant,  dated  February 25, 1987,  filed
              pursuant to Rule 424(b) under the Securities Act of 1933, File No.
              33-13184.

       4(b)   Certificate of Limited Partnership is incorporated by reference to
              Exhibit 4 to the  Registration  Statement  on Form S-11,  File No.
              33-13184.

       10(n)  Amended  Forbearance Agreement for the Players Club First Mortgage
              Bond dated December 1, 1996 (filed herewith).

       27     Financial Data Schedule (filed herewith).

     (b)  Reports on Form 8-K

     Current  report on Form 8-K dated  December 31, 1996,  was filed on January
10, 1997 relating to a preliminary approval order with respect to the settlement
of class action litigation.


                                       13
<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.

                           SUMMIT TAX EXEMPT L.P. III

                               By:  Related Tax Exempt Associates III, Inc.
                                    A Delaware corporation, General Partner

Date:   May 14, 1997                By: /s/Alan P. Hirmes
                                       ----------------------------------
                                       Alan P. Hirmes
                                       Vice President
                                       (Principal Financial Officer)

Date:   May 14, 1997                By: /s/Richard A. Palermo
                                       ----------------------------------
                                       Richard A. Palermo
                                       Treasurer
                                       (Principal Accounting Officer)

                               By:  Prudential-Bache Properties, Inc.
                                    A Delaware corporation, General Partner

Date:   May 14, 1997                By:/s/Eugene D. Burak
                                       ----------------------------------
                                        Eugene D. Burak
                                        Vice President


                                       14