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 June 30, 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)


                                                   ============================
                                                      June 30,      December 31,
                                                        1997            1996
                                                   ------------    ------------
ASSETS

Participating first mortgage bonds-at fair value   $ 44,769,792    $ 44,769,792
Temporary investments                                   200,000         300,000
Cash and cash equivalents                               136,826          59,832
Interest receivable, net                                129,358         164,883
Deferred bond selection fees, net                       636,939         667,755
                                                   ------------    ------------

Total assets                                       $ 45,872,915    $ 45,962,262
                                                   ============    ============

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
   Accounts payable and accrued expenses           $    113,514    $    124,106
   Due to affiliates                                    240,154         100,261
                                                   ------------    ------------

Total liabilities                                       353,668         224,367
                                                   ------------    ------------

Contingencies

Partners' capital (deficit):
   BUC$holders (3,081,625 BUC$
     issued and outstanding)                         48,875,621      49,089,896
   General Partners                                    (176,166)       (171,793)
   Net unrealized loss on participating first
     mortgage bonds                                  (3,180,208)     (3,180,208)
                                                   ------------    ------------

Total partners' capital                              45,519,247      45,737,895
                                                   ------------    ------------

Total liabilities and partners' capital            $ 45,872,915    $ 45,962,262
                                                   ============    ============

                                                  
                 See accompanying notes to financial statements

                                       2

<PAGE>


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

<TABLE>
<CAPTION>
                                    =======================   =======================
                                        Three Months Ended         Six Months Ended
                                            June 30,                   June 30,
                                    -----------------------   -----------------------
                                        1997         1996         1997         1996
                                    -----------------------   -----------------------
<S>                                 <C>          <C>          <C>          <C>       
Revenues:

   Interest income:
     Participating first mortgage
       bonds                        $  784,279   $  773,291   $1,489,796   $1,472,708
     Temporary investments               2,225        3,475        4,618        6,789
                                    ----------   ----------   ----------   ----------

     Total revenues                    786,504      776,766    1,494,414    1,479,497
                                    ----------   ----------   ----------   ----------

Expenses:

   General and administrative           56,882       57,206      103,588      103,896
   Loan servicing fees                  32,692       32,692       65,024       65,383
   Amortization of deferred bond
      selection fees                    15,408       15,408       30,816       30,815
                                    ----------   ----------   ----------   ----------

     Total expenses                    104,982      105,306      199,428      200,094
                                    ----------   ----------   ----------   ----------

     Net Income                     $  681,522   $  671,460   $1,294,986   $1,279,403
                                    ==========   ==========   ==========   ==========

Allocation of Net Income:

   BUC$holders                      $  603,816   $  593,955   $1,141,640   $1,125,664
                                    ==========   ==========   ==========   ==========

   General Partners:
     Special distribution           $   65,383   $   65,383   $  130,047   $  130,766
     Other                              12,323       12,122       23,299       22,973
                                    ----------   ----------   ----------   ----------

                                    $   77,706   $   77,505   $  153,346   $  153,739
                                    ==========   ==========   ==========   ==========


Net Income per BUC                  $      .20   $      .19   $      .37   $      .36
                                    ==========   ==========   ==========   ==========
</TABLE>


                 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                         1,294,986       1,141,640         153,346               0
Distributions                     (1,513,634)     (1,355,915)       (157,719)              0
                                ------------    ------------    ------------    ------------
Partners' capital (deficit) -   $ 45,519,247    $ 48,875,621    $   (176,166)   $ (3,180,208)
  June 30, 1997
                                ============    ============    ============    ============
</TABLE>


                 See accompanying notes to financial statements


                                       4

<PAGE>


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

<TABLE>
<CAPTION>
                                                       ==========================
                                                             Six Months Ended
                                                                June 30,
                                                       --------------------------
                                                           1997           1996
                                                       --------------------------
<S>                                                    <C>            <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received, net                                 $ 1,529,939    $ 1,478,413
Fees and expenses paid                                    (104,694)       (82,649)
                                                       -----------    -----------
Net cash provided by operating activities                1,425,245      1,395,764
                                                       -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Net sale (purchase) of temporary investments               100,000       (100,000)
                                                       -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid                                      (1,448,251)    (1,448,969)
                                                       -----------    -----------

Net increase (decrease) in cash and cash equivalents        76,994       (153,205)

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

Cash and cash equivalents at end of period             $   136,826    $   194,703
                                                       ===========    ===========
SCHEDULE RECONCILING NET INCOME TO NET CASH
   FLOW PROVIDED BY OPERATING ACTIVITIES:
Net income                                             $ 1,294,986    $ 1,279,403
                                                       -----------    -----------
Adjustments to reconcile net income to net cash
   provided by operating activities:

Amortization of deferred bond selection fees                30,816         30,815
Changes in:
   Interest receivable, net                                 35,525         (1,084)
   Other assets                                                  0          4,209
   Accounts payable and accrued expenses                   (10,592)        22,463
   Due to affiliates                                        74,510         59,958
                                                       -----------    -----------

Total adjustments                                          130,259        116,361
                                                       -----------    -----------

Net cash provided by operating activities              $ 1,425,245    $ 1,395,764
                                                       ===========    ===========

SUPPLEMENTAL SCHEDULE OF FINANCING ACTIVITIES

Distributions to partners                              $(1,513,634)   $(1,514,352)
Increase in distributions payable                           65,383         65,383
                                                       -----------    -----------

Distributions paid to partners                         $(1,448,251)   $(1,448,969)
                                                       ===========    ===========
</TABLE>

                 See accompanying notes to financial statements

                                       5

<PAGE>



                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 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 June 30, 1997,
the results of its  operations  for the three and six months ended June 30, 1997
and 1996 and its cash  flows for the six months  ended  June 30,  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  continuing  weak rental
market and to ensure that real estate tax payments and certain  capital  repairs
and  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.

     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 FMB  $280,000 to cover the  shortfall on
its 1996 real estate tax payment and to fund a capital improvement  account. The
note is  self-amortizing  beginning July 1, 1997, at an annual  interest rate of
8%, is payable in 48 equal monthly  installments of $6,835.62 and matures on May
1, 2001.


                                       6


<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 1997
                                   (unaudited)


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


     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  $741,000  and $760,000 for the six months ended June 30, 1997 and
1996, respectively.

     The cost basis of the FMBs was  $47,950,000  at June 30, 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 June 30, 1997 and December
31, 1996.


                                       7

<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 1997
                                   (unaudited)

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

Descriptions  of the various FMBs owned by the  Partnership at June 30, 1997 are
as follows:

<TABLE>
<CAPTION>
                                    Annualized
                                   Interest Rate
                                    Paid for the    Minimum
                                    six months      Annual                                                                Carrying
                                      ended       Pay Rate at  Stated                                                     Amount at
                                     June 30,      June 30,   Interest                      Maturity                      June 30,
Property          Location            1997*         1997*       Rate*        Call Date        Date        Face Amount     1997(C)
--------          --------         -------------- ----------  --------       ----------     ---------     -----------   -----------

<S>               <C>                 <C>          <C>          <C>               <C>            <C>      <C>           <C>        
Players Club(A)   Fort Myers, FL      6.37%        6.25%        8.00%        Aug. 1999      Aug. 2007     $ 7,200,000   $ 6,843,428
Lakepointe        Dekalb County, GA   6.00         6.00         8.50         Jan. 2000      Oct. 2007      15,100,000    14,159,707
Sunset Village    Lancaster, CA       4.41          (B)         8.50         Mar. 2000      Mar. 2008      11,375,000     9,085,396
Sunset Creek      Lancaster, CA       4.67          (B)         8.50         Mar. 2000      Mar. 2008       8,275,000     6,004,427
Orchard Mill      Atlanta, GA         7.49(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 Players 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 June 30, 1997.

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



                                       8



<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 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:

<TABLE>
<CAPTION>
                                           Three Months Ended    Six Months Ended
                                                June 30,             June 30,
                                          -------------------   -------------------
                                            1997       1996       1997       1996
                                          -------------------   -------------------
<S>                                       <C>        <C>        <C>        <C>     
PBP and affiliates:
   General and administrative             $ 10,682   $  3,172   $ 21,365   $ 18,284
                                          --------   --------   --------   --------
Related General Partner and affiliates:
   Loan servicing fees                      32,692     32,692     65,024     65,383
   General and administrative               14,000     12,323     20,345     27,323
                                          --------   --------   --------   --------
                                            46,692     45,015     85,369     92,706
                                          --------   --------   --------   --------
                                          $ 57,374   $ 48,187   $106,734   $110,990
                                          ========   ========   ========   ========
</TABLE>

     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 June 30, 1997.

     The Players 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.   Pursuant  to  the  agreement,  the  Related  General  Partner's
affiliate,  who has not made an equity investment in the underlying  properties,
assumed  the  day-to-day  responsibilities  and  obligations  of  operating  the
properties.

NOTE 4 - Contingencies

     Previous quarterly and annual reports by the Partnership have disclosed the
commencement and status of the putative class actions  captioned  Kinnes, et al.
v. Prudential Securities Group, Inc., et al., CV-93-654 (D.Az.),  Connelly,  et.
al v. Prudential-Bache Securities, Inc., et al. 93 Civ. 713 (D. Az.), and Levine
v.  Prudential-Bache  Properties,  Inc., et. al. 92 Civ. 52 (N.D.,  Ill.). These
putative class actions were  transferred  along with certain other cases, by the
Judicial


                                       9

<PAGE>

                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 1997
                                   (unaudited)

NOTE 4 - Contingencies (continued)

     Panel  on  Multidistrict  Panel  to a single  judge  of the  United  States
District  Court  for  the  Southern  District  of New  York  (the  "Court")  for
consolidated  and  coordinated  pre-trial  proceedings  under the  caption In re
Prudential Securities Incorporated Limited Partnerships  Litigation,  MDL Docket
No. 1005 (the "Class  Action").  As previously  disclosed in the last  quarterly
report,  the Related  General  Partner and certain of its affiliates  entered in
December 1996,  into a stipulation of settlement  with counsel for plaintiffs to
settle the Class Action against the Related  General  Partner and certain of its
affiliates (the "Related Settlement").

     On June 11, 1997,  the Court issued orders that,  inter alia,  approved the
solicitation  statement  describing  in  detail  the  transactions  contemplated
pursuant to the proposed  Related  Settlement,  directed that it be mailed along
with the class notice to the members of the class and rescheduled the settlement
fairness  hearing to consider the final  approval of the Related  Settlement for
August 28,  1997.  In  accordance  with the  Court's  orders,  the  solicitation
statement and class notice were mailed to BUC$holders of the Partnership.

     There  can be no  assurance  that  the  conditions  to the  closing  of the
proposed  Related  Settlement  and the  reorganization  of the  Partnership  (as
disclosed  in previous  quarterly  and annual  reports  and in the  solicitation
statement  and class  notice) will be  satisfied  nor as to the time frame as to
which the closing may occur.  In the event that the  Related  Settlement  is not
consummated, the Related General Partner believes it has meritorious defenses to
the Class Action and intends to defend this action vigorously.

NOTE 5 - Subsequent Event

     In August 1997, a distribution  of  approximately  $678,000 and $79,000 was
paid to the  BUC$holders  and General  Partners,  respectively,  for the quarter
ended June 30, 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  $1,425,000  and the payment of  distributions  of
approximately $1,448,000, the Partnership had approximately $337,000 in cash and
temporary  investments  at June 30, 1997.  The second  quarter  distribution  of
$678,000  ($.22 per BUC) was paid to  BUC$holders  in August 1997 from cash flow
from  operations.  Interest  payments  from  FMBs  are  anticipated  to  provide
sufficient  liquidity  to fund  in  future  years  the  Partnership's  operating
expenditures and distributions.  The restructuring of the FMBs in 1997 and prior
years and any future  restructurings may result in the General Partners reducing
the distributions to BUC$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  continuing  weak rental
market and to ensure that real estate tax payments and certain  capital  repairs
and  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.

     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 FMB  $280,000 to cover the  shortfall on
its 1996 real estate tax payment and to fund a capital improvement  account. The
note is  self-amortizing  beginning July 1, 1997, at an annual  interest rate of
8%, is payable in 48 equal monthly  installments of $6,835.62 and matures on May
1, 2001.

     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 $10,000 and $16,000,  respectively,  for
the three and six months  ended June 30, 1997 as compared to 1996 for the reason
discussed below.

     Interest  income from FMBs  increased  approximately  $11,000 and $17,000 ,
respectively,  for the three and six months ended June 30, 1997,  as compared to
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  offset by a decrease in debt service payments
received from the Players Club FMB.


                                       11


<PAGE>



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.

     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 six months
ended June 30,  1996.  In 1997,  the  obligor  under the  Orchard  Mill FMB made
increased  payments from proceeds from a partial sale of his equity interests to
a third party. Such proceeds were used for payment of deferred maintenance items
and toward accrued and unpaid interest due under the FMB.

Property Information

The following table lists the FMBs the Partnership  owns together with occupancy
rates of the underlying properties as of June 30, 1997:

<TABLE>
<CAPTION>
                                                                                           Annualized
                                                                                            Interest            Minimum
                                                                                            Rate Paid            Annual
                                                                                           for the six          Pay Rate
                                                                           Stated          months ended            at
                                                                          Interest           June 30,           June 30,
Property                           Face Amount         Occupancy            Rate*             1997*               1997*
--------                           -----------         ---------            -----          ------------         --------

<S>                              <C>                      <C>               <C>               <C>                 <C>  
Players Club, Fort Myers, FL (A) $   7,200,000            77.7%             8.00%             6.37%               6.25%
Lakepointe, Dekalb County, GA       15,100,000            87.7              8.50              6.00                6.00
Sunset Village, Lancaster, CA       11,375,000            98.0              8.50              4.41                 (B)
Sunset Creek, Lancaster, CA          8,275,000            97.9              8.50              4.67                 (B)
Orchard Mill, Atlanta, GA           10,500,000            97.0              9.00              7.49(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 Players 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.

     Solicitation  information  was mailed to BUC$holders in connection with the
proposed  Related  Settlement  (see  Note 4 to the  financial  statements  filed
herewith in Item 1 of Part I of the Registrant's Quarterly Report).

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  (incorporated by reference to Exhibit
     10(n) in the Registrant's March 31, 1997 Quarterly Report on Form 10-Q).

          27 Financial Data Schedule (filed herewith).

     (b)  Reports on Form 8-K

          No reports on Form 8-K were filed during the quarter.


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<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:  August 13, 1997              By: /s/ Alan P. Hirmes
                                        ------------------
                                        Alan P. Hirmes
                                        Vice President
                                        (Principal Financial Officer)

Date:  August 13, 1997              By: /s/ Richard A. Palermo
                                        ----------------------
                                        Richard A. Palermo
                                        Treasurer
                                        (Principal Accounting Officer)

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

Date:  August 13, 1997              By: /s/ Eugene D. Burak
                                        -------------------
                                        Eugene D. Burak
                                        Vice President


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