UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

              [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: 0-13157


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)

                California                                33-0023868
      (State or other jurisdiction of                  (I.R.S. Employer
      incorporation or organization)                  Identification No.)

   400 South El Camino Real, Suite 1100
           San Mateo, California                            94402-1708
 (Address of principal executive offices)                   (Zip Code)

                                 (415) 343-9300
                         (Registrant's telephone number)

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 __

          Total number of units outstanding as of June 30, 1997: 37,473




                                  Page 1 of 11
<PAGE>






PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements
<TABLE>

                                              RANCON REALTY FUND III,
                                         A CALIFORNIA LIMITED PARTNERSHIP

                                                  Balance Sheets
                                     (in thousands, except units outstanding)
                                                    (Unaudited)
<CAPTION>

                                                             June 30,                  December 31,
                                                               1997                       1996
<S>                                                       <C>                         <C>           

Assets
Investments in real estate:
   Rental property held for sale                          $          800              $          800
   Land held for sale                                              3,124                       3,367
                                                          --------------              --------------
    Total real estate investments                                  3,924                       4,167

Cash and cash equivalents                                          1,113                       1,061
Deferred financing costs and other fees,
   net of accumulated amortization of $20
   and $83 at June 30, 1997 and
   December 31, 1996, respectively                                    11                          13
   Other assets                                                       15                           3
                                                          ---------------             --------------

           Total assets                                   $        5,063              $        5,244
                                                          ==============              ==============

Liabilities and Partners' Equity (Deficit)
Liabilities:
    Accounts payable and accrued expenses                 $           24              $           43
    Other liabilities                                                 10                           9
                                                          --------------              --------------

       Total liabilities                                              34                          52
                                                          --------------              --------------

Partners' equity (deficit):
    General Partners                                                (271)                       (268)
    Limited Partners, 37,473 limited
       partnership units outstanding                               5,300                       5,460
                                                          --------------              --------------

           Total partners' equity                                  5,029                       5,192
                                                          --------------              --------------

              Total liabilities and partners' equity      $        5,063              $        5,244
                                                          ==============              ==============
</TABLE>


                 See accompanying notes to financial statements.




                                  Page 2 of 11
<PAGE>




                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            Statements of Operations
          (in thousands, except units outstanding and per unit amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                           Three months ended                       Six months ended
                                                                 June 30,                                June 30,
                                                         1997              1996                  1997              1996
                                                    ---------          ---------              ---------        ----------
<S>                                                 <C>                <C>                    <C>              <C>       
Revenues:
 Rental income                                      $       32         $       34             $      67        $       84
 Interest and other income                                  11                  2                    24                 5
 Gain (loss) on sales of land                              (17)               623                   (17)              623
 Gain on guarantee settlement                              ---                ---                   ---               117
                                                    ----------         ----------             ---------        ----------

        Total revenues                                      26                659                    74               829
                                                    ----------         ----------             ---------        ----------

Expenses:
 Operating                                                  23                 23                    45                43
 Expenses associated with undeveloped land                  19                 88                    28               123
 Interest expense                                          ---                 30                   ---                51
 Depreciation and amortization                               1                 13                     3                29
 General and administrative                                 82                107                   161               217
                                                    ----------         ----------             ---------        ----------

        Total expenses                                     125                261                   237               463
                                                    ----------         ----------             ---------        ----------

Net income (loss)                                   $      (99)        $      398             $    (163)       $      366
                                                    ----------         ----------             ---------        ----------

Net income (loss) per limited partnership unit      $  (2.59)          $    10.41            $    (4.27)       $     9.57
                                                     ========         ===========             =========          ========

Weighted average number of limited  partnership
 units  outstanding  during each period used
 to compute net income (loss) per limited
 partnership unit                                       37,473             37,484                37,473            37,486
                                                    ==========         ==========             =========        ==========


</TABLE>



                 See accompanying notes to financial statements.


                                  Page 3 of 11
<PAGE>



                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                    Statements of Partners' Equity (Deficit)
                 For the six months ended June 30, 1997 and 1996
                                 (in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>



                                                             General               Limited
                                                             Partners              Partners             Total
<S>                                                       <C>                   <C>                 <C>           

Balance at December 31, 1996                              $        (268)        $      5,460        $       5,192

Net loss                                                             (3)                (160)                (163)
                                                          --------------        -------------       --------------

Balance at June 30, 1997                                  $        (271)        $      5,300        $       5,029
                                                          ==============        ============        =============



Balance at December 31, 1995                              $        (264)        $      5,632        $       5,368

Net income                                                            7                  359                  366
                                                          -------------         ------------         -------------

Balance at June 30, 1996                                  $        (257)        $      5,991        $       5,734
                                                          =============         ============        =============


</TABLE>







                 See accompanying notes to financial statements.

                                  Page 4 of 11
<PAGE>



                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            Statements of Cash Flows
                                 (in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                        Six months ended
                                                                                             June 30,
                                                                                      1997               1996
                                                                               -------------        ----------- 
<S>                                                                            <C>                  <C>         
Cash flows from operating activities:
  Net income (loss)                                                            $       (163)        $       366
Adjustments to reconcile net income (loss) to net cash
  used for operating activities:
    Gain on guarantee settlement                                                        ---                (117)
    (Gain) loss on sales of land                                                         17                (623)
    Depreciation and amortization                                                         3                  29
    Amortization of loan fees, included in interest expense                             ---                  23
Changes in certain assets and liabilities:
    Deferred financing costs and other fees                                              (1)                (22)
    Other assets                                                                        (12)                 ---
    Accounts payable and accrued expenses                                               (19)               (161)
    Payment of guarantee settlement                                                     ---                (183)
    Other liabilities                                                                     1                  (6)
                                                                               ------------         -----------

       Net cash used for operating activities                                          (174)               (694)
                                                                               ------------         -----------

Cash flows from investing activities:
    Net proceeds from sales of land                                                     237               1,986
    Additions to real estate investments                                                (11)                 (1)
                                                                               -------------        -----------

       Net cash provided by investing activities                                        226               1,985
                                                                               ------------         -----------

Cash flows from financing activities:
    Borrowings on note payable                                                          ---                  60
    Note payable principal payments                                                     ---                (560)
                                                                               ------------         -----------

       Net cash used for financing activities                                           ---                (500)
                                                                               ------------         ------------

Net increase in cash and cash equivalents                                                52                 791

Cash and cash equivalents at beginning of period                                      1,061                 459
                                                                               ------------         -----------

Cash and cash equivalents at end of period                                     $      1,113         $     1,250
                                                                               ============         ===========

Supplemental disclosure of cash flow information:
  Cash paid for interest                                                       $        ---         $        28
                                                                               ============         ===========
</TABLE>

                 See accompanying notes to financial statements.



                                  Page 5 of 11
<PAGE>





                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          Notes to Financial Statements

                                  June 30, 1997
                                   (Unaudited)


Note 1.           THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES

In the opinion of Rancon Financial  Corporation  (RFC) and Daniel Lee Stephenson
(the Sponsors) and Glenborough Corporation (successor by merger with Glenborough
Inland Realty  Corporation),  the accompanying  unaudited  financial  statements
contain all  adjustments  (consisting  of only  normal  accruals)  necessary  to
present  fairly the  financial  position of Rancon Realty Fund III, A California
Limited Partnership (the Partnership) as of June 30, 1997 and December 31, 1996,
and the related statements of operations for the three and six months ended June
30, 1997 and 1996, and the changes in partners'  equity (deficit) and cash flows
for the six months ended June 30, 1997 and 1996.

Allocations of profits,  losses and cash  distributions from operations and cash
distributions  from sales or  refinancing  are made pursuant to the terms of the
Partnership  Agreement which generally allocates 98% to the limited partners and
2% to the general partners.

On February 12, 1997, the general partners adopted a plan of orderly liquidation
of the  Partnership's  assets.  Accordingly,  all investments in real estate are
currently  being marketed for sale, are classified as property and land held for
sale on the  accompanying  balance sheets and are recorded at the estimated fair
value of the respective  asset.  The carrying  value of the  investments in real
estate does not purport to represent  the ultimate  sales price the  Partnership
will realize from the disposition of these assets nor are the amounts  reflected
in the  accompanying  financial  statements  intended to represent  the ultimate
amount to be distributed to partners.

In December,  1994, RFC entered into an agreement with  Glenborough  Corporation
(Glenborough) whereby RFC sold to Glenborough the contract to perform the rights
and  responsibilities  under  RFC's  agreement  with the  Partnership  and other
related  Partnerships  (collectively,  the  Rancon  Partnerships)  to perform or
contract on the  Partnership's  behalf financial,  accounting,  data processing,
marketing,  legal,  investor  relations,  asset and  development  management and
consulting  services for the  Partnership for a period of ten years or until the
liquidation  of  the  Partnership,  whichever  comes  first.  According  to  the
contract,  the Partnership will pay Glenborough for its services as follows: (i)
a specified asset  administration  fee,  currently  $239,000 per year,  which is
fixed for five years  subject to  reduction  in the year  following  the sale of
assets;  (ii) sales fees of 2% for improved  properties and 4% for land; (iii) a
refinancing fee of 1% and (iv) a management fee of 5% of gross rental  receipts.
As part of this agreement, Glenborough will perform certain responsibilities for
the general  partners of the Rancon  Partnerships.  RFC has agreed to  cooperate
with Glenborough,  should  Glenborough  attempt to obtain a majority vote of the
limited   partners  to   substitute   itself  as  the  Sponsor  for  the  Rancon
Partnerships.  This agreement was effective January 1, 1995.  Glenborough is not
an affiliate of RFC.


                                  Page 6 of 11
<PAGE>

                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          Notes to Financial Statements

                                  June 30, 1997
                                   (Unaudited)


Basis of Accounting - The accompanying  financial  statements have been prepared
on the  accrual  basis of  accounting  in  accordance  with  generally  accepted
accounting  principles  under the presumption that the Partnership will continue
as a going  concern.  As discussed  above,  on February  12,  1997,  the general
partners  adopted a plan of orderly  liquidation  of the  Partnership's  assets.
However,  the  liquidation  proceeds  and the timing  thereof are not  currently
estimable.  Once  such  liquidation  proceeds  and the  cost and  timing  of the
liquidation become determinable,  the Partnership will commence reporting on the
liquidation  basis of accounting  whereby  remaining assets will be presented at
the estimated realizable value and remaining liabilities,  including a provision
for the  estimated  costs  of the  plan,  will  be  presented  at the  estimated
settlement  value.  Accordingly,  the accompanying  financial  statements do not
provide  for any  adjustments  relating  to the  aforementioned  plan of orderly
liquidation.

Reclassification  - Certain 1996 balances have been reclassified to conform with
the current period presentation.

Note 2.           REFERENCE TO 1996 AUDITED FINANCIAL STATEMENTS
                  ----------------------------------------------

These  unaudited  financial  statements  should be read in conjunction  with the
Notes  to  Financial  Statements  included  in the  December  31,  1996  audited
financial statements.

Note  3.          DISPOSITION OF PROPERTY

On June  26,  1997,  the  Partnership  sold  one  acre of the  Rancho  Cucamonga
unimproved  land for $265,000.  The loss on sale after closing costs was $17,000
and is included in the Partnership's 1997 statement of operations.  The net cash
proceeds of $237,000 were added to the cash reserves of the Partnership.





                                  Page 7 of 11
<PAGE>




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

LIQUIDITY AND CAPITAL RESOURCES

As of June 30,  1997,  Rancon  Realty  Fund III  (the  Partnership)  had cash of
$1,113,000.  The remainder of the Partnership's  assets consist primarily of its
investments in real estate, which totaled $3,924,000 as of June 30, 1997.

On February 12, 1997, the general partners adopted a plan of orderly liquidation
of the  Partnership's  assets.  Accordingly,  all investments in real estate are
currently  being marketed for sale, are classified as property and land held for
sale on the  accompanying  balance sheets and are recorded at the estimated fair
value of the respective  asset.  The carrying  value of the  investments in real
estate does not purport to represent  the ultimate  sales price the  Partnership
will realize from the disposition of these assets nor are the amounts  reflected
in the  accompanying  financial  statements  intended to represent  the ultimate
amount to be distributed to partners.

One acre of Rancho  Cucamonga  land was sold on June 26, 1997, for a sales price
of $265,000.  The loss on sale after closing  costs of $28,000 was $17,000.  The
net  cash  proceeds  of  $237,000  were  added  to  the  cash  reserves  of  the
Partnership.

As of June 30, 1997, the  Partnership  owns a 17,750 square foot office building
(Civic Center II) and approximately 15.7 acres of land. The Partnership's assets
are located within the Inland Empire, a sub-market of Southern  California,  and
have been directly affected by the economic  weakness of the region.  Management
believes,  however,  that while  prices have not  increased  significantly,  the
Southern California real estate market appears to be improving.

The  Partnership's  primary  source of funds include  property  sales,  property
operations,  and interest  income earned on cash  balances.  Funds from property
operations  consist of cash generated from rental activities  reduced by related
rental  expenses  and costs  associated  with  acquiring  tenants.  The net cash
generated by property  operations as well as the Partnership's cash reserves and
interest  income  thereon  have  been  used  to  pay  expenses  related  to  the
Partnership's administrative operations.

Management  believes that the  Partnership's  available  cash together with cash
generated  from  operations  prior to sale of the  real  estate  assets  and net
proceeds upon sales will be sufficient to finance the cash  requirements  of the
Partnership until an orderly liquidation is completed.

RESULTS OF OPERATIONS

Rental income decreased during the six months ended June 30, 1997 by $17,000, or
20%,  compared to the same period in 1996,  primarily  due to the loss of income
generated  by a tenant who  vacated a 5,074  square  foot space upon their lease
expiration in March 1996. Management is actively marketing the space for lease
and has begun preliminary  negotiations with a prospective tenant to lease the 
5,074 square foot vacant space.


                                  Page 8 of 11
<PAGE>

Interest and other income increased by $9,000 and $19,000, respectively,  during
the three and six  months  ended  June 30,  1997  compared  to the three and six
months ended June 30, 1996,  as a result of a higher  invested cash balance from
the June 1996 sale of 33 acres of unimproved land.

The $17,000 loss on the sale of land included in the Partnership's June 30, 1997
statement  of  operations  resulted  from  the  sale of one  acre of the  Rancho
Cucamonga unimproved land for $265,000.

The gain of $623,000  included in the  Partnership's  June 30, 1996 statement of
operations  resulted  from the sale of 33 acres of Rancho  Cucamonga  unimproved
land for $2,166,000.

The $117,000 gain on guarantee  settlement  reflected in the Partnership's  June
30, 1996  statement  of  operations  is the result of a $300,000  provision  for
guarantee that was established in 1993 and settled in 1996 for $183,000.

During the three and six months ended June 30, 1997,  expenses  associated  with
undeveloped land decreased by $69,000 and $95,000,  respectively,  when compared
to the three and six months ended June 30, 1996,  as a result of lower  property
tax expenses due to the sale of land in 1996,  property tax refunds received and
recorded in 1997, and reduced property taxes resulting from successful  property
tax appeals on certain land parcels, net of tax appeal fees.

Interest  expense  decreased  by $30,000 and $51,000,  respectively,  during the
three and six months  ended June 30, 1997  compared to the same periods in 1996,
due to the pay-off of a $560,000 note payable in June 1996.

Due to the cessation of depreciation on the rental property held for sale, Civic
Center II, depreciation decreased by $12,000 and $26,000,  respectively,  during
the three and six months  ended June 30,  1997  compared  to the same  period in
1996.  The  $3,000  of  expense  during  the six  months  ended  June 30,  1997,
represents  amortization of lease  commissions and depreciation of furniture and
equipment.

General and  administrative  expense  decreased  during the three and six months
ended June 30, 1997 by $25,000 and $56,000,  respectively,  compared to the same
periods in 1996, as a result of lower legal fees due to the 1996  settlement,  a
reduction in asset  management fee  attributable to the sale of land in 1996 and
one-time tax fees paid in 1996,  associated with the Partnership's various state
tax filings status.




                                  Page 9 of 11
<PAGE>




Part II. OTHER INFORMATION


Item 1.  Legal Proceedings

                  None

Item 2.  Changes in Securities

                  Not applicable.

Item 3.  Defaults Upon Senior Securities

                  Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders

                  None.

Item 5.  Other Information

                  None.

Item 6.  Exhibits and Reports on Form 8-K

                  (a) Exhibits:

                  #27 - Financial Data Schedule

                  (b) Reports on Form 8-K:

                  None.




                                 Page 10 of 11
<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.


                             RANCON REALTY FUND III,
                             A CALIFORNIA LIMITED PARTNERSHIP
                            (Registrant)


Date:  August 14, 1997        By: /s/ Daniel L.Stephenson
                                 ------------------------
                               Daniel L. Stephenson
                               General Partner and Director, President, Chief
                               Executive Officer and Chief Financial Officer of
                               Rancon Financial Corporation, General Partner of
                               Rancon Realty Fund III, a California Limited
                               Partnership

                                 Page 11 of 11
<PAGE>