FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                For the quarterly period ended September 30, 1996

                                       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 September 30, 1996: 37,483




                                  Page 1 of 15

<PAGE>



PART I.           FINANCIAL INFORMATION

Item 1.  Financial Statements
<TABLE>
<CAPTION>

                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                                 Balance Sheets
                    (in thousands, except units outstanding)
                                   (Unaudited)

                                                                      September
30,               December 31,
                                                                          1996 
                      1995
Assets
<S>                                                                  <C>       
                 <C>
Real estate investments:
   Rental  property,  net of  accumulated
     depreciation  of  $592  and  $557  at
     September 30, 1996 and December 31, 1995,
     respectively                                                    $       
1,117              $        1,152
Land held for development                                                    
3,209                       3,186
Land held for sale                                                             
154                       1,514
                                                                    
--------------              --------------
      Total real estate investments                                          
4,480                       5,852

Cash and cash equivalents                                                    
1,165                         459
Accounts receivable, net                                                       
  1                           5
Deferred financing costs and other fees,
   net of accumulated  amortization of $82
   and $53 at September 30, 1996 and
   December 31, 1995, respectively                                             
 15                          44
Other assets                                                                   
  3                           2
                                                                    
--------------              --------------

           Total assets                                              $       
5,664              $        6,362
                                                                    
==============              ==============
</TABLE>















                                  - continued -

                                  Page 2 of 15

<PAGE>

<TABLE>
<CAPTION>


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                           Balance Sheets - continued
                    (in thousands, except units outstanding)
                                   (Unaudited)

                                                                      September
30,              December 31,
                                                                         1996  
                     1995

<S>                                                                  <C>       
                 <C>
Liabilities and Partners' Equity (Deficit)
Liabilities:
    Accounts payable and accrued expenses                            $         
 37              $          194
    Note payable                                                               
---                         500
    Accrued guarantee settlement costs                                         
---                         300
                                                                    
--------------              --------------

       Total liabilities                                                       
 37                         994
                                                                    
--------------              --------------



Partners' equity (Deficit):
    General Partner                                                           
(259)                       (264)
    Limited Partners, 37,483 and
       37,489 limited partnership units
       outstanding at September 30, 1996
       and December 31, 1995, respectively                                   
5,886                       5,632
                                                                    
--------------              --------------

           Total partners' equity                                            
5,627                       5,368
                                                                    
--------------              --------------

              Total liabilities and partners' equity                 $       
5,664              $        6,362
                                                                    
==============              ==============
</TABLE>















                 See accompanying notes to financial statements.

                                  Page 3 of 15

<PAGE>

<TABLE>
<CAPTION>


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            Statements of Operations
                     (in thousands, except per unit amounts)
                                   (Unaudited)

                                                                      Three
Months Ended                       Nine Months Ended
                                                                        
September 30,                            September 30,
                                                                 
---------------------------                --------------------
                                                                 1996          
    1995                 1996              1995
                                                             -----------       
-----------          ------------       -------
Revenues:
<S>                                                        <C>               
<C>                   <C>               <C>
    Rental income                                          $         35       $
        45          $        119      $        209
    Gain on sales of property                                       ---        
        25                   623                26
    Gain on foreclosure                                             ---        
       ---                   ---               760
    Interest and other income                                        14        
         4                    19                13
                                                           ------------      
------------          ------------      ------------

          Total revenues                                             49        
        74                   761             1,008
                                                           ------------      
------------          ------------      ------------

Expenses:
    Operating                                                        23        
        28                    66               110
    Expenses associated with undeveloped land                        47        
       (14)                  170                63
    Provision for impairment of investments in
      real estate                                                   ---        
       ---                   ---             7,725
    Interest                                                        ---        
         4                    51                93
    Depreciation and amortization                                    12        
        13                    41                83
    General and administative                                        74        
       137                   291               364
                                                           ------------      
------------          ------------      ------------

          Total expenses                                            156        
       168                   619             8,438
                                                           ------------      
------------          ------------      ------------

Income (loss) before extraordinary item                            (107)       
       (94)                  142            (7,430)
                                                           ------------      
------------          ------------      ------------

Extraordinary gain:
    Guarantee settlement                                            ---        
       ---                   117               ---
                                                           ------------      
------------          ------------      ------------

Net income (loss)                                          $       (107)      $
       (94)         $        259      $     (7,430)
                                                           ============      
============          ============      ============

Net income (loss) per limited partnership
 unit                                                      $      (2.80)      $
     (2.46)         $       6.77      $    (194.24)
                                                           ============      
============          ============      ============

Weighted average number of limited
    partnership units outstanding during
    the period used to compute net
    income (loss) per limited partnership unit                   37,482        
    37,489                37,485            37,489
                                                           ============      
============          ============      ============

</TABLE>



                 See accompanying notes to financial statements.

                                  Page 4 of 15

<PAGE>
<TABLE>
<CAPTION>



                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                    Statements of Partners' Equity (Deficit)
                                 (in thousands)

              For the nine months ended September 30, 1996 and 1995
                                   (Unaudited)




                                                             General           
   Limited
                                                             Partner           
   Partners             Total


<S>                                                       <C>                  
<C>                 <C>
Balance at December 31, 1995                              $        (264)       
$      5,632        $       5,368

Net income                                                            5        
         254                  259
                                                          -------------        
------------        -------------

Balance at September 30, 1996                             $        (259)       
$      5,886        $       5,627
                                                          =============        
============        =============



Balance at December 31, 1994                              $        (112)       
$     13,093        $      12,981

Net loss                                                           (148)       
      (7,282)              (7,430)
                                                          --------------       
------------        --------------

Balance at September 30, 1995                             $        (260)       
$      5,811        $       5,551
                                                          =============        
============        =============

</TABLE>

















                 See accompanying notes to financial statements.

                                  Page 5 of 15

<PAGE>
<TABLE>
<CAPTION>



                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                     Statements of Cash Flows (in thousands)
                                   (Unaudited)
                                                                               
           Nine months ended
                                                                               
             September 30,
                                                                               
       1996                1995
Cash flows from operating activities:
<S>                                                                           
<C>                  <C>
  Net income (loss)                                                           
$        259         $    (7,430)
Adjustments to reconcile net income (loss) to
 net cash used for operating activities:
    Gain on sales of property                                                  
       (623)                (26)
    Gain on foreclosure                                                        
        ---                (760)
    Provision for impairment of investments
       in real estate                                                          
        ---               7,725
    Gain on guarantee settlement                                               
       (117)                ---
    Depreciation and amortization                                              
         41                  83
    Amortization of loan fees, included in interest expense                    
         23                   4
Changes in certain assets and liabilities:
    Accounts receivable                                                        
          4                  30
    Other assets                                                               
         (1)                (16)
    Accounts payable and accrued expenses                                      
       (157)                119
    Payment of guarantee settlement                                            
       (183)                ---
    Other liabilities                                                          
        ---                 (30)
                                                                              
------------         -----------

       Net cash used for operating activities                                  
       (754)               (301)
                                                                              
------------         -----------

Cash flows from investing activities:
    Payments received on notes receivable                                      
        ---                  93
    Net proceeds from sale of land                                             
      1,986                 420
    Additions to real estate investments                                       
        (26)                (34)
                                                                              
------------         -----------

       Net cash provided by investing activities                               
      1,960                 479
                                                                              
------------         -----------

Cash flows from financing activities:
    Proceeds from notes payable                                                
         60                 ---
    Note payable principal payments                                            
       (560)                ---
                                                                              
------------         -----------

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

Net increase in cash                                                           
        706                 178

Cash and cash equivalents at beginning of period                               
        459                  66
                                                                              
------------         -----------

Cash and cash equivalents at end of period                                    
$      1,165         $       244
                                                                              
============         ===========

Supplemental disclosure of cash flow information:
  Cash paid for interest                                                      
$         28         $        26
                                                                              
============         ===========
</TABLE>
                 See accompanying notes to financial statements.

                                  Page 6 of 15

<PAGE>




Note 1.           THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES

In the opinion of Rancon  Financial  Corporation  and Daniel Lee Stephenson (the
Sponsors) and 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 September 30,
1996 and December 31, 1995,  and the related  statements of  operations  for the
three and nine months  ended  September  30,  1996 and 1995,  and the changes in
partners' equity and cash flows for the nine months ended September 30, 1996 and
1995.

Effective  with the year ended December 31, 1995,  the  Partnership's  reporting
year end changed from September 30 to December 31.

During  1996,  six  limited  partnership  units  were  abandoned  as a result of
partners  desiring to no longer receive  Partnership  K-1's and to give them the
ability to write-off  investments  for income tax purposes.  As of September 30,
1996 units issued and outstanding were 37,483.

Allocations of profits,  losses and cash  distributions from operations and cash
distributions  from sales or refinancings  are made pursuant to the terms of the
Partnership Agreement.

In December,  1994, RFC entered into an agreement with Glenborough Inland Realty
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 for 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 $271,000 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  Partner 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.

Reclassification  - Certain 1995 balances have been reclassified to conform with
the current period presentation.


                                  Page 7 of 15

<PAGE>


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED Partnership

                          Notes to Financial Statements

                               September 30, 1996
                                   (Unaudited)


Note 2.           REFERENCE TO 1995 AUDITED FINANCIAL STATEMENTS
                  ----------------------------------------------

These  unaudited  financial  statements  should be read in conjunction  with the
Notes to  Financial  Statements  included  in the  September  30,  1995  audited
financial statements.

Note  3.          LAND HELD FOR DEVELOPMENT

On June 15, 1996,  approximately  1 acre of the 6 acres of unimproved  land held
for  development  went into escrow for a sales price of $265,000,  for which the
buyer paid a $5,000  deposit.  The expected close of escrow is December 1996, or
30 days  after the buyer has  approved  all of the  conditions  set forth in the
Agreement Of Purchase And Sale And Joint Escrow Instructions.  The cash proceeds
will be added to the cash reserves of the Partnership.

Note 4.           NOTE RECEIVABLE

During October,  1992, the Partnership began legal  proceedings  against Sumarco
(the buyer of a restaurant sold by the Partnership) on a $38,000 note receivable
that was in default.  The  Partnership  and Sumarco  successfully  negotiated  a
payment schedule and the Partnership received monthly payments for a short-time.
Sumarco  then  defaulted  on its  payments  under  the note and the  Partnership
obtained a default  judgement  and recorded the related  abstracts of judgement.
Based  on the  uncertainty  of  collection  on the  defaulted  note,  management
established  a reserve for the  remaining  balance of $17,000 at  September  30,
1994.  Legal council has since then  determined  the $17,000 note  receivable is
uncollectible,  therefore,  management applied the receivable to the established
reserve on March 31, 1996.

Note 5.           DISPOSITION OF PROPERTY

On June  3,  1996,  the  Partnership  sold  33  acres  of the  Rancho  Cucamonga
unimproved  land held for sale for  $2,166,000.  The gain on sale after  closing
costs of $180,000 was $623,000 and is included as a gain on sales of property on
the  Partnership's  1996  statement  of  operations.  The net cash  proceeds  of
$1,986,000  from the sale were used to pay prior and current  property taxes and
the $560,000 note payable discussed in Note 7, the remaining proceeds were added
to cash reserves.

On March 15, 1995  management  of Civic Center III was turned over to a receiver
for the lender of the $2,149,000  note payable  secured by such  property.  As a
result of  decreased  occupancy  and rental  rates,  the  monthly  debt  service
payments  exceeded the cash generated by the rental  operations of the property.
These  factors,  along  with  the  decline  in  the  property's  value  and  the
unsuccessful attempts to renegotiate the terms of the loan, forced management to
discontinue  the monthly debt service  payments.  In April 1995, the Partnership
was required to turn over to the

                                  Page 8 of 15

<PAGE>


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED Partnership

                          Notes to Financial Statements

                               September 30, 1996
                                   (Unaudited)

receiver  the net cash flow  generated  by Civic Center III from January 1, 1995
through March 15, 1995 of  approximately  $26,000 and on May 23, 1995,  title to
the property passed to the lender.

In 1995, the Partnership recognized a $760,000 gain on the foreclosure primarily
as a result of the fiscal year 1994  write-down  of $620,000 to reduce the value
of the property to its estimated net realizable value at September 30, 1994. The
gain is included on the Partnership's 1995 statement of operations.

On May 30, 1995,  the  Partnership  sold a 3,417 square foot easement of the San
Bernardino unimproved land for $26,000. The gain on sale, after closing costs of
$1,000,  was  $1,000  and is  included  as  gain on  sales  of  property  on the
Partnership's 1995 statement of operations.

On August 24, 1995, the  Partnership  sold 1.43 acres of the 7.43 acre parcel of
unimproved  land in  Rancho  Cucamonga  for  $444,000.  The gain on sale,  after
closing cost of $49,000 was $25,000 and is included in gain on sales of property
on the Partnership's 1995 statement of operations.

Note 6.           ACCRUED GUARANTEE SETTLEMENT COSTS

The  Partnership  agreed to indemnify the Sponsors for any amounts paid under an
agreement  executed  by the  Sponsors  in  1992  guaranteeing  the  payment  and
performance  of a portion  of a  promissory  note to  Imperial  Thrift  and Loan
(Imperial)  which was assumed by Sumarco when they  purchased a restaurant  from
the  Partnership on April 30, 1992. The guarantee of up to a maximum of $600,000
in liability,  was a condition of such assumption.  Sumarco  defaulted under the
terms of the note. Imperial filed a foreclosure action against Sumarco and named
the  Sponsors  as  defendants  for  purposes of  enforcing  the  guarantee.  The
Partnership  felt there were strong points in its favor,  but in the interim had
recorded an estimated  loss on such  guarantee  of $300,000 as of September  30,
1993.

In order to avoid the uncertainties and expense of further litigation,  Imperial
and the Sponsors  entered into a Settlement  Agreement and Release on January 2,
1996.  The Agreeing  Parties  (Imperial and the Sponsors)  acknowledge  that the
settlement  between  them  is  a  compromise   resolution  of  disputed  claims.
Accordingly,  Imperial filed a Request for Dismissal of Case No. RCV 07394,  and
the Sponsors  complied with their  payment of $182,500 on January 16, 1996.  The
Partnership  reimbursed the Sponsors  under its indemnity  agreement and applied
the  estimated  loss of $300,000  recorded at September 30, 1993 to the $182,500
payment and $117,500 to  extraordinary  gain.  Sumarco is not party to this full
and final settlement, and is in no way to be benefited or released by it.




                                  Page 9 of 15

<PAGE>


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED Partnership

                          Notes to Financial Statements

                               September 30, 1996
                                   (Unaudited)

Note 7.           NOTE PAYABLE

On October 4, 1995, the  Partnership  borrowed  $575,000,  from an  unaffiliated
third party,  secured by Civic Center II. $75,000 of the loan proceeds were held
back by the lender to be disbursed for tenant improvements. During 1996, $60,000
was disbursed to the Partnership from the lender holdback. On June 10, 1996, the
Partnership, with the net cash proceeds from the 33 acre land sale, paid-off the
$560,000 note payable plus accrued interest.


                                  Page 10 of 15

<PAGE>



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

LIQUIDITY AND CAPITAL RESOURCES

As of December,  1986, Rancon Realty Fund III (the Partnership) was fully funded
from  the  sale of all  limited  partnership  units  (Units)  in the  amount  of
$37,500,000.  As of September 30, 1996, the  Partnership had cash of $1,165,000.
The remainder of the  Partnership's  assets consist primarily of its investments
in real estate, which totaled $4,480,000 as of September 30, 1996.

The  Partnership's  primary source of funds has consisted of the proceeds of the
sale of its Units.  Other  sources of funds  include  property  sales,  property
operations,  property  financing 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.  Cash expected to be generated by
rental  activities  during 1996 when combined with cash on hand will be adequate
to cover the  Partnership's  remaining  projected  expenditures  for  1996,  and
maintain  cash  reserves.  The  Partnership  will  continue  to  monitor  market
conditions in order to sell its  remaining  properties  for the best  obtainable
price as conditions allow.

The  Partnership's  assets are located within the Inland Empire submarket of the
Southern California region. The Southern California regional economy in general,
and  the  real  estate  industry  in  particular,  are  considered  to  be  in a
recessionary  cycle.  The  Partnership  may receive  both  positive and negative
effects from these current market conditions. Potential negative effects include
the  delinquency  of lease  payments  owed to the  Partnership,  a  decrease  in
competitive  market lease rates and land prices and decreased  occupancy  levels
due to  corporate  downsizing.  The  Partnership  may  benefit  from the current
economic and  financing  conditions  due to the general lack of new  competitive
product being  constructed,  potentially  causing greater absorption of existing
inventory.

In November 1993, the Partnership and Sumarco (the buyer of a restaurant sold by
the Partnership on April 30, 1992) successfully negotiated a payment schedule in
connection  with a delinquent  $38,000  note  receivable,  which  provided for a
reduction  in the  principal  balance  of  approximately  $5,000  provided  that
semi-monthly principal and interest payments of $1,000 are made by Sumarco until
$33,000 in principal has been paid. To show good faith during the  negotiations,
the Partnership received a partial payment in the amount of $5,000 from Sumarco.
Such payment was applied to accrued  interest  receivable,  late charges and the
reimbursement  of a portion of the legal costs  incurred to date  related to the
delinquent  note.  In addition,  upon reaching the final  agreement,  a one-time
payment of $5,000 was also  received.  Subsequent  to the  negotiations  Sumarco
defaulted on its payments  under the note which had a balance of $17,000,  as of
December 31, 1995. The Partnership obtained a default judgement and recorded the
related  abstracts of  judgement.  Legal  council  subsequently  determined  the
$17,000 note receivable was uncollectible and management  applied the receivable
to the established reserve on March 31, 1996.

In  connection  with the sale of the  restaurant  site to Sumarco,  the Sponsors
guaranteed a portion of the payment and  performance of the  promissory  note to
Imperial Thrift and Loan (Imperial)

                                  Page 11 of 15

<PAGE>



which was  assumed  by  Sumarco  and the  Partnership  agreed to  indemnify  the
Sponsors  for any  amounts so paid.  The  guarantee  by the  Sponsors of up to a
maximum  $600,000 in  liability  was a  condition  of such  assumption.  Sumarco
defaulted  under the  terms of the note.  Imperial  filed a  foreclosure  action
against  Sumarco and named the Sponsors as defendants  for purposes of enforcing
the guarantee.  The Partnership felt there were strong points in its favor, but,
recorded a liability  for the  estimated  loss on the guarantee at September 30,
1993 of $300,000.  On January 2, 1996,  Imperial  and the Sponsors  negotiated a
full and final settlement of all claims.  The agreeing Parties (Imperial and the
Sponsors)   acknowledge  that  the  settlement  between  them  is  a  compromise
resolution  of  deputed  claims.  Accordingly,  Imperial  filed  a  Request  for
Dismissal of Case No. RCV 07394, and the Sponsors complied with their payment of
$182,500 on January 16, 1996. The Partnership  reimbursed the Sponsors under its
indemnity  agreement  and applied  the  estimated  loss of $300,000  recorded at
September 30, 1993 to the $182,500 payment and $117,500 to  extraordinary  gain.
Sumarco is not party to this full and final  settlement,  and is in no way to be
benefited or released by it.

On March 15, 1995,  management of Civic Center III was turned over to a receiver
for Mitsui Manufacturers Bank, the lender of the $2,149,000 note payable secured
by such  property.  As a result of decreased  occupancy  and rental  rates,  the
monthly  debt  service  payments  exceeded  the  cash  generated  by the  rental
operations  of the  property.  These  components,  along with the decline in the
property's value and the  unsuccessful  attempts to renegotiate the terms of the
loan,  forced  management to discontinue the monthly debt service  payments.  In
April 1995,  the  Partnership  was required to turn over to the receiver the net
cash flow  generated by Civic Center III from January 1, 1995 through  March 15,
1995 of approximately $26,000 and on May 23, 1995, title to the Civic Center III
property passed to the lender.  The  deed-in-lieu  of foreclosure  reduced total
assets by $1,484,000 and long term obligations by $2,244,000.

The 33 acres of Rancho Cucamonga  unimproved land held for sale closed escrow on
June 3, 1996,  for a sales price of  $2,166,000.  The gain on sale after closing
costs of $180,000 was $623,000.  The net cash  proceeds of  $1,986,000  from the
sale were  used to pay prior and  current  property  taxes and a  $560,000  note
payable, the remaining proceeds were added to cash reserves.

The Partnership currently owns the following properties: Civic Center II (17,750
leasable  commercial  square feet),  approximately 8 acres of unimproved land in
Rancho Cucamonga,  California and approximately 8.92 acres of unimproved land in
San Bernardino, California.

The Partnership's unimproved land in Rancho Cucamonga and San Bernardino will be
held by the Partnership with minimum  development  activity,  in hopes that land
prices will increase in the next few years.

On October 4, 1995, the  Partnership  borrowed  $575,000,  from an  unaffiliated
third party,  secured by Civic Center II. $75,000 of the loan proceeds were held
back by the lender to be disbursed for tenant improvements. During 1996, $60,000
was disbursed to the Partnership from the lender holdback.  On June 10, 1996 the
Partnership, with the net cash proceeds from the 33 acre land sale, paid-off the
$560,000 note payable plus accrued interest.


                                  Page 12 of 15

<PAGE>



RESULTS OF OPERATIONS

As would be expected,  as a result of a foreclosure  on Civic Center III in 1995
(discussed above),  rental income,  operating  expenses,  interest expense,  and
depreciation and  amortization  decreased during the nine months ended September
30, 1996 compared to the same period in 1995.

Expenses  associated with undeveloped land increased $107,000 or 169% during the
nine months ended  September  30, 1996 when compared to the same period in 1995,
as a result of expenses  associated  with the 33 acres of Rancho  Cucamonga land
combined with property tax refunds recorded in 1995.

General and  administrative  expenses  decreased  $73,000 or 20% during the nine
months  ended  September  30,  1996 when  compared  to the same  period in 1995,
primarily as a result of reductions in overhead costs and legal fees.

The 1996  guarantee  settlement  amount of $117,000 is the result of reversing a
portion of an estimated accrual set up at September 30, 1993,  pertaining to the
guarantee of a promissory note to Imperial Thrift, as previously discussed.

                                  Page 13 of 15

<PAGE>



Part II. OTHER INFORMATION


Item 1.  Legal Proceedings

                  Incorporated  by reference to Note 6 of the Notes to Financial
                  Statements included herein.

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 14 of 15

<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: November 13, 1996      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 15 of 15

<PAGE>