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 September 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)

                                 (650) 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, 1997: 37,473





                                  Page 1 of 12
<PAGE>







PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

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

<CAPTION>

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

Assets
Investments in real estate:
   Rental property held for sale                         $          691              $          800
   Land held for sale                                             1,818                       3,367
                                                         --------------              --------------
    Total real estate investments                                 2,509                       4,167

Cash and cash equivalents                                         1,268                       1,061
Deferred financing costs and other fees,
   net of accumulated amortization of $22
   and $83 at September 30, 1997 and
   December 31, 1996, respectively                                    9                          13
Other assets                                                         26                          3
                                                         --------------            ---------------

           Total assets                                  $        3,812              $        5,244
                                                         ==============              ==============

Liabilities and Partners' Equity (Deficit)
Liabilities:
    Accounts payable and accrued expenses                $           40              $           43
    Other liabilities                                                 9                           9
                                                         --------------              --------------

       Total liabilities                                             49                          52
                                                         --------------              --------------

Partners' equity (deficit):
    General Partners                                               (297)                       (268)
    Limited Partners, 37,473 limited
       partnership units outstanding                              4,060                       5,460
                                                         --------------              --------------

           Total partners' equity                                 3,763                       5,192
                                                         --------------              --------------

              Total liabilities and partners' equity     $        3,812              $        5,244
                                                         ==============              ==============
</TABLE>



                 See accompanying notes to financial statements.



                                  Page 2 of 12
<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                         Nine months ended
                                                            September 30,                               September 30,
                                                       1997               1996                    1997               1996
                                                    ----------         ----------             ----------         --------
Revenue:
<S>                                                 <C>                <C>                    <C>              <C>       
 Rental income                                      $       35         $       35             $     102        $      119
 Interest and other income                                  10                 14                    34                19
 Gain on sales of land                                      60                ---                    43               623
 Gain on guarantee settlement                              ---                ---                   ---               117
                                                    ----------         ----------             ---------        ----------

        Total revenue                                      105                 49                   179               878
                                                    ----------         ----------             ---------        ----------

Expenses:
 Operating                                                  18                 23                    63                66
 Expenses associated with undeveloped land                  17                 47                    45               170
 Interest expense                                          ---                ---                   ---                51
 Depreciation and amortization                               1                 12                     4                41
 Provision for impairment of investments
    in real estate                                       1,261                ---                 1,261               ---
 General and administrative                                 74                 74                   235               291
                                                    ----------         ----------             ---------        ----------

        Total expenses                                   1,371                156                 1,608               619
                                                    ----------         ----------             ---------        ----------

Net income (loss)                                   $   (1,266)        $     (107)            $  (1,429)       $      259
                                                    -----------        ----------             ----------       ----------

Net income (loss) per limited partnership unit      $  (33.11)         $   (2.80)             $  (37.36)       $     6.77
                                                    ==========         =========              ==========       ==========

Weighted average number of limited  partnership
 units  outstanding  during each period used
 to compute net income (loss) per limited
 partnership unit                                       37,473             37,482                37,473            37,485
                                                    ==========         ==========             =========        ==========

</TABLE>








                 See accompanying notes to financial statements.



                                  Page 3 of 12
<PAGE>




                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                    Statements of Partners' Equity (Deficit)
              For the nine months ended September 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                                          (29)              (1,400)              (1,429)
                                        --------------        -------------       --------------

Balance at September 30, 1997           $        (297)        $      4,060        $       3,763
                                        ==============        ============        =============



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
                                        =============         ============        =============


</TABLE>








                 See accompanying notes to financial statements.


                                  Page 4 of 12
<PAGE>


                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

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

                                                                           Nine months ended
                                                                            September 30,
                                                                       1997                1996
Cash flows from operating activities:
<S>                                                              <C>                  <C>        
  Net income (loss)                                              $     (1,429)        $       259
Adjustments to reconcile net income (loss) to net cash
  used for operating activities:
    Gain on guarantee settlement                                          ---                (117)
    Gain on sales of land                                                 (43)               (623)
    Depreciation and amortization                                           4                  41
    Amortization of loan fees, included in interest expense               ---                  23
    Provision for impairment of investments in real estate              1,261                 ---
Changes in certain assets and liabilities:
    Other assets                                                          (23)                  3
    Accounts payable and accrued expenses                                  (3)               (157)
    Payment of guarantee settlement                                       ---                (183)
                                                                 ------------         ------------

       Net cash used for operating activities                            (233)               (754)
                                                                 -------------        -----------

Cash flows from investing activities:
    Net proceeds from sales of land                                       451               1,986
    Additions to real estate investments                                  (11)                (26)
                                                                 -------------        -----------

       Net cash provided by investing activities                          440               1,960
                                                                 ------------         -----------

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                                 207                 706

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

Cash and cash equivalents at end of period                       $      1,268         $     1,165
                                                                 ============         ===========

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

                 See accompanying notes to financial statements.



                                  Page 5 of 12
<PAGE>






                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          Notes to Financial Statements

                               September 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 September 30, 1997 and December 31,
1996,  and the related  statements of  operations  for the three and nine months
ended September 30, 1997 and 1996, and the changes in partners' equity (deficit)
and cash flows for the nine months ended September 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 or the Partnership.

                                  Page 6 of 12
<PAGE>



                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          Notes to Financial Statements
                               September 30, 1997
                                   (Unaudited)


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.          INVESTMENTS IN REAL ESTATE

As of  September  30, 1997,  the  Partnership  owns a 17,750  square foot office
building (Civic Center II) and approximately 13.75 acres of unimproved land.

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

On  September  12,  1997,  the  Partnership  sold 1.8 acres of Rancho  Cucamonga
unimproved  land for $241,000.  The gain on sale after closing costs was $60,000
and is included in the accompanying  1997 statement of operations.  The net cash
proceeds of $214,000 were added to the cash reserves of the Partnership.

On August 21, 1997, the  Partnership  entered into a purchase and sale agreement
with an  unaffiliated  third  party  for the  sale of  8.79  acres  of land  for
$1,060,000. The sale is expected to close escrow by November 20, 1997.
The cash proceeds will be added to the cash reserves of the Partnership.

During  September 1997, the Partnership  entered into two separate  purchase and
sales agreements with  unaffiliated  third parties for the sales of Civic Center
II for $750,000 and 4.96 acres of unimproved  land for  $759,500,  respectively.
These  sales  were   completed  on  October  23,  1997  and  November  4,  1997,
respectively.

As of  September  30,  1997,  due to the  potential  sales  price for the rental
property and land under various sales contracts,  management  concluded that the
carrying value of the Partnership's investments in Civic Center II and the 13.75
acres of  unimproved  land were in excess of their  estimated  fair  value and a
provision  for  impairment of the  investment  in the amount of  $1,261,000  was
recorded.




                                  Page 7 of 12
<PAGE>




                             RANCON REALTY FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          Notes to Financial Statements
                               September 30, 1997
                                   (Unaudited)


Note  4.          SUBSEQUENT EVENTS

On October 23, 1997, the Partnership  sold Civic Center II, a 17,750 square foot
office building located at 8280 Utica Avenue in Rancho Cucamonga,  California to
an unrelated  party for $750,000.  The sale proceeds were used to pay settlement
and other closing costs. Approximately,  $683,000 of the net proceeds were added
to the Partnership's reserves.

On November 4, 1997, the  Partnership  sold  approximately  4.96 acres of Rancho
Cucamonga land to an unrelated  party for $759,500.  The sale proceeds were used
to pay  settlement  and other  closing  costs with the balance of  approximately
$770,000 added to the Partnership's cash reserves.

As of the date of filing this Form 10-Q, it is impracticable for the Partnership
to  provide  financial  statements  required  by Item 7(b) (1) of Form  8-K.  In
accordance  with  Item  7(a) (4) of Form  8-K,  the  Partnership  will file such
financial  statements  through a Current  Report  Form 8-K no later than 60 days
after November 14, 1997



                                  Page 8 of 12
<PAGE>




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

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1997,  Rancon Realty Fund III (the  Partnership) had cash of
$1,268,000.  The remainder of the Partnership's  assets consist primarily of its
investments in real estate, which totaled $2,509,000 as of September 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.

On September 12, 1997, the  Partnership  sold 1.8 acres of the Rancho  Cucamonga
land for $241,000.  The gain on sale after  closing  costs was $60,000.  The net
cash proceeds of $214,000 were added to the Partnership's cash reserves.

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  September  30, 1997,  the  Partnership  owns a 17,750  square foot office
building (Civic Center II) and approximately 13.75 acres of land. On October 23,
1997,  Civic  Center  II  sold  for  $750,000,  to  an  unrelated  third  party.
Approximately,  4.96 acres of Rancho Cucamonga land sold on November 4, 1997, to
an unrelated  third party,  for $759,500.  On August 21, 1997,  the  Partnership
entered into a purchase and sale agreement with an unaffiliated  third party for
the sale of 8.79  acres of land for  $1,060,000.  The land sale is  expected  to
close escrow by November 20, 1997;  however,  the sale is subject to a number of
contingencies  and accordingly,  there can be no assurance that the sale will be
completed.

Until the  liquidation of the  Partnership  is completed,  the primary source of
funds will come from property sales and interest income earned on cash balances.
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 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 nine months  ended  September  30, 1997 by
$17,000, or 14%, 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.

                                  Page 9 of 12
<PAGE>


Interest and other income  increased by $15,000,  or 79%, during the nine months
ended  September 30, 1997 compared to nine months ended September 30, 1996, as a
result of a higher  invested cash balance from the June 1996 sale of 33 acres of
unimproved land.

On September 12, 1997, the Partnership  sold 1.8 acres of land for a net gain of
$60,000 and on June 26, 1997, the  Partnership  sold 1.0 acres of land for a net
loss of $17,000  resulting in the $43,000 net gain on sales of land for the nine
months ended September 30, 1997.

The gain of $623,000 included in the Partnership's  September 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
September 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 nine months ended September 30, 1997,  expenses  associated
with  undeveloped  land  decreased by $30,000 and $125,000,  respectively,  when
compared to the three and nine months ended  September  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 $51,000,  or 100%,  during the nine months ended
September 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 $11,000 and $37,000,  respectively,  during
the three and nine months ended  September  30, 1997 compared to the same period
in 1996. The $4,000 of expense during the nine months ended  September 30, 1997,
represents  amortization of lease  commissions and depreciation of furniture and
equipment.

General  and  administrative  expense  decreased  during the nine  months  ended
September 30, 1997 by $56,000, 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 10 of 12
<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:

                  On November 6, 1997, the Partnership filed a Current Report on
                  Form 8-K with respect to the sale of Civic Center II, a 17,750
                  square foot office  building  located at 8280 Utica  Avenue in
                  Rancho Cucamonga, California.



                                 Page 11 of 12
<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, 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 12 of 12
<PAGE>