FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        QUARTERLY OR TRANSITIONAL REPORT
                  (As last amended by 34-32231, eff. 6/3/93.)

                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-QSB

[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

               For the transition period from.........to.........
                         Commission file number 0-10260

                   SHELTER PROPERTIES III LIMITED PARTNERSHIP
       (Exact name of small business issuer as specified in its charter)

         South Carolina                                  57-0718508
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)

One Insignia Financial Plaza, P.O. Box 1089
      Greenville, South Carolina                            29602
(Address of principal executive offices)                  (Zip Code)

                    Issuer's telephone number (864) 239-1000

Check whether the issuer (1) 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      .

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

a)                 SHELTER PROPERTIES III LIMITED PARTNERSHIP

                           CONSOLIDATED BALANCE SHEET
                                  (Unaudited)
                               September 30, 1996


Assets
  Cash:
     Unrestricted                                               $ 1,408,431
     Restricted--tenant security deposits                           139,545
  Accounts receivable                                                22,435
  Escrow for taxes                                                  215,933
  Restricted escrows                                                860,130
  Other assets                                                      288,392
  Investment properties:
     Land                                       $  1,281,294
     Buildings and related personal property      24,027,308
                                                  25,308,602
     Less accumulated depreciation               (13,050,568)    12,258,034
                                                                $15,192,900


Liabilities and Partners' Capital (Deficit)
Liabilities
  Accounts payable                                              $    24,889
  Tenant security deposits                                          138,471
  Accrued taxes                                                     193,612
  Other liabilities                                                 462,747
  Mortgage notes payable                                          8,479,693

Partners' Capital (Deficit)
  General partners                              $    (73,620)
  Limited partners (55,000 units
     issued and outstanding)                       5,967,108      5,893,488

                                                                $15,192,900

          See Accompanying Notes to Consolidated Financial Statements

b)                     SHELTER PROPERTIES III LIMITED PARTNERSHIP

                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (Unaudited)
<TABLE>
<CAPTION>
                                   Three Months Ended            Nine Months Ended
                                      September 30,                September 30,
                                   1996          1995           1996            1995
<S>                           <C>           <C>            <C>             <C>
Revenues:
  Rental income                $1,272,316    $1,177,823     $3,753,365      $3,498,791
  Other income                     92,049        84,587        260,320         244,633
     Total revenues             1,364,365     1,262,410      4,013,685       3,743,424

Expenses:
  Operating                       459,471       428,742      1,366,406       1,291,118
  General & administrative         46,354       129,426        158,432         321,716
  Maintenance                     229,635       307,274        623,119         686,288
  Depreciation                    235,502       218,112        685,689         631,602
  Interest                        194,554       197,670        584,607         593,173
  Property taxes                   99,699        75,355        261,337         221,426
     Total expenses             1,265,215     1,356,579      3,679,590       3,745,323

  Net income (loss)            $   99,150    $  (94,169)    $  334,095      $   (1,899)

Net income (loss) allocated
  to general partners (1%)     $      991    $     (942)    $    3,341      $      (19)
Net income (loss) allocated
  to limited partners (99%)        98,159       (93,227)       330,754          (1,880)
                               $   99,150    $  (94,169)    $  334,095      $   (1,890)
Net income (loss) per
  limited partnership unit     $     1.78    $    (1.69)    $     6.01      $     (.03)
<FN>
           See Accompanying Notes to Consolidated Financial Statements
</TABLE>

c)                      SHELTER PROPERTIES III LIMITED PARTNERSHIP

             CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
                                       (Unaudited)
<TABLE>
<CAPTION>
                                   Limited
                                 Partnership   General        Limited
                                    Units      Partners       Partners         Total
<S>                               <C>        <C>           <C>            <C>
Original capital contributions     55,000     $   2,000     $27,500,000    $27,502,000

Partners' (deficit) capital
  at December 31, 1995             55,000     $ (76,961)    $ 5,886,348    $ 5,809,387

Distributions paid partners                          --        (249,994)      (249,994)

Net income for the nine months
  ended September 30, 1996                        3,341         330,754        334,095

Partners' (deficit) capital
  at September 30, 1996            55,000     $ (73,620)    $ 5,967,108    $ 5,893,488
<FN>
          See Accompanying Notes to Consolidated Financial Statements
</TABLE>

d)                     SHELTER PROPERTIES III LIMITED PARTNERSHIP

                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (Unaudited)
<TABLE>
<CAPTION>
                                                            Nine Months Ended
                                                              September 30
                                                             1996         1995
<S>                                                    <C>           <C>
Cash flows from operating activities:
  Net income (loss)                                     $  334,095    $   (1,899)
  Adjustments to reconcile net income (loss) to net
   cash provided by operating activities:
    Depreciation                                           685,689       631,602
    Amortization of discounts and loan costs                71,315        68,781
    Change in accounts:
      Restricted cash                                        3,041         6,220
      Accounts receivable                                    7,966        (7,379)
      Escrows for taxes                                    (34,105)     (182,003)
      Other assets                                         (21,602)           --
      Accounts payable                                    (245,738)       40,552
      Tenant security deposit liabilities                   (2,529)      (10,216)
      Accrued taxes                                        139,615       170,389
      Other liabilities                                      5,190       105,461

         Net cash provided by operating activities         942,937       821,508

Cash flows from investing activities:
  Property improvements and replacements                  (409,221)     (459,823)
  Deposits to restricted escrows                           (27,443)      (92,678)
  Receipts from restricted escrows                           9,938       143,309

         Net cash used in investing activities            (426,726)     (409,192)

Cash flows from financing activities:
  Payments on mortgage notes payable                      (151,698)     (140,598)
  Distributions paid                                      (249,994)     (300,000)

         Net cash used in financing activities            (401,692)     (440,598)

Net increase (decrease) in cash                            114,519       (28,282)

Cash and cash equivalents at beginning of period         1,293,912     1,246,919
Cash and cash equivalents at end of period              $1,408,431    $1,218,637

Supplemental disclosure of cash flow information:
  Cash paid for interest                                $  513,293    $  524,392
<FN>
               See Accompanying Notes to Consolidated Financial Statement
</TABLE>

e)                  SHELTER PROPERTIES III LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Shelter Realty III Corporation (the "Corporate General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.  Operating results for the
nine month period ended September 30, 1996, are not necessarily indicative of
the results that may be expected for the fiscal year ending December 31, 1996.
For further information, refer to the financial statements and footnotes thereto
included in the Partnership's annual report on Form 10-KSB for the year ended
December 31, 1995.

Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.

Cash and Cash Equivalents:

Unrestricted - Unrestricted cash includes cash on hand and in banks and
Certificates of Deposit with original maturities less than 90 days.  At certain
times, the amount of cash deposited at a bank may exceed the limit on insured
deposits.

Restricted cash - tenant security deposits - The Partnership requires security
deposits from lessees for the duration of the lease and such deposits are
considered restricted cash.  Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments.

NOTE B - RECONCILIATION OF CASH FLOWS

The following is a reconciliation of the subtotal on the accompanying statements
of cash flows captioned "net cash provided by operating activities" to "net cash
used in operations," as defined in the partnership agreement.  However, "net
cash used in operations" should not be considered an alternative to net income
as an indicator of the Partnership's operating performance or to cash flows as a
measure of liquidity.

                                                     Nine Months Ended
                                                       September 30,
                                                   1996             1995
Net cash provided by operating activities       $ 942,937        $ 821,508
  Payments on mortgage notes payable             (151,698)        (140,598)
  Property improvements and replacements         (409,221)        (459,823)
  Change in restricted escrows, net               (17,505)          50,631
  Changes in reserves for net operating
   liabilities                                    148,162         (123,024)
  Additional reserves                            (515,000)        (160,000)

      Net cash used in operations               $  (2,325)       $ (11,306)

In 1996 and 1995, the Corporate General Partner believed it to be in the best
interest of the Partnership to reserve an additional $515,000 and $160,000,
respectively, to fund continuing capital improvements and maintenance items at
the four properties.

NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES

The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities.  The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.  Property management fees paid to
affiliates of Insignia Financial Group, Inc., during the nine months ended
September 30, 1996 and 1995, are included in operating expenses on the
consolidated statement of operations and are reflected in the following table.
The Corporate General Partner and its affiliates received reimbursements and
fees as reflected in the following table:

                                                      Nine Months Ended
                                                        September 30,
                                                   1996              1995
Property management fees                        $197,127          $184,216
Reimbursement for services of affiliates         100,138            85,315
Due to general partner                           184,500           184,500

Included in "reimbursements for services of affiliates" for 1996 is $5,305 in
reimbursements for construction oversight costs.

The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the Corporate General Partner.  An affiliate of
the Corporate General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy.  The current agent
assumed the financial obligations to the affiliate of the Corporate General
Partner who receives payments on these obligations from the agent.  The amount
of the Partnership's insurance premiums accruing to the benefit of the affiliate
of the Corporate General Partner by virtue of the agent's obligations is not
significant.

NOTE D - CONTINGENCIES

The Corporate General Partner owns 100 Limited Partnership Units ("Units").  On
or about April 26 and 27, 1995, six entities ("Affiliated Purchaser") affiliated
with the Partnership commenced tender offers for limited partner interests in
six limited partnerships, including the Partnership (collectively, the "Shelter
Properties Partnerships").  On May 27, 1995, the Affiliated Purchaser acquired
12,616 units of the Partnership pursuant to the tender offer.  On or about May
12, 1995, in the United States District Court for the District of South
Carolina, certain limited partners of the Shelter Properties Partnerships
commenced a lawsuit, on behalf of themselves, on behalf of a putative class of
plaintiffs, and derivatively on behalf of the partnerships, challenging the
actions taken by defendants (including Insignia, the acquiring entities and
certain officers of Insignia) in the management of the Shelter Properties
Partnerships and in connection with the tender offers and certain other matters.

The plaintiffs alleged that, among other things:  (i) the defendants
intentionally mismanaged the partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the partnerships in
order to perpetuate the revenues derived by Insignia (an affiliate of the
Corporate General Partner) and its affiliates from the partnerships, (ii) the
defendants' actions reduced the demand for the partnerships' limited partner
interests in the limited resale market by artificially depressing the trading
prices for limited partners' interests in order to create a favorable
environment for the tender offers; (iii) through the tender offers, the
acquiring entities sought to acquire effective voting control over the
partnerships while paying highly inadequate prices; and (iv) the documents
disseminated to the class in connection with the tender offers contained false
and misleading statements and omissions of material facts concerning such issues
as the advantages to limited partners of tendering pursuant to the tender
offers, the true value of the interest, the true financial condition of the
partnerships, the factors affecting the likelihood that properties owned by the
partnerships will be sold  or liquidated in the near future, the liquidity and
true value of the limited partner interests, the reasons for the limited
secondary market for limited partner interests, and the true nature of the
market for the underlying real estate assets owned by the Shelter Properties
Partnerships, all in violation of the federal securities laws.

NOTE D - CONTINGENCIES - CONTINUED

On September 27, 1995, the parties entered into a stipulation to settle the
matter.  The principal terms of the stipulation require supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
the Affiliated Purchaser, of which approximately $713,000 is Shelter Properties
III's portion; waiver by the Shelter Properties Partnerships' general partners
of any right to certain proceeds from a sale or refinancing of the partnerships'
properties; some restrictions on Insignia's ability to vote the limited partner
interests it acquired; payment of $1.25 million (which amount is divided among
the various partnerships and acquiring entities) for plaintiffs' attorney fees
and expenses in the litigation; and general releases of all the defendants.

On June 24, 1996, after notice to the class and a hearing on the fairness and
adequacy of the notice and the terms of settlement, the court orally approved
the settlement.  The court signed the formal order on July 30, 1996.  No appeal
was filed within thirty days after the court entered the formal order, and the
settlement became effective on August 30, 1996. The Affiliated Purchaser made
the payments to investors in accordance with the settlement in early September
1996.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The Partnership's investment properties consist of four apartment complexes.
The following table sets forth the average occupancy of the properties for the
nine months ended September 30, 1996 and 1995:

                                                      Average
                                                     Occupancy
Property                                         1996         1995
Essex Park Apartments
   Columbia, South Carolina                       94%          93%
Colony House Apartments
   Murfreesboro, Tennessee                        92%          96%
North River Village Apartments
   Atlanta, Georgia                               96%          92%
Willowick Apartments
   Greenville, South Carolina                     94%          98%

The Corporate General Partner attributes the decreases in occupancy at Colony
House Apartments and Willowick Apartments to an increase in rental rates and
tenants purchasing homes.  The Corporate General Partner attributes the increase
in occupancy at North River Village Apartments to economic growth in the Atlanta
area.

The Partnership's net income for the nine months and three months ended
September 30, 1996, was $334,095 and $99,150, respectively.  The Partnership
reported net losses of $1,899 and $94,169 for the nine months and three months
ended September 30, 1995, respectively.  The increase in net income is primarily
attributable to an increase in revenue due to rental rate increases and a
decrease in general and administrative expense due to the decrease in legal fees
and professional expenses associated with the tender offerings in 1995.  The
decrease in maintenance expense for the three months ended September 30, 1996,
also contributed to the increase in net income. North River Village, Essex Park,
and Colony House completed major repair projects in 1995 for exterior painting,
parking lot repairs, and gutter repairs. Partially offsetting the increase in
net income was an increase in property taxes at North River Village due to the
increased assessment value of the property by the county taxing authority.

As part of the ongoing business plan of the Partnership, the Corporate General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense.  As part of
this plan, the Corporate General Partner attempts to protect the Partnership
from the burden of inflation-related increases in expenses by increasing rents
and maintaining a high overall occupancy level.  However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Corporate General Partner will be able to sustain such a plan.

At September 30, 1996, the Partnership had unrestricted cash of $1,408,431
compared to $1,218,637 at September 30, 1995. Net cash provided by operating
activities increased primarily as a result of the increase in net income as
discussed above, and the decrease in the tax escrow balance in 1996 due to the
tax payments made in September for North River Village.  These increases were
offset by the decrease in accounts payable due to the timing of payments to
vendors and a decrease in other liabilities due to the timing of prepaid rental
income from tenants. Net cash used in investing activities increased as a result
of an increase in net deposits to restricted escrows.  Net deposits to
restricted escrows increased due to a reduction of withdrawals for capital
replacements during the nine months ended September 30, 1996.  Net cash used in
financing activities decreased due to a decrease in distributions made during
the nine months ended September 30, 1996 as compared to 1995.

The Partnership has no material capital programs scheduled to be performed in
1996, although certain routine capital expenditures and maintenance expenses
have been budgeted.  These capital expenditures and maintenance expenses will be
incurred only if cash is available from operations or is received from the
capital reserve account.

The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership.  Such assets are currently thought
to be sufficient for any near-term needs of the partnership.  The mortgage
indebtedness of $8,479,693, net of discount, is amortized over varying periods.
In addition, the mortgage notes require balloon payments ranging from November
15, 2002, to October 15, 2003, at which time the properties will either be
refinanced or sold. Future cash distributions will depend on the levels of net
cash generated from operations, property sales and the availability of cash
reserves.  A cash distribution of $249,994 was declared and paid during the nine
months ended September 30, 1996.  During the nine months ended September 30,
1995, distributions in the amount of $300,000 were declared and paid.

                           PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

The Corporate General Partner owns 100 Limited Partnership Units ("Units").  On
or about April 26 and 27, 1995, six entities ("Affiliated Purchaser") affiliated
with the Partnership commenced tender offers for limited partner interests in
six limited partnerships, including the Partnership (collectively, the "Shelter
Properties Partnerships").  On May 27, 1995, the Affiliated Purchaser acquired
12,616 units of the Partnership pursuant to the tender offer.  On or about May
12, 1995, in the United States District Court for the District of South
Carolina, certain limited partners of the Shelter Properties Partnerships
commenced a lawsuit, on behalf of themselves, on behalf of a putative class of
plaintiffs, and derivatively on behalf of the partnerships, challenging the
actions taken by defendants (including Insignia, the acquiring entities and
certain officers of Insignia) in the management of the Shelter Properties
Partnerships and in connection with the tender offers and certain other matters.

The plaintiffs alleged that, among other things:  (i) the defendants
intentionally mismanaged the partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the partnerships in
order to perpetuate the revenues derived by Insignia (an affiliate of the
Corporate General Partner) and its affiliates from the partnerships, (ii) the
defendants' actions reduced the demand for the partnerships' limited partner
interests in the limited resale market by artificially depressing the trading
prices for limited partners' interests in order to create a favorable
environment for the tender offers; (iii) through the tender offers, the
acquiring entities sought to acquire effective voting control over the
partnerships while paying highly inadequate prices; and (iv) the documents
disseminated to the class in connection with the tender offers contained false
and misleading statements and omissions of material facts concerning such issues
as the advantages to limited partners of tendering pursuant to the tender
offers, the true value of the interest, the true financial condition of the
partnerships, the factors affecting the likelihood that properties owned by the
partnerships will be sold  or liquidated in the near future, the liquidity and
true value of the limited partner interests, the reasons for the limited
secondary market for limited partner interests, and the true nature of the
market for the underlying real estate assets owned by the Shelter Properties
Partnerships all in violation of the federal securities laws.

On September 27, 1995, the parties entered into a stipulation to settle the
matter.  The principal terms of the stipulation require supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
the Affiliated Purchaser, of which approximately $713,000 is Shelter Properties
III's portion; waiver by the Shelter Properties Partnerships' general partners
of any right to certain proceeds from a sale or refinancing of the partnerships'
properties; some restrictions on Insignia's ability to vote the limited partner
interests it acquired; payment of $1.25 million (which amount is divided among
the various partnerships and acquiring entities) for plaintiffs' attorney fees
and expenses in the litigation; and general releases of all the defendants.

On June 24, 1996, after notice to the class and a hearing on the fairness and
adequacy of the notice and the terms of settlement, the court orally approved
the settlement.  The court signed the formal order on July 30, 1996.  No appeal
was filed within thirty days after the court entered the formal order, and the
settlement became effective on August 30, 1996. The Affiliated Purchaser made
the payments to investors in accordance with the settlement in early September
1996.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

       a)    Exhibits:

             Exhibit 27, Financial Data Schedule, is filed as part of this
             report.
 
       b)    Reports on Form 8-K:
 
             None filed during the quarter ended September 30, 1996.

                                    SIGNATURES

 In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                             SHELTER PROPERTIES III LIMITED PARTNERSHIP
                             By: Shelter Realty III Corporation
                                 Corporate General Partner

                             By:/s/ William H. Jarrard, Jr.
                                William H. Jarrard, Jr.
                                President and Director


                             By:/s/ Ronald Uretta      
                                Ronald Uretta
                                Treasurer
                                (Principal Financial Officer
                                and Principal Accounting Officer)

                             Date:  October 25, 1996