SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
                                      FORM 10-Q
(Mark One)

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

For the quarterly period ended June 30, 1997
                               -------------
                                      OR

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----
     EXCHANGE ACT OF 1934.

For the transition period from              to             
                               ------------    ------------
Commission file number 0-14348
                       -------

                      BALCOR EQUITY PENSION INVESTORS-III
                      A REAL ESTATE LIMITED PARTNERSHIP         
            -------------------------------------------------------
            (Exact name of registrant as specified in its charter)

          Illinois                                      36-3354308    
-------------------------------                     -------------------
(State or other jurisdiction of                      (I.R.S. Employer  
incorporation or organization)                      Identification No.)

2355 Waukegan Road
Bannockburn, Illinois                                     60015    
----------------------------------------            ------------------- 
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code (847) 267-1600
                                                   --------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes   X    No     
    -----     -----
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                                BALANCE SHEETS
                      June 30, 1997 and December 31, 1996
                                  (Unaudited)

                                    ASSETS

                                                1997             1996
                                           --------------   --------------
Cash and cash equivalents                  $   3,264,978    $  35,523,271
Accounts and accrued interest receivable       2,204,794        1,202,372
Prepaid expenses, principally real 
  estate taxes and insurance                      18,753          469,833
Deferred expenses, net of accumulated
  amortization of $387,263 in 1997 and
  $384,914 in 1996                                68,948          131,377
                                           --------------   --------------
                                               5,557,473       37,326,853
                                           --------------   --------------
Investment in real estate:
  Land                                         4,942,707        7,925,685
  Buildings and improvements                  46,991,707       49,748,165
                                           --------------   --------------
                                              51,934,414       57,673,850
  Less accumulated depreciation               26,056,892       25,600,858
                                           --------------   --------------
Investment in real estate, net of
  accumulated depreciation                    25,877,522       32,072,992
                                           --------------   --------------
Investment in joint ventures with
  affiliates                                   1,891,266        2,072,443
                                           --------------   --------------
                                           $  33,326,261    $  71,472,288
                                           ==============   ==============

                       LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                           $     201,340    $     389,388
Due to affiliates                                151,729          119,215
Accrued liabilities                               53,306          106,625
Security deposits                                145,617          175,080
                                           --------------   --------------
    Total liabilities                            551,992          790,308
                                           --------------   --------------
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                                BALANCE SHEETS
                      June 30, 1997 and December 31, 1996
                                  (Unaudited)
                                  (Continued)

                                               1997             1996
                                          --------------   --------------
Commitments and contingencies

Limited Partners' capital (683,204
  Interests issued and outstanding)           33,561,955       71,279,934

General Partner's deficit                       (787,686)        (597,954)
                                           --------------   --------------
    Total partners' capital                   32,774,269       70,681,980
                                           --------------   --------------
                                           $  33,326,261    $  71,472,288
                                           ==============   ==============
                                                             


The accompanying notes are an integral part of the financial statements.
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
                for the six months ended June 30, 1997 and 1996
                                  (Unaudited)

                                                1997             1996
                                           --------------   --------------
Income:
  Rental                                   $   3,572,533    $   6,420,024
  Service                                      1,029,888        1,199,504
  Participation in income of joint
    ventures with affiliates                                      981,508
  Interest on short-term investments             279,102          272,551
                                           --------------   --------------
    Total income                               4,881,523        8,873,587
                                           --------------   --------------

Expenses:
  Depreciation                                   882,075        1,480,483
  Amortization of deferred expenses               62,429           36,530
  Property operating                           1,724,504        2,832,392
  Real estate taxes                              557,852          834,718
  Property management fees                       212,005          351,287
  Administrative                                 533,988          505,387
  Provision for investment property
    writedown                                    605,157
                                           --------------   --------------
    Total expenses                             4,578,010        6,040,797
                                           --------------   --------------
Income before gain on sales of properties 
  and seller's participation in 
  joint venture                                  303,513        2,832,790
Gain on sales of properties                      770,345        4,848,003
Seller's participation in income from
  joint venture                                 (162,500)
                                           --------------   --------------
Net income                                 $     911,358    $   7,680,793
                                           ==============   ==============
Net income allocated to General Partner    $     344,941    $     495,212
                                           ==============   ==============
Net income allocated to Limited Partners   $     566,417    $   7,185,581
                                           ==============   ==============
Net income per Limited Partnership Interest
  (683,204 issued and outstanding)         $        0.83    $       10.52
                                           ==============   ==============
Distributions to General Partner           $     534,673    $     451,077
                                           ==============   ==============
Distributions to Limited Partners          $  38,284,396    $   4,059,689
                                           ==============   ==============
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
                for the six months ended June 30, 1997 and 1996
                                  (Unaudited)
                                  (Continued)

                                                1997             1996
                                           --------------   --------------

Distributions per Limited Partnership 
  Interest:
    Taxable                                $        5.40    $        4.55
                                           ==============   ==============
    Tax-Exempt                             $       59.96    $        6.05
                                           ==============   ==============



The accompanying notes are an integral part of the financial statements.
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
                 for the quarters ended June 30, 1997 and 1996
                                  (Unaudited)

                                                1997             1996
                                           --------------   --------------
Income:
  Rental                                   $   1,792,423    $   3,113,210
  Service                                        422,888          652,716
  Participation in income of joint            
    ventures with affiliates                                      485,370
  Interest on short-term investments              71,004          127,976
                                           --------------   --------------
    Total income                               2,286,315        4,379,272
                                           --------------   --------------

Expenses:
  Depreciation                                   434,887          734,320
  Amortization of deferred expenses               15,915           18,265
  Property operating                             696,239        1,508,900
  Real estate taxes                              275,245          427,907
  Property management fees                       105,917          174,928
  Administrative                                 312,087          374,796
  Provision for investment property
    writedown                                    605,157
                                           --------------   --------------
    Total expenses                             2,445,447        3,239,116
                                           --------------   --------------
(Loss) income before gain on sale of
  property and seller's participation in
  joint venture                                 (159,132)       1,140,156
Gain on sale of property                                        4,848,003
Seller's participation in income from
  joint venture                                 (162,500)
                                           --------------   --------------
Net (loss) income                          $    (321,632)   $   5,988,159
                                           ==============   ==============
Net income allocated to General Partner    $     246,540    $     244,821
                                           ==============   ==============
Net (loss) income allocated to 
  Limited Partners                         $    (568,172)   $   5,743,338
                                           ==============   ==============
Net (loss) income per Limited Partnership 
  Interest (683,204 issued 
  and outstanding)                         $       (0.83)   $        8.41
                                           ==============   ==============
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                       STATEMENTS OF INCOME AND EXPENSES
                 for the quarters ended June 30, 1997 and 1996
                                  (Unaudited)
                                  (Continued)

                                                1997             1996
                                           --------------   --------------
Distribution to General Partner            $     257,304    $     277,369
                                           ==============   ==============
Distribution to Limited Partners           $  11,832,749    $   2,496,319
                                           ==============   ==============

Distribution per Limited Partnership 
  Interest:
    Taxable                                $        2.60    $        2.80
                                           ==============   ==============
    Tax-Exempt                             $       18.46    $        3.72
                                           ==============   ==============


The accompanying notes are an integral part of the financial statements.
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                             STATEMENTS OF CASH FLOWS
                for the six months ended June 30, 1997 and 1996
                                  (Unaudited)

                                                1997             1996
                                           --------------   --------------
Operating activities:
  Net income                               $     911,358    $   7,680,793
  Adjustments to reconcile net income to
    net cash provided by operating
    activities:
      Gain on sales of properties               (770,345)      (4,848,003)
      Participation in income of joint
        ventures with affiliates                                 (981,508)
      Seller's participation in income from
        joint venture                            162,500
      Depreciation of properties                 882,075        1,480,483
      Amortization of deferred expenses           62,429           36,530
      Provision for investment property
        writedown                                605,157
      Net change in:
        Accounts and accrued interest
          receivable                              16,520          461,557
        Prepaid expenses                         451,080          313,362
        Accounts payable                        (188,048)         (70,823)
        Due to affiliates                         32,514           23,968
        Accrued liabilities                      (53,319)         (54,634)
        Security deposits                        (29,463)         (34,345)
                                           --------------   --------------
  Net cash provided by operating activities    2,082,458        4,007,380
                                           --------------   --------------

Investing activities:
  Proceeds from sales of properties            5,768,000       10,800,000
  Payment of selling costs                      (289,417)        (344,963)
  Payment of leasing costs                    (1,018,942)
  Distributions from joint ventures
    with affiliates                              220,882          927,087
  Capital contribution to joint venture
    with affiliate                               (39,705)
  Improvements to property                                        (83,317)
                                           --------------   --------------
  Net cash provided by investing activities    4,640,818       11,298,807
                                           --------------   --------------
<PAGE>
                     BALCOR EQUITY PENSION INVESTORS - III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                             STATEMENTS OF CASH FLOWS
                for the six months ended June 30, 1997 and 1996
                                  (Unaudited)
                                  (Continued)

                                                  1997             1996
                                             --------------   --------------
Financing activities:
  Distributions to Limited Partners          (38,284,396)      (4,059,689)
  Distributions to General Partner              (534,673)        (451,077)
  Distribution to joint venture 
    partner - seller                            (162,500)
                                           --------------   --------------
  Cash used in financing activities          (38,981,569)      (4,510,766)
                                           --------------   --------------

Net change in cash and cash equivalents      (32,258,293)      10,795,421
Cash and cash equivalents at beginning
  of period                                   35,523,271       11,280,395
                                           --------------   --------------

Cash and cash equivalents at end of period $   3,264,978    $  22,075,816
                                           ==============   ==============


The accompanying notes are an integral part of the financial statements.
<PAGE>
                      BALCOR EQUITY PENSION INVESTORS-III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                         NOTES TO FINANCIAL STATEMENTS

1. Accounting Policies:

(a) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the provisions in the Partnership Agreement.
In order for the capital accounts of the General Partner and Limited Partners
to appropriately reflect their respective remaining economic interests as
provided for in the Partnership Agreement, the General Partner was allocated
additional income in 1997 for financial statement purposes.

(b) In the opinion of management, all adjustments necessary for a fair
presentation have been made to the accompanying statements for the six months
and quarter ended June 30, 1997, and all such adjustments are of a normal and
recurring nature.

2. Partnership Termination:

The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold two properties and the three
properties in which the Partnership held minority joint venture interests. The
majority of the proceeds from the sales of these properties were distributed to
Tax-Exempt Limited Partners in October 1996 and January 1997. During February
1997, the Partnership sold the Ammendale Technology Park - Phase II office
buildings. The available proceeds from the sale of this property were
distributed to Tax-Exempt Limited Partners in April 1997. During July 1997, the
Partnership sold the Bingham Farms Office Plaza - Phase IV and during August
1997, the Partnership sold the Belmont Apartments and the Erindale Centre
shopping center.  The majority of the proceeds from the sales of these
properties will be distributed to Tax-Exempt Limited Partners in October 1997.
The Partnership has entered into a contract to sell its remaining property, the
Arborland Consumer Mall.  The timing of the termination of the Partnership and
final distribution of cash will depend upon the nature and extent of
liabilities and contingencies which exist or may arise. Such contingencies may
include legal and other fees stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in Note 6 of Notes to
Financial Statements. In the absence of any contingency, the reserves will be
paid within twelve months of the last property being sold. In the event a
contingency exists or arises, reserves may be held by the Partnership for a
longer period of time.

3. Transactions with Affiliates:

Fees and expenses paid and payable by the Partnership to affiliates during the
six months and quarter ended June 30, 1997 are:
<PAGE>
                                           Paid
                                    ----------------------
                                     Six Months    Quarter      Payable
                                    ------------  ---------    ----------     

   Reimbursement of expenses to
     the General Partner, at cost   $ 93,309     $ 53,319     $ 151,729

4. Property Sale:

In February 1997, the Partnership sold the Ammendale Technology Park - Phase II
office buildings in an all cash sale for $5,768,000. From the proceeds of the
sale, the Partnership paid $289,417 in selling costs. The basis of the property
was $4,708,238 which is net of accumulated depreciation of $426,041. For
financial statement purposes, the Partnership recognized a gain of $770,345
from the sale of the property.

5. Investment in Joint Ventures with Affiliates:

(a) The 1275 K Street office building was owned by a joint venture consisting
of the Partnership and an affiliate. During December 1996, the joint venture
sold the property. Pursuant to the sale agreement, $2,287,500 of the sale
proceeds is retained by the joint venture and is unavailable for distribution
until September 1997. The Partnership's share of these proceeds is $903,105.

(b) The Westech 360 office building was owned by a joint venture consisting of
the Partnership and an affiliate. During December 1996, the joint venture sold
the property. Pursuant to the sale agreement, $1,395,000 of the sale proceeds
is retained by the joint venture and is unavailable for distribution until
September 1997. The Partnership's share of these proceeds is $604,035.

(c) The Perimeter 400 Office Center was owned by a joint venture consisting of
the Partnership and three affiliates. During December 1996, the joint venture
sold the property. Pursuant to the sale agreement, $1,750,000 of the sale
proceeds is retained by the joint venture and is unavailable for distribution
until September 1997. The Partnership's share of these proceeds is $384,126.

6. Contingencies:

(a) The Partnership is currently involved in a lawsuit whereby the Partnership,
the General Partner and certain third parties have been named as defendants
seeking damages relating to tender offers to purchase interests in the
Partnership and nine affiliated partnerships initiated by the third party
defendants in 1996. The defendants continue to vigorously contest this action.
The action has been dismissed with prejudice and plaintiffs have filed an
appeal. It is not determinable at this time whether or not an unfavorable
decision in this action would have a material adverse impact on the financial
position, operations, and liquidity of the Partnership. The Partnership
believes it has meritorious defenses to contest the claims.

(b)  The Partnership is currently involved in a lawsuit whereby the Partnership
and certain affiliates have been named as defendants alleging certain federal
securities law violations with regard to the adequacy and accuracy of
<PAGE>
disclosures of information concerning, as well as the marketing efforts related
to, the offering of the Limited Partnership Interests of the Partnership. The
defendants continue to vigorously contest this action. A plaintiff class has
not yet been certified, and no determination of the merits have been made. It
is not determinable at this time whether or not an unfavorable decision in this
action would have a material adverse impact on the financial position,
operations, and liquidity of the Partnership. The Partnership believes it has
meritorious defenses to contest the claims.

7. Subsequent Events:

(a) In July 1997, the Partnership paid $449,395 ($0.50 per Taxable Interest and
$0.67 per Tax-Exempt Interest) to Limited Partners representing the regular
quarterly distribution of Net Cash Receipts for the second quarter of 1997. 

(b) In July 1997, the Partnership sold the Bingham Farms Office Plaza - Phase
IV in an all cash sale for $12,700,000.  In connection with the sale, the
purchaser received a credit of $3,000,412 for leasing costs related to the
renewal of the lease of the largest tenant in the building.  Of these costs,
$1,018,942 was paid by the Partnership and included in accounts receivable in
the financial statements as of June 30, 1997.  From the proceeds of the sale,
the Partnership paid $393,328 in selling costs.  In connection with the sale,
the Partnership will write off $600,811 of accounts receivable related to
rental abatements and scheduled rent increases.  The basis of the property was
$9,310,606 at June 30, 1997.  The Partnership recognized a $605,157 provision
for investment property writedown during the six months ended June 30, 1997.
     
(c) In August 1997, the Partnership sold the Belmont Apartments in an all cash
sale for $7,676,000. From the proceeds of the sale, the Partnership paid
$244,852 in selling costs.  For financial statement purposes, the Partnership
will recognize a gain of approximately $2,147,000 from the sale of the property
during the third quarter of 1997. 

(d) In August 1997, the Partnership sold the Erindale Centre shopping center in
an all cash sale for $8,250,000. From the proceeds of the sale, the Partnership
paid $247,675 in selling costs.  For financial statement purposes, the
Partnership will recognize a gain of approximately $3,169,000 from the sale of
the property during the third quarter of 1997.  
<PAGE>
                      BALCOR EQUITY PENSION INVESTORS-III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS

Balcor Equity Pension Investors-III A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1985 to make first mortgage
loans and to invest in and operate income-producing real property. The
Partnership raised $170,801,000 through the sale of Limited Partnership
Interests. The Partnership funded four first mortgage loans, two of which were
jointly funded with affiliates, and acquired five real property investments and
a minority joint venture interest with an affiliate in another real property
investment. All four properties collateralized by the Partnership's mortgage
loans were acquired through foreclosure, including the loans funded jointly
with affiliates, which were reclassified to investment in joint ventures with
affiliates. The Partnership sold two properties and the three properties in
which the Partnership held a minority joint venture interest during 1996.  The
Partnership sold one property during February 1997, one property during July
1997 and two additional properties during August 1997.  The Partnership is
currently operating its remaining property, the Arborland Consumer Mall, which
is under a contract for sale.

Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1996 for a more complete understanding of
the Partnership's financial position.

Operations
----------
Summary of Operations
---------------------

During the quarter ended June 30, 1996, the Partnership sold the Westlake
Meadows Apartments and recognized a significant gain in connection with this
sale.  During the latter part of 1996, the Partnership also sold the Green
Trails Apartments and the three properties in which the Partnership held a
minority joint venture interest.  During February 1997, the Partnership sold
the Ammendale Technology Park - Phase II office buildings and recognized a gain
in connection with the sale.  All of these properties were generating income
from operations prior to their sales, and as a result, income before gain on
sales decreased during 1997 as compared to 1996.  In addition, the Partnership
recognized a provision for investment property writedown during the quarter
ended June 30, 1997 related to the Bingham Farms Office Plaza - Phase IV.  The
combined effect of these events resulted in a decrease in net income during the
six months ended June 30, 1997, as compared to the same period in 1996 and
resulted in a net loss for the quarter ended June 30, 1997 as compared to net
income during the same period in 1996.  Further discussion of the Partnership's
operations is summarized below.
<PAGE>
1997 Compared to 1996
---------------------

Unless otherwise noted, discussions of fluctuations between 1997 and 1996 refer
to both the six months and quarters ended June 30, 1997 and 1996.

The Partnership sold the Westlake Meadows and Green Trails apartment complexes
during 1996. In addition, the Partnership sold the Ammendale Technology Park -
Phase II office buildings in February 1997. As a result, rental income,
depreciation, real estate taxes, and property management fees decreased during
1997 when compared to 1996.

Service income decreased during 1997 as compared to 1996 due to the property
sales described above.  In addition, service income decreased during the
quarter ended June 30, 1997 as compared to the same period in 1996 due to
decreased operating expense reimbursements at the Arborland Consumer Mall and
the Erindale Centre shopping center.

The Partnership participated in the income generated by the operations of the
1275 K Street, Westech 360 and Perimeter 400 office buildings, in which it held
minority joint venture interests, prior to their sales in 1996. As a result of
these sales, the Partnership's participation in income of joint ventures with
affiliates ceased during 1996.

As a result of higher average cash balances during the second quarter of 1996
due to the sale of the Westlake Meadows Apartments in June 1996 and the
investment of the sale proceeds prior to their distribution to Limited
Partners, interest income on short-term investments decreased during the
quarter ended June 30, 1997 as compared to the same period in 1996.

In connection with the sale of the Ammendale Technology Park - Phase II office
buildings, the Partnership wrote-off the remaining unamortized deferred leasing
commissions on the property. As a result, amortization of deferred expenses
increased during the six months ended June 30, 1997 as compared to the same
period in 1996.

Property operating expense decreased during 1997 as compared to 1996 due to the
property sales described above and lower leasing costs at the Erindale Centre
shopping center and the Arborland Consumer Mall in 1997.

Administrative expenses decreased during the quarter ended June 30, 1997 as
compared to the same period in 1996 primarily due to professional fees incurred
in 1996 related to the valuation of the Partnership's real estate assets and
higher postage and investor processing costs incurred in 1996 relating to the
Partnership's response to a tender offer.

The Bingham Farms Office Plaza - Phase IV was sold in July 1997.  During the
quarter ended June 30, 1997, the Partnership recognized a provision for
investment property writedown of $605,157.  See Note 7 of Notes to Financial
Statements for additional information.
<PAGE>
The Partnership sold the Westlake Meadows Apartments in June 1996 and
recognized a gain of $4,848,003 on the property sale.  The Partnership sold the
Ammendale Technology Park - Phase II office buildings in February 1997, and
recognized a gain of $770,345 on the property sale. See Note 4 of Notes to
Financial Statements for additional information.

The Arborland Consumer Mall is owned by a joint venture between the Partnership
and the seller.  The seller received a cash flow distribution during the second
quarter of 1997 pursuant to the joint venture agreement.  The amount is
recognized as seller's participation in income from joint venture on the income
statement.

Liquidity and Capital Resources
-------------------------------

The cash position of the Partnership decreased by approximately $32,258,000 as
of June 30, 1997 as compared to December 31, 1996 primarily due to special
distributions of Net Cash Proceeds to Tax-exempt Limited Partners in January
and April 1997 from proceeds received in connection with the 1996 and 1997
property sales and the sales of the three properties in which the Partnership
held minority joint venture interests.  This was partially offset by the net
proceeds received from the sale of the Ammendale Technology Park - Phase II
office buildings in 1997.  The Partnership generated cash flow of approximately
$2,082,000 from operating activities which represents the operations of the
Partnership's properties and interest income on short-term investments, which
were partially offset by the payment of administrative expenses. Investing
activities consisted of net proceeds received from the sale of the Ammendale
Technology Park - Phase II office buildings of approximately $5,479,000 and net
distributions received from joint ventures with affiliates of approximately
$181,000, less the payment of leasing costs related to the Bingham Farms Office
Plaza - Phase IV of approximately $1,019,000. Financing activities consisted of
distributions to the Partners of approximately $38,819,000 and a distribution
to the seller/joint venture partner on the Arborland Consumer Mall of
approximately $163,000.

The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit. A deficit is
considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures.  During the six months ended June
30, 1997 and 1996, the Arborland Consumer Mall, the Belmont Apartments, the  
Erindale Centre shopping center and the Bingham Farms Office Plaza - Phase IV
all generated positive cash flow. The Ammendale Technology Park - Phase II
office buildings generated positive cash flow prior to its sale during 1997  
and during 1996; however, significant leasing costs were incurred at this
property in 1997. These costs were not included in classifying the cash flow
performance of the property because they are non-recurring expenditures. Had
these non-recurring expenditures been included, the property would have
generated a marginal cash flow deficit prior to its sale in 1997. The two
properties sold in 1996 and the three properties in which the Partnership held
<PAGE>
minority joint venture interests which were also sold in 1996, all generated
positive cash flow prior to their sales. As of June 30, 1997, the occupancy
rate of the Belmont Apartments was 98% and the occupancy rates of the Erindale
Centre shopping center, Bingham Farms Office Plaza - Phase IV and the Arborland
Consumer Mall were 96%, 94% and 74%, respectively. 

The Partnership sold two properties and the three properties in which the
Partnership held minority joint venture interests in 1996.  The Partnership
sold four additional properties in 1997 as described below. The Partnership has
entered into a contract to sell its remaining property, the Arborland Consumer
Mall for $7,000,000.  The timing of the termination of the Partnership and
final distribution of cash will depend upon the nature and extent of
liabilities and contingencies which exist or may arise. Such contingencies may
include legal and other fees stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in Note 6 of Notes to
Financial Statements. In the absence of any contingency, the reserves will be
paid within twelve months of the last property being sold. In the event a
contingency exists, reserves may be held by the Partnership for a longer period
of time.

In February 1997, the Partnership sold the Ammendale Technology Park - Phase II
office buildings in an all cash sale for $5,768,000. From the proceeds of the
sale, the Partnership paid $289,417 in selling costs. Pursuant to the terms of
the sale, $170,904 of the proceeds will be held in escrow until November 1997.
The Partnership distributed the remaining available proceeds to the Tax-Exempt
Limited Partners in April 1997.

In July 1997, the Partnership sold the Bingham Farms Office Plaza - Phase IV in
an all cash sale for $12,700,000.  In connection with the sale, the purchaser
received a credit of $3,000,412 for leasing costs related to the renewal of the
lease of the largest tenant in the building.  From the proceeds of the sale,
the Partnership paid $393,328 in selling costs. The Partnership will distribute
the available proceeds to the Tax-Exempt Limited Partners in October 1997. 
 
In August 1997, the Partnership sold the Belmont Apartments in an all cash sale
for $7,676,000. From the proceeds of the sale, the Partnership paid $244,852 in
selling costs.  The Partnership will distribute the available proceeds to the
Tax-Exempt Limited Partners in October 1997. 

In August 1997, the Partnership sold the Erindale Centre shopping center in an
all cash sale for $8,250,000. From the proceeds of the sale, the Partnership
paid $247,675 in selling costs.  The Partnership will distribute the available
proceeds to the Tax-Exempt Limited Partners in October 1997.   

The 1275 K Street office building was owned by a joint venture consisting of
the Partnership and an affiliate. During December 1996, the joint venture sold
the property. Pursuant to the sale agreement, $2,287,500 of the sale proceeds
is retained by the joint venture and is unavailable for distribution until
September 1997. The Partnership's share of these proceeds is $903,105.

The Westech 360 office building was owned by a joint venture consisting of the
Partnership and an affiliate. During December 1996, the joint venture sold the
<PAGE>
property. Pursuant to the sale agreement, $1,395,000 of the sale proceeds is
retained by the joint venture and is unavailable for distribution until
September 1997. The Partnership's share of these proceeds is $604,035.

The Perimeter 400 Office Center was owned by a joint venture consisting of the
Partnership and three affiliates. During December 1996, the joint venture sold
the property. Pursuant to the sale agreement, $1,750,000 of the sale proceeds
is retained by the joint venture and is unavailable for distribution until
September 1997. The Partnership's share of these proceeds is $384,126.

In July 1997, the Partnership paid $449,395 ($0.50 per Taxable Interest and
$0.67 per Tax-Exempt Interest) to Limited Partners representing the regular
quarterly distribution of Net Cash Receipts for the second quarter of 1997.    
The level of the regular quarterly distribution was lower than the amount
distributed for the first quarter of 1997 due to the 1996 and 1997 property
sales. Including the July 1997 distribution, Limited Partners have received Net
Cash Receipts distributions of $103.70 per $250 Taxable Interest and $137.99
per Tax-Exempt Interest, and Net Cash Proceeds of $109.28 per $250 Tax-Exempt
Interest. In July 1997, the Partnership also paid $37,449 to the General
Partner as its distributive share of Net Cash Receipts distributed for the
second quarter of 1997 and made a contribution to the Repurchase Fund of
$12,483.  In light of results to date, the Taxable Limited Partners will not
receive aggregate distributions from the Partnership equal to their original
investment. However, Taxable Limited Partners will receive amounts allocated to
the Repurchase Fund.
  
In accordance with the Partnership Agreement, Net Cash Proceeds from property
sales are being allocated to the Tax-Exempt Limited Partners. Taxable and
Tax-Exempt Limited Partners received quarterly distributions from Net Cash
Receipts. Since all of the Partnership's properties except the Arborland
Consumer Mall have been sold, it is not likely that the Partnership will issue
further Net Cash Receipts distributions.  Therefore, Taxable Limited Partners
are not expected to receive further quarterly distributions.  However,
Tax-Exempt Limited Partners will receive Net Cash Proceeds distributions
primarily from the sales of the Partnership's properties, as described above. 

In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners.  

Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate.

Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
<PAGE>
                      BALCOR EQUITY PENSION INVESTORS-III
                       A REAL ESTATE LIMITED PARTNERSHIP
                       (An Illinois Limited Partnership)

                          PART II - OTHER INFORMATION


Item 5. Other Information
------------------------- 

Bingham Farms Office Plaza - Phase IV
------------------------------------
As previously reported, on May 2, 1997, the Partnership contracted to sell the
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, to an
unaffiliated party, Bingham Partners, L.P., a Delaware limited partnership, for
a sale price of $13,800,000.  The Partnership and the purchaser agreed to
reduce the sale price to $12,700,000 and the sale closed on July 2, 1997. In
connection with the sale, the Partnership credited $3,000,412 to the purchaser
for leasing costs related to the renewal of the lease of the largest tenant in
the building.  From the proceeds of the sale, the Partnership paid $254,000 as
a brokerage commission to an affiliate of the property manager and of the
purchaser and $139,328 in closing costs.  The Partnership received the
remaining sale proceeds of $9,306,260.
 
Belmont Apartments
------------------

As previously reported, on May 16, 1997, the Partnership contracted to sell
Belmont Apartments, Renton, Washington, to an unaffiliated party, Nevins/Adams
Properties, Inc., a Washington corporation, for a sale price of $7,676,000.
The purchaser assigned its rights under the agreement of sale to an affiliate,
N/A Belmont-53, a Washington limited partnership, and the sale closed on August
8, 1997. From the proceeds of the sale, the Partnership paid $153,520 as a
brokerage commission to an affiliate of the third party providing property
management services for the property and $91,332 in closing costs. The
Partnership received the remaining sale proceeds of  $7,431,148.

Erindale Centre Shopping Center
-------------------------------

As previously reported, on June 2, 1997, the Partnership contracted to sell the
Erindale Centre shopping center, Colorado Springs, Colorado, to an unaffiliated
party, G/B Investments, Inc., a Colorado corporation, for a sale price of
$8,250,000.  The purchaser assigned its rights under the agreement of sale to
an affiliate, Gooding Properties, Inc., and the sale closed on August 1, 1997.
From the proceeds of the sale, the Partnership paid $206,250 to an affiliate of
the third party providing property management services for the property and
$41,425 in closing costs.  The Partnership received the remaining sale proceeds
of $8,002,325.


Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
<PAGE>
(a) Exhibits:

(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 3
to the Registrant's Registration Statement on Form S-11 dated September 25,
1985 (Registration Statement No. 2-97579) and Form of Confirmation regarding
Interests in the Registrant set forth as Exhibit 4.2 to the Registrant's Report
on Form 10-Q for the quarter ended June 30, 1992 (Commission File No. 0-14348)
are incorporated herein by reference.

(10) Material Contracts:

(a)  Agreement of Sale and attachment thereto relating to the sale of the Green
Trails Apartment, Lisle, Illinois previously filed as Exhibit (2) to the
Registrant's Report on Form 8-K dated June 28, 1996 is incorporated herein by
reference.

(b)  Agreement of Sale and attachment thereto relating to the sale of the 1275
K Street Office Building, Washington, D.C., previously filed as Exhibit (2) to
the Registrant's Report on Form 8-K dated November 29, 1996 is incorporated
herein by reference.

(c) (i) Agreement of Sale and attachment thereto relating to the sale of
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously
filed as Exhibit (10)(d) to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 1997 is incorporated herein by reference. 

(c) (ii) First Letter Amendment to Agreement of Sale relating to the sale of
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously
filed as Exhibit (99)(b)(i) to the Registrant's Report on Form 8-K dated June
17, 1997, is incorporated herein by reference.

(c) (iii) Second Amendment to Agreement of Sale relating to the sale of Bingham
Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously filed as
Exhibit (99)(b)(ii) to the Registrant's Report on Form 8-K dated June 17, 1997,
is incorporated herein by reference.

(d) Agreement of Sale and attachment thereto relating to the sale of Belmont
Apartments, Renton, Washington, previously filed as Exhibit (2) to the
Registrant's Report on Form 8-K dated May 16, 1997, is incorporated herein by
reference. 

(e)(i) Agreement of Sale and attachment thereto relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (2)(i) to the Registrant's Report on Form 8-K dated June 2, 1997, is
incorporated herein by reference.

(e)(ii) First Amendment to Agreement of Sale relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (2)(ii) to the Registrant's Report on Form 8-K dated June 2, 1997,
is incorporated herein by reference.

(e)(iii) Second Amendment to Agreement of Sale relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
<PAGE>
as Exhibit (99)(a) to the Registrant's Report on Form 8-K dated June 17, 1997,
is incorporated herein by reference.

(f)(i) Agreement of Sale and attachment thereto relating to the sale of
Arborland Consumer Mall, Ann Arbor, Michigan, previously filed as Exhibit
(2)(a) to the Registrant's Report on Form 8-K dated June 17, 1997, is
incorporated herein by reference.

(f)(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the Arborland Consumer Mall, Ann Arbor, Michigan, previously filed
as Exhibit (2)(b) to the Registrant's Report on Form 8-K dated June 17, 1997,
is incorporated herein by reference.

(27) Financial Data Schedule of the Registrant for the six month period ending
June 30, 1997 is attached hereto.

(b) Reports on Form 8-K: 

(i) A Current Report on Form 8-K dated May 16, 1997 was filed reporting the  
Agreement of Sale relating to the sale of Belmont Apartments, Renton,
Washington.

(ii) A Current Report on Form 8-K dated June 2, 1997 was filed reporting the  
Agreement of Sale relating to the sale of Erindale Centre Shopping Center,
Colorado Springs, Colorado.

(iii) A Current Report on Form 8-K dated June 17, 1997 was filed reporting the
Agreement of Sale relating to the sale of the Arborland Consumer Mall, Ann
Arbor, Michigan, the extension of the closing date of the sale of the Erindale
Centre Shopping Center, Colorado Springs, Colorado, and an amendment to the
Agreement of Sale relating to the sale of Bingham Farms Office Plaza - Phase
IV, Bingham Farms, Michigan.
<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.

                        BALCOR EQUITY PENSION INVESTORS-III
                        A REAL ESTATE LIMITED PARTNERSHIP


                        By:  /s/Thomas E. Meador
                             ---------------------------------                
                             Thomas E. Meador
                             President and Chief Executive Officer (Principal 
                             Executive Officer) of Balcor Equity Partners - 
                             III, the General Partner


                        By:  /s/Jayne A. Kosik
                             -----------------------------------
                             Jayne A. Kosik
                             Managing Director and Chief Financial Officer 
                             (Principal Accounting Officer) of Balcor Equity 
                             Partners - III, the General Partner



Date: August 14, 1997
      -----------------
<PAGE>