February 12, 1997




Securities and Exchange Commission
Filer Support, Edgar
Operation Center, Stop 0-7
6432 General Green Way
Alexandria, VA  22312


Re:     Boston Financial Qualified Housing Tax Credits L.P.  III
        Report on Form 10-Q Edgar for Quarter Ended December 31, 1996
        File No. 01-18462


Dear Sir/Madam:

Pursuant to the  requirements of Rule 901(d) of Regulation S-T,  enclosed is one
copy of subject report.

Please  stamp and  return  the  enclosed  copy of this  letter  in the  enclosed
stamped, self-addressed envelope to acknowledge receipt of this filing.

Very truly yours,





/s/Veronica J. Curioso
Veronica J. Curioso
Assistant Controller





QH3-10Q3.DOC



<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act 
          of 1934

(Mark One)

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

For the quarterly period ended December 31, 1996

                                       OR

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


For the transition period from                 to


For Quarter Ended December 31, 1996     Commission file number       01-18462
                  ------------                                     -----------

  Boston Financial Qualified Housing Tax Credits L.P.III
(Exact name of registrant as specified in its charter)


Delaware                                          04-3032106
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)


101 Arch Street, Boston, Massachusetts            02110-1106
    (Address of principal executive offices)      (Zip Code)


Registrant's telephone number, including area code (617)439-3911

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>



             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III

                             (A Limited Partnership)

                                TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION                                      Page No.
------------------------------                                      --------

Item 1.  Combined Financial Statements

         Combined Balance Sheets - December 31, 1996 (Unaudited)
           and March 31, 1996                                            1

         Combined Statements of Operations (Unaudited) - For the Three
           and Nine Months Ended December 31, 1996 and 1995              2

         Combined Statement of Changes in Partners' Equity (Deficiency)
           (Unaudited) - For the Nine Months Ended December 31, 1996     3

         Combined Statements of Cash Flows (Unaudited) -  For the
           Nine Months Ended December 31, 1996 and 1995                  4

         Notes to Combined Financial Statements (Unaudited)              5

Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                           14

PART II - OTHER INFORMATION

Items 1-6                                                                17

SIGNATURE                                                                18



<PAGE>



             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


                                                         
          COMBINED BALANCE SHEETS - December 31, 1996 and March 31, 1996
<TABLE>
<CAPTION>

                                                                    December 31,              March 31,
                                                                        1996                    1996
                                                                     (Unaudited)
<S>                                                                <C>                      <C>
Assets
Current assets:
   Cash and cash equivalents                                       $      505,588           $    268,040
   Accounts receivable, net                                               106,853                 40,757
   Interest receivable                                                     30,296                    740
   Prepaid expenses                                                        32,861                 35,930
   Tenant security deposits                                                61,995                 67,011
   Other current assets                                                   139,419                 53,656
                                                                   --------------           ------------
     Total current assets                                                 877,012                466,134

Investments in Local Limited Partnerships, net of
   reserve for valuation (Note 2)                                      27,051,237             30,216,554
Marketable securities, at fair value (Note 1)                             173,713                158,967
Replacement reserves                                                      168,005                168,335
Rental property at cost, net of accumulated
   depreciation                                                        12,498,452             12,818,153
Deferred acquisition fees escrow                                          337,500                450,000
Deferred expenses, net                                                     85,618                 93,479
                                                                   --------------           ------------
     Total Assets                                                  $   41,191,537           $ 44,371,622
                                                                   ==============           ============

Liabilities and Partners' Equity
Current liabilities:
   Accounts payable to affiliates                                  $    1,053,061           $    755,244
   Accounts payable and accrued expenses                                  544,573                471,328
   Current portion of mortgage notes payable                            4,143,837              4,261,276
   Interest payable                                                       367,972                186,550
   Notes payable - affiliate                                              353,165                 22,279
   Security deposits payable                                               60,223                 60,229
                                                                   --------------           ------------
     Total current liabilities                                          6,522,831              5,756,906

Due to affiliate                                                          323,046                323,046
Deferred acquisition fees payable                                         337,500                450,000
Former general partner advances                                           200,000                200,000
Mortgage notes payable                                                  2,745,086              2,744,825
                                                                   --------------           ------------
     Total Liabilities                                                 10,128,463              9,474,777
                                                                   --------------           ------------

Minority interest in Local Limited Partnerships                           333,736                341,952
                                                                   --------------           ------------

General, Initial and Investor Limited Partners' Equity                 30,729,205             34,554,881
Net unrealized gains on marketable securities                                 133                     12
                                                                   --------------           ------------
     Total Partners' Equity                                            30,729,338             34,554,893
                                                                   --------------           ------------
     Total Liabilities and Partners' Equity                        $   41,191,537           $ 44,371,622
                                                                   ==============           ============
</TABLE>

The  accompanying  notes are an integral  part of the  combined financial
           statements.

<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

                        COMBINED STATEMENTS OF OPERATIONS
                                   (Unaudited)
            For the Three and Nine Months Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>

                                                        Three Months Ended                  Nine Months Ended
                                                  December 31,      December 31,      December 31,     December 31,
                                                      1996              1995              1996             1995
                                                 --------------   ---------------   -------------    ----------

<S>                                               <C>              <C>               <C>               <C>
Revenue:
   Rental                                         $    436,089     $     430,097     $  1,321,350      $  1,385,656
   Investment                                            4,401            14,406           71,763            73,851
   Other                                                24,568           124,980          152,507           164,020
                                                  ------------     -------------     ------------      ------------
     Total Revenue                                     465,058           569,483        1,545,620         1,623,527
                                                  ------------     -------------     ------------      ------------

Expenses:
   Asset management fees, related party                113,861           111,083          341,583           333,249
   General and administrative (includes
     reimbursements to affiliates of $115,671
     and $119,178 in 1996 and 1995, respectively)      122,737           125,988          319,052           696,916
   Rental operations, exclusive of depreciation        255,111           379,283          859,606         1,262,437
   Property management fees                             33,524             9,543          102,545            31,356
   Interest                                            122,584           196,180          571,293           539,524
   Depreciation                                        125,083           189,672          375,255           371,063
   Amortization                                         44,420            45,328          133,264           136,261
                                                  ------------     -------------     ------------      ------------
     Total Expenses                                    817,320         1,057,077        2,702,598         3,370,806
                                                  ------------     -------------     ------------      ------------

Loss before equity in losses of Local Limited
   Partnerships and extraordinary item                (352,262)         (487,594)      (1,156,978)       (1,747,279)

Equity in losses of Local Limited Partnerships        (727,754)         (806,356)      (2,625,319)       (3,280,053)

Minority interest in losses of
   Local Limited Partnerships                            2,532             4,932            8,216             9,136
                                                  ------------     -------------     ------------      ------------

Net Loss before extraordinary item                  (1,077,484)       (1,289,018)      (3,774,081)       (5,018,196)

Extraordinary loss on forgiveness
   of indebtedness                                           -                 -          (51,595)                -
                                                  ------------     -------------     ------------      ------------

Net Loss                                          $ (1,077,484)    $  (1,289,018)    $ (3,825,676)     $ (5,018,196)
                                                  ============     =============     ============      ============

Net Loss allocated:
   To General Partners                            $    (10,775)    $     (12,890)    $    (38,257)     $    (50,182)
   To Limited Partners                              (1,066,709)       (1,276,128)      (3,787,419)       (4,968,014)
                                                  -------------    -------------     ------------      ------------
                                                  $ (1,077,484)    $  (1,289,018)    $ (3,825,676)     $ (5,018,196)
                                                  ============     =============     ============      ============

Net Loss before extraordinary item per
   Limited Partnership Unit (100,000 Units)       $     (10.66)    $     (12.76)     $     (37.36)     $    (49.68)
                                                  ============     ============      ============      ===========

Extraordinary item per Limited Partnership
   Unit (100,000 Units)                           $          -     $           -     $      (0.51)     $          -
                                                  ============     =============     ============      ============

Net Loss per Limited Partnership Unit
   (100,000 Units)                                $     (10.66)    $     (12.76)     $     (37.87)     $    (49.68)
                                                  ============     ============      ============      ===========
</TABLE>

The  accompanying  notes are an integral  part of the  combined financial
           statements.

<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


         COMBINED STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY)
                                   (Unaudited)
                   For the Nine Months Ended December 31, 1996
<TABLE>
<CAPTION>

                                                                                         Net
                                                        Initial        Investor      Unrealized
                                        General         Limited         Limited         Gains
                                       Partners        Partners        Partners       (Losses)            Total

<S>                                  <C>              <C>            <C>              <C>            <C>           
Balance at March 31, 1996            $  (530,297)     $   5,000      $  35,080,178    $       12     $   34,554,893

Net change in unrealized
   gains on marketable
   securities available for sale               -              -                  -           121                121

Net Loss                                 (38,257)             -         (3,787,419)            -         (3,825,676)
                                     -----------      ---------      -------------    ----------     --------------

Balance at December 31, 1996         $  (568,554)     $   5,000      $  31,292,759    $      133     $   30,729,338
                                     ===========      =========      =============    ==========     ==============
</TABLE>

The  accompanying  notes are an integral  part of the  combined financial
           statements.

<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


                        COMBINED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
              For the Nine Months Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>


                                                                                 1996                    1995
                                                                           --------------           ---------

<S>                                                                        <C>                      <C>          
Net cash provided by (used for) operating activities                       $      51,774            $   (775,393)
                                                                           -------------            ------------

Cash flows from investing activities:
    Purchases of marketable securities                                           (74,188)             (1,580,820)
    Proceeds from sales and maturities
      of marketable securities                                                    62,513               3,093,575
    Cash distributions received from Local
      Limited Partnerships                                                       423,644                 284,846
    Decrease in deferred acquisition fee escrow                                  112,500                 112,500
    Payment of deferred acquisition fee                                         (112,500)               (112,500)
    Repayment of Local Limited Partnership's mortgage                                  -                (850,000)
    Additions to fixed assets                                                    (55,554)                (36,527)
    Proceeds from insurance claim                                                      -                  33,819
                                                                           -------------            ------------
Net cash provided by investing activities                                        356,415                 944,893
                                                                           -------------            ------------

Cash flows from financing activities:
    Repayment of mortgage notes payable                                         (117,178)                (39,066)
    Repayment of note payable                                                          -                 (10,211)
    Advances from (payments to) affiliate                                        (53,463)                 22,279
                                                                           -------------            ------------
Net cash used for financing activities                                          (170,641)                (26,998)
                                                                           -------------            -------------

Net increase in cash and cash equivalents                                        237,548                 142,502

Cash and cash equivalents, beginning                                             268,040                 155,456
                                                                           -------------            ------------

Cash and cash equivalents, ending                                          $     505,588            $    297,958
                                                                           =============            ============
</TABLE>

The  accompanying  notes are an integral  part of the  combined financial
           statements.




<PAGE>


             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)
                                                        
                   Notes to the Combined Financial Statements
                                   (Unaudited)

The  unaudited  financial  statements  presented  herein  have been  prepared in
accordance  with the  instructions  to Form 10-Q and do not  include  all of the
information  and note  disclosures  required by  generally  accepted  accounting
principles.  These  statements  should be read in conjunction with the financial
statements and notes thereto included with the  Partnership's  10-K for the year
ended March 31, 1996. In the opinion of management,  these financial  statements
include  all  adjustments,  consisting  only of  normal  recurring  adjustments,
necessary to present fairly the Partnership's  financial position and results of
operations.  The results of operations  for the periods may not be indicative of
the results to be expected  for the year.  Certain  reclassifications  have been
made  to  prior  period  financial  statements  to  conform  to  current  period
classifications.


1.   Marketable Securities

A summary of marketable securities is as follows:
<TABLE>
<CAPTION>

                                                                   Gross               Gross
                                                                Unrealized          Unrealized           Fair
                                              Cost                 Gains              Losses             Value
<S>                                       <C>                  <C>                   <C>             <C>
Debt securities issued by
   the US Treasury                        $    89,173          $         45          $    (226)      $    88,992

Mortgage backed securities                     49,330                     -                (47)           49,283

Other debt securities                          35,077                   361                  -            35,438
                                          -----------          ------------          ---------       -----------

Marketable Securities
   at December 31, 1996                   $   173,580          $        406          $    (273)      $   173,713
                                          ===========          ============          =========       ===========


Debt securities issued by
   the US Treasury                        $    39,392          $          -          $    (167)      $    39,225

Mortgage backed securities                     56,715                   583                  -            57,298

Other debt securities                          62,848                     -               (404)           62,444
                                          -----------          ------------          ---------       -----------

Marketable Securities
   at March 31, 1996                      $   158,955          $        583          $    (571)      $   158,967
                                          ===========          ============          =========       ===========
</TABLE>

The contractual maturities at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
                                                                                                Fair
                                                                                 Cost           Value
<S>                                                                          <C>             <C>        
Due in less than one year                                                    $    49,375     $    49,778
Due in one to five years                                                          74,875          74,652
Mortgage backed securities                                                        49,330          49,283
                                                                             -----------     -----------
                                                                             $   173,580     $   173,713
                                                                             ===========     ===========
</TABLE>
Actual maturities may differ from contractual  maturities because some borrowers
have the right to call or prepay  obligations.  Proceeds from the sales of fixed
maturity  securities  were  approximately  $63,000 and  $3,094,000  for the nine
months ended  December 31, 1996 and 1995,  respectively.  Included in investment
income are gross gains of $3,589 and gross losses of $639 which were realized on
these  sales in the nine  months  ended  December  31,  1996 and gross  gains of
$22,943 and gross losses of $15,017  which were  realized on these sales for the
nine months ended December 31, 1995.


<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


             Notes to the Combined Financial Statements (continued)
                                   (Unaudited)

2.   Investments in Local Limited Partnerships

The  Partnership  uses the equity  method to  account  for its  limited  partner
interests in  fifty-three  Local Limited  Partnerships  (excluding  the Combined
Entities) which own and operate  multi-family  housing complexes,  most of which
are government-assisted.  The Partnership,  as Investor Limited Partner pursuant
to the various  Local  Limited  Partnership  Agreements  which  contain  certain
operating and distribution  restrictions,  has generally acquired a 99% interest
in the profits,  losses,  tax credits and cash flows from  operations of each of
the Local Limited Partnerships, except for Granite Colony Apartments and Harbour
View, where the Partnership's  ownership interest is 97% and 49%,  respectively.
Upon  dissolution,  proceeds will be  distributed  according to each  respective
partnership agreement.

The  following is a summary of  Investments  in Local  Limited  Partnerships  at
December 31, 1996, excluding the Combined Entities:
<TABLE>
<CAPTION>


<S>                                                                                            <C>
Capital contributions to Local Limited
   Partnerships and purchase price
   paid to withdrawing partners of
   Local Limited Partnerships                                                                  $  69,321,264

Cumulative equity in loss of Local Limited
   Partnerships (excluding cumulative
   unrecognized losses of $20,810,307)                                                           (44,701,075)

Cumulative cash distributions received from
   Local Limited Partnerships                                                                     (1,752,115)
                                                                                                  -----------
Investments in Local Limited Partnerships
   before adjustment                                                                              22,868,074

Excess of investment cost over the underlying net assets acquired:

   Acquisition fees and expenses                                                                   7,146,136

   Accumulated amortization of acquisition
   fees and expenses                                                                              (1,327,973)

Investments in Local Limited Partnerships                                                         28,686,237

Reserve for valuation of investments in
   Local Limited Partnerships                                                                     (1,635,000)
                                                                                                  -----------
                                                                                               $  27,051,237
</TABLE>


<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


             Notes to the Combined Financial Statements (continued)
                                   (Unaudited)

2.   Investments in Local Limited Partnerships (continued)

Summarized  financial  information  from the  financial  statements of all Local
Limited Partnerships  accounted for on the equity method (excluding the Combined
Entities) in which the Partnership has invested,  as of December 31, 1996, is as
follows:

Summarized Balance Sheets - September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>

<S>                                                                                            <C>
Assets:
   Investment property, net                                                                    $  189,051,659
   Other assets, net                                                                               12,463,867
   Current assets                                                                                   7,583,451
                                                                                               --------------
       Total Assets                                                                            $  209,098,977
                                                                                               ==============

Liabilities and Partners' Equity:
   Mortgages payable, net of current portion                                                   $  173,668,843
   Other liabilities                                                                               16,552,347
   Current liabilities                                                                             16,843,277
                                                                                               --------------
       Total Liabilities                                                                          207,064,467

   Partners' Equity                                                                                 2,034,510
                                                                                               --------------
       Total Liabilities and Partners' Equity                                                  $  209,098,977
                                                                                               ==============


Summarized Income Statements - for the
Nine Months ended September 30, 1996 (Unaudited)

Rental and other income                                                                        $  24,250,255
                                                                                               -------------

Expenses:
   Operating expenses                                                                             12,802,643
   Interest expense                                                                               11,654,067
   Depreciation and amortization                                                                   6,380,263
                                                                                               -------------
       Total expenses                                                                             30,836,973

Net Loss                                                                                       $  (6,586,718)
                                                                                               =============

Partnership's share of net loss                                                                $  (6,380,118)
                                                                                               =============
Other partners' share of net loss                                                              $    (206,600)
                                                                                               =============
</TABLE>

For the nine months ended December 31, 1996, the  Partnership has not recognized
$3,763,848 of equity in losses relating to certain Local Limited Partnerships in
which  cumulative  equity  in  losses  and  distributions   exceeded  its  total
investments in these Local Limited Partnerships.



<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


             Notes to the Combined Financial Statements (continued)
                                   (Unaudited)

3.   Liquidation of Interests in Local Limited Partnerships

As previously reported,  the Managing General Partner has transferred all of the
assets  of five of the  Texas  Partnerships  subject  to  their  liabilities  to
unaffiliated  entities.  The  transfers of Crown Point,  Godley Arms,  Glenbrook
Apartments,  Quail Run  Apartments  and Sherwood  Arms  Housing  were  effective
February 21, 1996,  February 21, 1996,  June 7, 1996,  July 3, 1996 and November
26, 1996,  respectively.  One of the properties,  Lone Oak Apartments,  is being
transferred  to a new owner  effective  after  December 31, 1996.  Since the new
general partners had assumed the risks of ownership, including funding operating
deficits  prior to March 31, 1996,  the  Partnership's  investment  in these six
partnerships  has been changed to the equity method,  effective on the date that
control of these partnerships was assumed by the unaffiliated entities.

The Managing  General  Partner of the  Partnership  has executed an agreement to
sell the general partner  interests in the seven  remaining  Texas  Partnerships
(Crestwood Place, Eagle Nest Apartments, Hallet-West Apartments, One Main Place,
Pilot Point Apartments,  Shady Shores Apartments and Willowick Apartments) to an
unaffiliated buyer. These properties will be restructured into a new partnership
in which the Partnership  will retain a limited partner interest for a period of
time  expected to be about twelve  months.  During this period,  investors  will
continue to receive tax credits from these properties.




<PAGE>

             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

             Notes to the Combined Financial Statements (continued)
                                   (Unaudited)

4.   Supplemental Combining Schedules
<TABLE>
<CAPTION>

                                 Balance Sheets

                                   Boston Financial
                                   Qualified Housing
                                      Tax Credits          Combined        Eliminations
                                     L.P. III (A)        Entities (B)           (A)           Combined
<S>                                     <C>             <C>               <C>               <C>
Assets
Current assets:
   Cash and cash equivalents            $    463,217    $      42,371     $          -      $    505,588
   Accounts receivable, net                  702,657           16,609         (612,413)          106,853
   Interest receivable                        48,814                -          (18,518)           30,296
   Notes receivable                        1,423,253                -       (1,423,253)                -
   Prepaid expenses                            9,908           22,953                -            32,861
   Tenant security deposits                        -           61,995                -            61,995
   Other current assets                            -          139,419                -           139,419
                                        ------------    -------------     ------------      ------------
     Total current assets                  2,647,849          283,347       (2,054,184)          877,012

Investments in Local Limited
   Partnerships, net of reserve
   for valuation                          29,436,776                -       (2,385,539)       27,051,237
Marketable securities, at fair value         173,713                -                -           173,713
Replacement reserves                               -          168,005                -           168,005
Rental property at cost, net of
   accumulated depreciation                        -       12,498,452                -        12,498,452
Deferred acquisition fees escrow             337,500                -                -           337,500
Deferred expenses, net                             -           85,618                -            85,618
                                        ------------    -------------     ------------      ------------
     Total Assets                       $ 32,595,838    $  13,035,422     $ (4,439,723)     $ 41,191,537
                                        ============    =============     ============      ============

Liabilities and Partners' Equity
Current liabilities:
   Accounts payable to affiliates       $  1,032,428    $     633,046     $   (612,413)     $  1,053,061
   Accounts payable and accrued
     expenses                                143,407          401,166                -           544,573
   Current portion of mortgage
     notes payable                                 -        4,167,116          (23,279)        4,143,837
   Interest payable                                -          386,490          (18,518)          367,972
   Notes payable, affiliate                  353,165                -                -           353,165
   Security deposits payable                       -           60,223                -            60,223
                                        ------------    -------------     ------------      ------------
     Total current liabilities             1,529,000        5,648,041         (654,210)        6,522,831

Due to affiliate                                   -          323,046                -           323,046
Deferred acquisition fees payable            353,165                -                -           337,500
Former general partner advances                    -          200,000                -           200,000
Mortgage notes payable                             -        4,145,060       (1,399,974)        2,745,086
                                        ------------    -------------     ------------      ------------
     Total Liabilities                     1,866,500       10,316,147       (2,054,184)       10,128,463
                                        ------------    -------------     ------------      ------------

</TABLE>

<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


             Notes to the Combined Financial Statements (continued)
                                   (Unaudited)

4.   Supplemental Combining Schedules (continued)
<TABLE>
<CAPTION>

                           Balance Sheets (continued)

                                   Boston Financial
                                   Qualified Housing
                                      Tax Credits          Combined        Eliminations
                                     L.P. III (A)        Entities (B)           (A)           Combined
<S>                                     <C>            <C>                <C>               <C>   
Minority interest in Local
   Limited Partnerships                            -                -          333,736           333,736
                                        ------------    -------------     ------------      ------------

General, Initial and Investor Limited
   Partners' Equity                       30,729,205        2,719,275       (2,719,275)       30,729,205
Net unrealized gains on marketable
   securities                                    133                -                -               133
                                        ------------    -------------     ------------      ------------
     Total Partners' Equity               30,729,338        2,719,275       (2,719,275)       30,729,338
                                        ------------    -------------     ------------      ------------
     Total Liabilities and
        Partners' Equity                $ 32,595,838    $  13,035,422    $  (4,439,723)     $ 41,191,537
                                        ============    =============    =============      ============

</TABLE>

(A) As of December 31, 1996. 
(B) As of September 30, 1996.


<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


             Notes to the Combined Financial Statements (continued)
                                   (Unaudited)

4.   Supplemental Combining Schedules (continued)

                            Statements of Operations
                  For the Three Months Ended December 31, 1996
<TABLE>
<CAPTION>


                                         Boston Financial
                                         Qualified Housing
                                            Tax Credits       Combined         Eliminations
                                           L.P. III (A)     Entities (B)            (A)              Combined

<S>                                       <C>                <C>                <C>              <C>
Revenue:
   Rental                                 $           -      $   436,089        $        -       $     436,089
   Investment                                     3,475              926                 -               4,401
   Other                                         65,281           15,191           (55,904)             24,568
                                          -------------      -----------        ----------       -------------
     Total Revenue                               68,756          452,206           (55,904)            465,058
                                          -------------      -----------        ----------       -------------

Expenses:
   Asset management fees, related party         113,861                -                 -             113,861
   General and administrative                   122,737                -                 -             122,737
   Rental operations, exclusive
     of depreciation                                  -          255,111                 -             255,111
   Property management fees                           -           33,524                 -              33,524
   Interest                                       1,500          176,988           (55,904)            122,584
   Depreciation                                       -          125,083                 -             125,083
   Amortization                                  41,801            2,619                 -              44,420
                                          -------------      -----------        ----------       -------------
     Total Expenses                             279,899          593,325           (55,904)            817,320
                                          -------------      -----------        ----------       -------------

Loss before equity in losses of Local
   Limited Partnerships and
   extraordinary item                          (211,143)        (141,119)                -            (352,262)

Equity in losses of Local Limited
   Partnerships                                (866,341)               -           138,587            (727,754)

Minority interest in losses of Local
   Limited Partnerships                               -                -             2,532               2,532
                                          -------------      -----------        ----------       -------------

Net loss before extraordinary item           (1,077,484)        (141,119)          141,119          (1,077,484)

Extraordinary loss on forgiveness
   of indebtedness                                    -                -                 -                   -
                                          -------------      -----------        ----------       -------------

Net Loss                                  $  (1,077,484)     $  (141,119)       $  141,119       $  (1,077,484)
                                          =============      ===========        ==========       =============
</TABLE>


(A) For the three months ended December 31, 1996. 
(B) For the three months ended September 30, 1996.


<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


             Notes to the Combined Financial Statements (continued)
                                   (Unaudited)

4.   Supplemental Combining Schedules (continued)

                            Statements of Operations
                   For the Nine Months Ended December 31, 1996
<TABLE>
<CAPTION>

                                         Boston Financial
                                         Qualified Housing
                                            Tax Credits       Combined         Eliminations
                                           L.P. III (A)     Entities (B)            (A)              Combined

<S>                                       <C>                <C>                <C>               <C>
Revenue:
   Rental                                 $           -      $  1,321,350       $        -        $  1,321,350
   Investment                                    68,817             2,946                -              71,763
   Other                                        164,961            43,450          (55,904)            152,507
                                          -------------      ------------       ----------        ------------
     Total Revenue                              233,778         1,367,746          (55,904)          1,545,620
                                          -------------      ------------       ----------        ------------

Expenses:
   Asset management fees, related party         341,583                 -                -             341,583
   General and administrative                   319,052                 -                -             319,052
   Rental operations, exclusive
     of depreciation                                  -           859,606                -             859,606
   Property management fees                           -           102,545                -             102,545
   Interest                                       3,500           623,697          (55,904)            571,293
   Depreciation                                       -           375,255                -             375,255
   Amortization                                 125,403             7,861                -             133,264
                                          -------------      ------------       ----------        ------------
     Total Expenses                             789,538         1,968,964          (55,904)          2,702,598
                                          -------------      ------------       ----------        ------------

Loss before equity in losses of Local
   Limited Partnerships and
   extraordinary item                          (555,760)         (601,218)               -          (1,156,978)

Equity in losses of Local Limited
   Partnerships                              (3,269,916)                -          644,597          (2,625,319)

Minority interest in losses of Local
   Limited Partnerships                               -                 -            8,216               8,216
                                          -------------      ------------       ----------        ------------

Net loss before extraordinary item           (3,825,676)         (601,218)         652,813          (3,774,081)

Extraordinary loss on forgiveness
   of indebtedness                                    -           (51,595)               -             (51,595)
                                          -------------      ------------       ----------        ------------


Net loss                                  $  (3,825,676)     $   (652,813)      $  652,813        $ (3,825,676)
                                          =============      ============       ==========        ============

</TABLE>

(A) For the nine months ended  December 31, 1996.  
(B) For the nine months ended September 30, 1996.


<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)

             Notes to the Combined Financial Statements (continued)
                                   (Unaudited)

5.   Supplemental Combining Schedules (continued)

                            Statements of Cash Flows
<TABLE>
<CAPTION>
                                            Boston Financial
                                            Qualified Housing
                                               Tax Credits           Combined         Eliminations
                                              L.P. III (A)          Entities (B)           (A)           Combined


<S>                                         <C>                    <C>                <C>               <C>
Net cash provided by (used for)
   operating activities                     $       132,896        $     (81,122)     $         -       $    51,774
                                            ---------------        -------------      -----------       -----------

Cash flows from investing activities:
   Purchases of marketable securities               (74,188)                   -                -           (74,188)
   Proceeds from sales and maturities
     of marketable securities                        62,513                    -                -            62,513
   Cash distributions received from
     Local Limited Partnerships                     423,644                    -                -           423,644
   Decrease in deferred acquisition
     fee escrow                                     112,500                    -                -           112,500
   Payment of deferred acquisition fee             (112,500)                   -                -          (112,500)
   Additions to fixed assets                              -              (55,554)               -           (55,554)
                                            ---------------        -------------      -----------       -----------
Net cash provided by (used for)
   investing activities                             411,969              (55,554)               -           356,415
                                            ---------------        -------------      -----------       -----------

Cash flows from financing activities:
   Repayment of mortgage notes payable                    -             (134,992)          17,814          (117,178)
   Repayment of notes receivable, affiliate          17,814                    -          (17,814)                -
   Advances from (payments to) affiliate           (194,094)             140,631                -           (53,463)
                                            ---------------        -------------      -----------       -----------
Net cash provided by (used for)
   financing activities                            (176,280)               5,639                -          (170,641)
                                            ---------------        -------------      -----------       -----------

Net increase (decrease) in cash and
   cash equivalents                                 368,585             (131,037)               -           237,548

Cash and cash equivalents, beginning                 94,632              173,408                -           268,040
                                            ---------------        -------------      -----------       -----------

Cash and cash equivalents, ending           $       463,217        $      42,371      $         -       $   505,588
                                            ===============        =============      ===========       ===========
</TABLE>


(A) For the nine months ended  December 31, 1996.  
(B) For the nine months ended September 30, 1996.



<PAGE>



             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III

                             (A Limited Partnership)

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

The  Partnership  (including the Combined  Entities) had an increase in cash and
cash  equivalents  of  $237,548  from  $268,040 at March 31, 1996 to $505,588 at
December 31, 1996. This increase is attributable to cash distributions  received
from Local Limited  Partnerships and cash provided by operations,  offset by the
repayment of mortgage notes payable.

The Managing  General Partner  initially  designated 3% of the Gross Proceeds to
Reserves.  The Reserves were  established to be used for working  capital of the
Partnership  and  contingencies  related  to  the  ownership  of  Local  Limited
Partnership  interests.  The Managing  General  Partner may increase or decrease
such Reserves from time to time, as it deems appropriate.  During the year ended
March 31, 1993,  the Managing  General  Partner  decided to increase the Reserve
level to  3.75%.  Funds  approximating  $195,000  have been  withdrawn  from the
Reserves  to pay  legal  and  other  costs  related  to the Mod  Rehab  Issue as
previously  discussed.  Additionally,  professional  fees  relating  to  various
property issues totaling approximately  $1,417,000 have been paid from Reserves.
This amount includes  approximately  $1,143,000 for the Texas  Partnerships.  To
date, Reserve funds in the amount of approximately  $349,000 have also been used
to make additional capital  contributions to two Local Limited  Partnerships and
the Partnership has paid approximately  $1,362,000 (net of paydowns) to purchase
the mortgage of a Local Limited  Partnership.  To date, the Partnership has used
approximately  $1,010,000 of operating funds to replenish Reserves.  At December
31,  1996,  approximately  $593,000 of cash,  cash  equivalents  and  marketable
securities  have  been  designated  as  Reserves.  Reserves  may be used to fund
Partnership  operating  deficits,  if the Managing General Partner deems funding
appropriate. If Reserves are not adequate to cover the Partnership's operations,
the Partnership will seek other financing sources including, but not limited to,
the  deferral of Asset  Management  Fees paid to an  affiliate  of the  Managing
General  Partner or working with Local  Limited  Partnerships  to increase  cash
distributions.

In the  event a Local  Limited  Partnership  encounters  operating  difficulties
requiring  additional funds, the Partnership might deem it in its best interests
to provide such funds, voluntarily, in order to protect its investment. To date,
in addition to the $1,143,000  noted above,  the  Partnership  has also advanced
approximately $589,000 to the Texas Partnerships and $255,000 to two other Local
Limited Partnerships to fund operating deficits.

Since the  Partnership  invests as a limited  partner,  the  Partnership  has no
contractual  duty to  provide  additional  funds to Local  Limited  Partnerships
beyond its specified investment. Thus, at December 31, 1996, the Partnership had
no contractual or other  obligation to any Local Limited  Partnership  which had
not been paid or provided for.


Cash Distributions

No cash distributions were made in the nine months ended December 31, 1996.

Results of Operations

For the three and nine months ended  December 31, 1996,  Partnership  operations
resulted in a net loss of $1,077,484 and $3,825,676,  respectively,  as compared
to net losses of $1,289,018 and $5,018,196 for the respective 1995 periods.  The
decrease  in net loss is  primarily  attributable  to  decreases  in general and
administrative and rental operations expenses.

The  decrease  in general  and  administrative  expenses is due to a decrease in
expenses  paid on  behalf  of the  Texas  Partnerships.  The  decline  in rental
operations  expense is  primarily  attributable  to the  exclusion of six of the
Texas  Partnerships'  operations which were previously  combined.  Four of these
Texas  Partnerships  were  disposed  of and the  remaining  two  are  now  being
accounted  for on the equity method of  accounting.  Please refer to the section
entitled "Property Discussions" for more information.


<PAGE>

             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


Property Discussions

Prior to the transfer of the Texas Partnerships,  Limited Partnership  interests
had been acquired in sixty-nine Local Limited Partnerships which own and operate
rental properties in twenty-four states.  Forty-two of the properties,  totaling
3,935 units, were rehabilitated and twenty-seven properties, consisting of 1,614
units were newly constructed.  All of the properties have completed construction
or rehabilitation and initial lease-up.  Many of the remaining  sixty-four Local
Limited   Partnerships  in  which  the  Partnership  has  invested  have  stable
operations and are operating satisfactorily.

Several properties are experiencing  operating  difficulties and generating cash
flow  deficits  due to a variety of reasons.  In most cases,  the Local  General
Partners of these  properties are funding the deficits  through  project expense
loans and  subordinated  loans or payments from escrows.  In instances where the
Local General Partners'  obligations to fund deficits have expired or otherwise,
the  Managing  General  Partner is  working  with the Local  General  Partner to
increase  operating  income,  reduce  expenses  or  refinance  the debt at lower
interest rates.

Operations are improving at Pleasant Plaza, located in Malden, Massachusetts, as
a result of the 1995 SHARP  subsidy  restructuring.  However,  as we  previously
reported,  the Local  General  Partner is  seeking  bankruptcy  protection.  His
reorganization  plan is expected to be approved early in 1997. If approved,  the
plan is not likely to materially affect property operations or the local General
Partner's interest in the Partnership.

As previously  reported,  Harbour View,  located in Staten Island, New York, had
defaulted on its HUD-insured loan. Subsequently, the lender assigned the loan to
HUD.  In  December  1996,  the  property's  mortgage  was sold at  auction to an
unaffiliated  institutional buyer. The Local General Partner participated in the
loan auction but was an unsuccessful  bidder.  The Managing  General Partner and
Local  General  Partner  have  initiated  discussions  with the new lender.  The
Partnership's  ability to retain its interest in the property will depend on the
ability of the Local General  Partner or Partnership  affiliates to purchase the
mortgage or negotiate a satisfactory workout agreement with the new lender.

As previously reported,  the Managing General Partner has transferred all of the
assets  of five of the  Texas  partnerships  subject  to  their  liabilities  to
unaffiliated  entities.  The  transfers of Crown Point,  Godley Arms,  Glenbrook
Apartments,  Quail Run and Sherwood  Arms Housing  were  effective  February 21,
1996,  February  2, 1996,  June 7, 1996,  July 3, 1996 and  November  26,  1996,
respectively.  One of the properties, Lone Oak, is expected to be transferred to
a new owner in 1997.

The Managing General Partner is working to sell the general partner interests in
the seven remaining Texas Partnerships  (Crestwood Place, Eagle Nest Apartments,
Hallet-West  Apartments,  One Main Place,  Pilot Point Apartments,  Shady Shores
Apartments and Willowick  Apartments) to an unaffiliated buyer. In the meantime,
investors will continue to receive tax credits for these  properties.  Operating
deficits are currently being funded from Partnership reserves. For tax purposes,
these  events  will  result  in both  Section  1231  gain  and  cancellation  of
indebtedness  income.  In addition,  the transfer of ownership  will result in a
nominal  amount of  recapture  of tax  credits,  because the Texas  Partnerships
represent only 2% of the Partnership's tax credits.

A more  targeted  leasing and  marketing  strategy and recent rent  increase has
helped reduce operating  deficits at Columbia Town Houses, a property located in
Burlington,  Iowa.  As  previously  reported,  the property has been  generating
significant,  increasing  deficits  for the  last  four  years  as a  result  of
declining market  conditions and pre-1990 rent  restrictions.  The Local General
Partner is working to resolve these issues by replacing  the site  personnel and
pursuing a mortgage refinancing.  The Local General Partner is currently funding
the deficits.

South  Holyoke,  located in  Holyoke,  Massachusetts,  continues  to  experience
occupancy  problems  resulting  from  increased  market  competition  and  local
economic  conditions.  The  management  agent,  which is  currently  funding the
deficits,  is  addressing  these  problems  through a  combination  of increased
advertising and community outreach, tighter expense monitoring and has requested
additional SHARP subsidy from the local housing authority.


<PAGE>

             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
                             (A Limited Partnership)


Property Discussions (continued)

Waterfront  and  Shoreline,  two  Buffalo,  New  York  properties,  continue  to
experience  operating  difficulties  due  to  a  soft  rental  market,  deferred
maintenance  and  security  issues.  It is likely  that any effort to  stabilize
operations and improve property curb appeal and overall physical conditions will
require  significant   additional  capital.   This  may  include  advances  from
Partnership reserves. The Managing General Partner and Local General Partner are
currently  negotiating  with the local  housing  authority  to obtain  operating
assistance.  They are also working to identify  supplemental  capital resources.
Deficits are currently  being funded by the management  agent.  Both  properties
currently carry cash flow mortgages with New York State.

Low occupancy, capital rehabilitation needs and a depressed Dayton, Ohio economy
continue to contribute to operating  difficulties  at Regency and Rolling Hills.
As previously  reported,  the Local General Partner and Managing General Partner
were involved in prolonged  workout  negotiations  with HUD, but  ultimately the
mortgages  for  these  properties  were  sold to a bank  in  HUD's  August  1996
non-performing  loan  auction.  The  Partnership  made  an  unsuccessful  bid to
purchase the mortgages.  The Managing  General Partner and Local General Partner
continue to negotiate  with the new lender.  The continued  feasibility of these
properties  will  depend  on  the  ability  of  the  Local  General  Partner  or
Partnership  affiliates to obtain a workout agreement with the new lender and to
complete the  rehabilitation  work mandated by the City. In the meantime,  it is
likely that  investors  will incur a 1996  recapture  tax as a result of certain
apartment  units being  unavailable  for rent  during  part of 1996.  Should the
negotiations with the lender prove  unsatisfactory,  investors will likely incur
additional  recapture  tax in 1997,  which  will be  reported  on their 1998 tax
return.

As  previously  reported,  Breckenridge  Creste,  located  in  Duluth,  Georgia,
continues to operate below  breakeven as a result of high increased  vacancy,  a
weak rental market and deferred maintenance issues. In August 1996, an affiliate
of the Managing General Partner assumed property  management  responsibility and
was  admitted  as a  General  Partner.  In  keeping  with the plan to  stabilize
property  operations,  a  capital  improvements  effort  is  now  underway.  The
Partnership has advanced funds from reserves towards this effort.



<PAGE>



             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III

                             (A Limited Partnership)




PART II       OTHER INFORMATION

Items 1-5     Not applicable

Item 6        Exhibits and reports on Form 8-K

                (a)Exhibits - None

                (b)Reports  on Form 8-K - No  reports  on Form  8-K  were  filed
                   during the quarter ended December 31, 1996.


<PAGE>
             BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III

                             (A Limited Partnership)

                                    SIGNATURE

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.


DATED: February 12, 1997      BOSTON FINANCIAL QUALIFIED HOUSING TAX
                                CREDITS L.P. III

                                By: Arch Street III, Inc.,
                                    its Managing General Partner




                                    /s/Georgia Murray
                                       Georgia Murray
                                       A Managing Director, Treasurer
                                       and Chief Financial Officer



<PAGE>