UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K/A-1
(Mark One)

_X_   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

For the fiscal year ended December 31, 1996

                                       OR

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

                         Commission File Number 0-16816

                           SUMMIT TAX EXEMPT L.P. III
             (Exact name of registrant as specified in its charter)

           Delaware                                     13-3442249
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

 625 Madison Avenue, New York, New York                          10022
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code:  (212) 421-5333

Securities registered pursuant to Section 12(b) of the Act:

     None

Securities registered pursuant to Section 12(g) of the Act:

     Beneficial Unit Certificates

     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 ___

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

                       DOCUMENTS INCORPORATED BY REFERENCE

     Agreement of Limited Partnership, dated as of February 25, 1987, included
as part of the Registration Statement filed with the Securities and Exchange
Commission on April 6, 1987 pursuant to Rule 424(b) under the Securities Act of
1933 is incorporated by reference into Part IV of this Annual Report on Form
10-K.

Index to exhibits may be found on page 64

Page 1 of 68



<PAGE>


                                     PART I


Item 1. Business.

General

     Summit Tax Exempt L.P. III (the "Registrant"), a Delaware limited
partnership, was formed on February 25, 1987 and will terminate on December 31,
2021 unless terminated sooner under the provisions of the Agreement of Limited
Partnership (the "Partnership Agreement"). The Registrant was formed to invest
in tax-exempt participating first mortgage revenue bonds ("First Mortgage Bonds"
or "FMBs") issued by various state or local governments or their agencies or
authorities. The FMBs are secured by participating first mortgage loans
("Mortgage Loans") on multi-family residential apartment properties
("Properties") developed by unaffiliated developers. The Properties are garden
apartment projects located in California (2), Florida (1) and Georgia (2). These
investments were made with the proceeds from the initial sale of 3,081,625
Beneficial Unit Certificates ("BUC$"). The Registrant's fiscal year for book and
tax purposes ends on December 31.

     The Registrant is engaged solely in the business of investing in FMBs;
therefore, presentation of industry segment information is not applicable.

General Partners

     The general partners of the Registrant are Prudential-Bache Properties,
Inc. ("PBP") and Related Tax Exempt Associates III, Inc. (the "Related General
Partner") (collectively, the "General Partners"). Related BUC$ Associates III,
Inc. (the "Assignor Limited Partner"), which acquired and holds limited
partnership interests on behalf of those persons who purchase BUC$, has assigned
to those persons substantially all of its rights and interest in and under such
limited partnership interests. The Related General Partner and the Assignor
Limited Partner are under common ownership.

Competition

     The General Partners and/or their affiliates have formed, and may continue
to form, various entities to engage in businesses which may be competitive with
the Registrant.

     The Registrant's business is affected by competition to the extent that the
underlying Properties from which it derives interest and, ultimately, principal
payments, may be subject to competition relating to rental rates and relative
level of amenities offered by comparable neighboring properties.

Structure of First Mortgage Bonds

     The principal and interest payments on each FMB are payable only from the
cash flows, including proceeds in the event of sale, from the Properties
underlying the FMBs. None of these FMBs constitute a general obligation of any
state or local government, agency or authority. The FMBs are secured by the
Mortgage Loans on the underlying Properties and the structure of each Mortgage
Loan mirrors the structure of the corresponding FMB.

     Unless otherwise modified, the principal of the FMBs will not be amortized
during their respective terms (which are generally up to 24 years) and will be
required to be repaid in lump sum "balloon" payments at the expiration of the
respective terms or at such earlier times as the Registrant may require pursuant
to the terms of the bond documents. The Registrant has a right to require
redemption of the FMBs approximately twelve years after their issuance. The
Registrant anticipates holding the FMBs for approximately 12 to 15 years from
the date of issuance; however, it can and may elect to hold them until maturity.

     In addition to the stated rates of interest ranging from 8.0% to 9.0% per
annum, each of the FMBs provides for "contingent interest" which is equal to:
(a) an amount equal to 50% to 100% of net property cash flow



                                      -2-
<PAGE>


and 75% to 100% of net sale or refinancing proceeds until the borrower has paid,
during the post-construction period, annually compounded interest at 9.0% on a
cumulative basis, and thereafter (b) an amount equal to 25% of remaining net
property cash flow and 25% of remaining net sale or refinancing proceeds until
the borrower has paid interest at a simple annual rate of 16% over the term of
the FMB. Both the stated and contingent interest are exempt from federal income
taxation. The Registrant has not received any contingent interest to date.

     In order to protect the tax-exempt status of the FMBs, the owners of the
Properties are required to enter into certain agreements to own, manage and
operate such Properties in accordance with requirements of the Internal Revenue
Code.

     The following FMBs' interest income exceeded 15% of the Registrant's total
revenue for each of the three years in the period ended December 31, 1996:

                                     1996             1995              1994
                                     ----             ----              ----

     Lakepoint                        30%              29%               29%
     Sunset Village                   17%              21%               22%
     Orchard Mill                     24%              19%               21%
     Sunset Creek                      *               15%               16%
     Players Club                     17%              16%                *

* FMB interest income was less than 15% of the Registrant's total revenue for
the year.

Bond Modifications/Forbearance Agreements

     Forbearance agreements have been executed with the owners of all of the
Properties.

     Lakepoint

     During 1991, the Registrant entered into a forbearance agreement with the
owner of the Lakepoint property allowing interest payments at a pay rate of 7.5%
per annum in 1991, 8.0% in 1992 and 8.5% in 1993. Due to weakness in the market,
in June 1993, the forbearance agreement was further modified to allow for a pay
rate of 7.5% from January 1992 through March 1993 and 6.0% from April 1993
through December 1995. In May 1996, the General Partners granted an extension of
the forbearance agreement providing for a minimum rate of 6.0% per annum to be
paid through December 15, 1997.

     Orchard Mill

     The Registrant entered into a forbearance agreement with the Orchard Mill
property owner in 1991 which permitted interest to be paid only to the extent of
the net cash flow from the property. Pursuant to the terms of a forbearance
agreement with Orchard Mill effective as of May 1, 1995, the minimum monthly
interest pay rate was established at a 5% annual rate with all remaining cash
flow generated by the property payable to the Registrant and applied to accrued
and unpaid base interest and contingent interest as set forth in the forbearance
agreement and loan agreements. For the year ended December 31, 1996, Orchard
Mill has paid interest monthly at an annual rate equal to 6.76%, consistent with
the terms of the forbearance agreement.

     Players Club

     In 1992, the Registrant entered into a forbearance agreement with the owner
of the Players Club property. This agreement was subsequently modified on
January 1, 1994, January 1, 1995, January 1, 1996 and again on January 1, 1997
to require minimum debt service payments of 6.0% per annum through the end of
1994, 7.0% for 1995 and 1996 and 6.25% through the end of 1997.

     Sunset Village/Sunset Creek

     Forbearance agreements were also entered into with the owner of the Sunset
Village and Sunset Creek properties in 1992 allowing debt service payments at a
rate of 7.0% per annum through April 1993 at which time the



                                      -3-
<PAGE>


Bond Modifications/Forbearance Agreements (continued)


pay rate increased to 7.25% and was scheduled to increase in annual increments
to the stated rate of 8.5% in May 1996. Effective with the May 1, 1995 payment
date, the Sunset Village and Sunset Creek FMBs have made payments based on the
monthly net cash flow generated by the operations of the underlying properties
in accordance with the terms of the agreement outlined below. Effective as of
August 1, 1995, the original owner and obligor of the Sunset Creek and Sunset
Village FMBs transferred the deeds to the underlying properties to an affiliate
of the Related General Partner for limited consideration. Pursuant to the
agreement, the Related General Partner's affiliate, who has not made an equity
investment in the underlying property, assumed the day-to-day responsibilities
and obligations of operating the properties. The Registrant receives the monthly
net cash generated by these properties as payment toward debt service.

     General

     The determination as to whether it is in the best interest of the
Registrant to enter into forbearance agreements on the FMBs, or alternatively,
to pursue its remedies under the loan documents, including foreclosure, is based
upon several factors. These factors include, but are not limited to, property
performance, owner cooperation and projected legal costs. With respect to all
five of the Registrant's FMBs, the General Partners have determined that
forbearance represented the better of the alternatives. Interest income of
approximately $1,400,000, $969,000, and $963,000 was not recognized for the
years ended December 31, 1996, 1995, and 1994, respectively.

     With respect to all the FMBs, the difference between the pay rate and the
original stated rate is deferred and is payable out of available future cash
flow or ultimately from sales or refinancing proceeds. See the table below for
information regarding the rates paid on the FMBs in 1996. In 1996, all borrowers
paid at least the minimum interest rate set forth in their respective
forbearance agreement except for those FMBs where interest is paid to the extent
of the property's net cash flow.



                                      -4-



<PAGE>



                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)


The following table lists the FMBs that the Registrant owns together with the
occupancy and current rental rates of the underlying properties:

<TABLE>
<CAPTION>
                                                  Carrying                 Average                 Minimum
                                     Face          Amount         Final    Interest     Stated    Pay Rate at     Occupancy
                       Closing       Amount      at December   Completion  Rate Paid   Interest   December 31,   February 11,
Property                Date        of Bond     31, 1996 (C)      Date     for 1996*    Rate*        1996*           1997
--------                ----        -------     ------------      ----     ---------    -----        -----           ----
<S>                    <C>        <C>           <C>               <C>        <C>        <C>           <C>            <C>
Player's Club,
Fort Myers, FL (A)     8/14/87    $ 7,200,000   $ 6,843,428       12/85      7.37%      8.00%         7.00%          83.9%
Lakepoint,
Dekalb City, GA       11/18/87     15,100,000    14,159,707        3/89      6.10       8.50          6.00           91.4
Sunset Village,
Lancaster, CA          3/25/88     11,375,000     9,085,396       10/89      4.50       8.50          (B)            91.4
Sunset Creek,
Lancaster, CA          3/25/88      8,275,000     6,004,427       10/89      4.46       8.50          (B)            92.8
Orchard Mill,
 Atlanta, GA           5/1/89      10,500,000     8,676,834        9/90      6.76(D)    9.00          5.00           99.2
                                  -----------   -----------

                                  $52,450,000   $44,769,792
                                  ===========   ===========

<CAPTION>
                                Rental Rates    No. of
                                at December     Rental
Property                         31, 1996        Units
<S>                              <C>              <C>
Player's Club,
Fort Myers, FL (A)               $450-645         288
Lakepoint,
Dekalb City, GA                   550-775         360
Sunset Village,
Lancaster, CA                     460-680         204
Sunset Creek,
Lancaster, CA                     460-680         148
Orchard Mill,
 Atlanta, GA                      510-705         238
</TABLE>


*The average interest rate paid represents the interest recorded by the
Registrant while the stated interest rate represents the coupon rate of the FMB
and the minimum pay rate represents the minimum rate required to be paid under
the respective forbearance agreements.

(A)  Summit Tax Exempt L.P. II, of which the general partners are either the
     same or affiliates of the General Partners of the Registrant, acquired the
     other $2,500,000 of the Players Club bond issue.

(B) Interest on this FMB is paid to the extent of the property's net cash flow.

(C) The FMBs are carried at their estimated fair values at December 31, 1996.

(D) Includes receipt of deferred base interest related to prior periods.



                                      -5-


<PAGE>


Employees

   
     The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partners and their affiliates
pursuant to the Partnership Agreement. See Note 6 to the financial statements in
Item 8.
    

Other Events.

     On December 31, 1996, the United States District Court for the Southern
District of New York (the "Court") issued a preliminary approval order (the
"Order") with respect to settlement (the "Related Settlement") of the class
action litigation (the "Class Action") relating to the Registrant (In re
Prudential Securities Inc. Limited Partnership Litigation, MDL No. 1005) against
the Related General Partner and certain of its affiliates. See Note 6 to the
financial statements in Item 8. Pursuant to the stipulation of settlement
entered into with counsel for the class on December 24, 1996, the proposed
Related Settlement contemplates, among other matters, the reorganization (the
"Reorganization") of the Registrant and two other partnerships co-sponsored by
affiliates of the Related General Partner and PBP.

     The proposed Related settlement and Reorganization are subject to
objections by the BUC$holders and limited partners of the Registrant as well as
each of the other concerned partnerships and final approval of the Court after
review of the proposals at a fairness hearing.

     Under the proposed Reorganization plan, the BUC$holders of the Registrant,
and Summit Tax Exempt Bond Fund, L.P. and Summit Tax Exempt L.P. II will receive
shares in a newly formed business trust. It is anticipated that the shares will
be allocated proportionately among the partnerships and their respective
investors based upon appraisals and other factors as supported by a third-party
fairness opinion. Detailed information about the proposed Related Settlement and
Reorganization will be sent to BUC$holders in the near future. The terms of the
Reorganization include, among other matters, the acquisition by affiliates of
the Related Capital Company ("RCC") of PBP's general partner interest (the "PBP
Interest"), transfer to the BUC$holders one-half of the PBP Interest, reduction
of fees currently payable to the General Partners by 25%, filing an application
to list the new company's shares on an exchange and creating an infinite, as
opposed to finite, life-operating business.

     In connection with the proposed Related Settlement and Reorganization, on
December 19, 1996, PBP and RCC entered into an agreement for the purchase by RCC
or its affiliates of the PBP Interest. The agreement is subject to numerous
conditions, including the effectiveness of the Related Settlement of the Class
Action and the approval of the sale and withdrawal of PBP as a general partner
of the Registrant by the Court.

     Pending final approval of the Related Settlement, the Court's Order
prohibits class members (including the BUC$holders) from, among other matters,
(i) transferring their BUC$ unless the transferee agrees to be bound by the
Related Settlement; (ii) granting a proxy to object to the Reorganization; or
(iii) commencing a tender offer for the BUC$. In addition, the General Partners
are enjoined from (i) recording any transfers made in violation of the Order and
(ii) providing the list of investors in any of the partnerships which are the
subject of the Reorganization to any person conducting a tender offer.

     There can be no assurance that the conditions to the closing of the
proposed Related Settlement and Reorganization will be satisfied nor that a
closing may occur in the projected time frame. In the event a settlement cannot
be reached, the Related General Partner believes it has meritorious defenses to
the consolidated complaint and intends to vigorously defend this action.

time frame in which a closing may occur.

Item 2. Properties

     The Registrant does not own or lease any property.


                                      -6-
<PAGE>


Item 3. Legal Proceedings

     This information is incorporated by reference from Item 1. Business - Other
Events and Note 7 to the financial statements in Item 8.


Item 4. Submission of Matters to a Vote of BUC$holders

     None.

                                     PART II

Item 5. Market for the Registrant's BUC$ and Related BUC$holder Matters.

     As of March 3, 1997 there were 2,992 holders of record owning 3,081,625
BUC$. A significant secondary market for the BUC$ has not developed and it is
not expected that one will develop in the future. There are also certain
restrictions set forth in Sections 12 and 13 of the Partnership Agreement
limiting the ability of a BUC$holder to transfer their BUC$. Furthermore, the
Court's Order in connection with the proposed Related Settlement of the Class
Action imposes certain restrictions on the transfer of BUC$. See Item 1.
Business - Other Events. Consequently, BUC$holders may not be able to liquidate
their investments in the event of emergency or for any other reason.

     Quarterly cash distributions per BUC paid during 1996 and 1995 were as
follows:

     Quarter Ended                            1996              1995
     -------------                            ----              ----
     March 31                                $0.22             $0.22
     June 30                                 $0.22             $0.22
     September 30                            $0.22             $0.22
     December 31                             $0.22             $0.22

     There are no material legal restrictions upon the Registrant's present or
future ability to make distributions in accordance with the provisions of the
Partnership Agreement. Cash distributions paid in 1996 and 1995 were funded from
current and previously undistributed cash flow from operations. Approximately
$367,000 of the $2,712,000 and $213,000 of the $2,712,000 paid to BUC$holders in
1996 and 1995, respectively, represents a return of capital on a generally
accepted accounting principles (GAAP) basis. (The return of capital on a GAAP
basis is calculated as BUC$holder distributions less net income allocated to
BUC$holders.) The Registrant currently expects that cash distributions will
continue to be paid, in the foreseeable future, from cash generated from
operations. For a discussion of other factors that may affect the amount of
future distributions, see Management's Discussion and Analysis of Financial
Conditions and Results of Operations in Item 7.



                                      -7-
<PAGE>


Item 6. Selected Financial Data.

     The information set forth below presents selected financial data of the
Registrant. Additional financial information is set forth in the financial
statements and notes thereto contained in Item 8 hereof.

<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                           -----------------------------------------------------------------------------------------
                                               1996               1995               1994               1993               1992
                                           ------------       ------------       ------------       ------------       ------------
<S>                                        <C>                <C>                <C>                <C>                <C>
Interest income from
   participating first
   mortgage bonds                          $  3,074,857       $  3,185,563       $  3,444,722       $  3,460,427       $  3,510,977
                                           ============       ============       ============       ============       ============
Loss on impairment
   of assets                               $          0       $          0       $          0       $          0       $  4,500,000
                                           ============       ============       ============       ============       ============
Net income (loss)                          $  2,654,902       $  2,812,119       $  3,048,116       $  2,544,011       $ (1,503,436)
                                           ============       ============       ============       ============       ============
Net income (loss) per BUC                  $        .76       $        .81       $        .89       $        .73       $       (.56)
                                           ============       ============       ============       ============       ============
Total assets                               $ 45,962,262       $ 48,150,516       $ 48,178,868       $ 49,675,109       $ 50,864,951
                                           ============       ============       ============       ============       ============
Total Partners' Capital                    $ 45,737,895       $ 48,029,209       $ 48,072,442       $ 49,491,235       $ 50,731,331
                                           ============       ============       ============       ============       ============
Distributions to
   BUC$holders                             $  2,711,830       $  2,711,830       $  2,711,830       $  3,451,420       $  3,705,346
                                           ============       ============       ============       ============       ============
Distributions per BUC                      $        .88       $        .88       $        .88       $       1.12       $     1.2024
                                           ============       ============       ============       ============       ============
</TABLE>



                                      -8-
<PAGE>



Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

Liquidity and Capital Resources

     Summit Tax Exempt L.P. III ("the Registrant") has invested in five
tax-exempt participating First Mortgage Bonds ("FMBs") issued by various state
or local governments or their agencies or authorities. The FMBs are secured by
participating first mortgage loans on the properties.

     At the beginning of the year, the Registrant had cash and temporary
investments of approximately $598,000. After the payment of distributions of
approximately $3,029,000 and receipt of the net cash flow from operations of
approximately $2,791,000, the Registrant ended the year with approximately
$360,000 in cash and temporary investments. The fourth quarter distribution of
approximately $678,000 ($.22 per BUC) was paid to BUC$holders in February 1997
from cash flow from operations. Interest payments from FMBs are anticipated to
provide sufficient liquidity to fund in future years Registrant's operating
expenditures, debt service and distributions. The restructuring of the FMBs in
1995 and any future restructurings may result in the General Partners reducing
the distributions to BUC$holders in future periods.

     Pursuant to the terms of a forbearance agreement with Orchard Mill
effective as of May 1, 1995, the minimum monthly interest pay rate was
established at a 5% annual rate with all remaining cash flow generated by the
property payable to the Registrant and applied to accrued and unpaid base
interest and contingent interest pursuant to the forbearance agreement and loan
agreements. For the year ended December 31, 1996, Orchard Mill has paid interest
monthly at an annual rate equal to 6.76%, consistent with the terms of the
forbearance agreement.

     For a discussion of the settlement of the proposed Class Action relating to
the Registrant see Other Events in Item 1. Business above.

     Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed that will or are likely
to impact liquidity in a material way. The Registrant's investments in FMBs are
secured by Registrant's interest in properties which are diversified by location
so that if one area of the country is experiencing downturns in the economy, the
remaining properties may be experiencing upswings. However, the geographic
diversification of the portfolio may not protect against a general downturn in
the national economy.

Results of Operations

     The Registrant accounts for its investments in the FMBs as debt securities
under the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").

     The Registrant has a right to require redemption of the FMBs approximately
twelve years after their issuance. The Registrant anticipates holding the FMBs
for approximately 12 to 15 years from the date of issuance; however, it can and
may elect to hold until maturity. As such, SFAS 115 requires the Registrant to
classify these investments as "available for sale." Accordingly, investments in
FMBs are carried at their estimated fair values, with unrealized gains and
losses reported in a separate component of partners' capital. Unrealized holding
gains or losses do not affect the cash flow generated from property operations,
distributions to BUC$holders, the characterization of the tax-exempt income
stream or the financial obligations under the FMBs.

     The Registrant periodically evaluates each FMB to determine whether a
decline in fair value below the FMB's cost basis is other than temporary. Such a
decline is considered to be other than temporary if, based on current
information and events, it is probable that the Registrant will be unable to
collect all amounts due according to the existing contractual terms of the
bonds. If the decline is judged to be other than temporary, the cost basis of
the bond is written down to its then estimated fair value, with the amount of
the write-down accounted for as realized loss.



                                      -9-
<PAGE>


     Because the FMBs are not readily marketable, the Registrant estimates fair
value for each bond as the present value of its expected cash flows using a
discount rate for comparable tax-exempt investments. This process is based upon
projections of future economic events affecting the real estate collateralizing
the bonds, such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates, and upon determination of an
appropriate market rate of interest, all of which are based on good faith
estimates and assumptions developed by the Registrant's management. Changes in
market conditions and circumstances may occur which would cause these estimates
and assumptions to change, therefore, actual results may vary from the estimates
and the variance may be material.

1996 vs. 1995

     Net income decreased by approximately $157,000 for the year ended December
31, 1996 as compared to the corresponding period in 1995 for the following
reasons:

     Interest income from Participating FMBs decreased by approximately $111,000
for the year ended December 31, 1996 as compared to the corresponding period in
1995 primarily due to reduced debt service payments received for the Sunset
Village and Sunset Creek FMBs, which were restructured in the third quarter
1995, partially offset by an increase in base and deferred base interest
received from Orchard Mill.

     Interest income from temporary investments decreased approximately $8,000
for the year ended December 31, 1996 as compared to the corresponding period in
1995 primarily due to higher interest rates and invested balances in 1995.

   
     General and administrative expenses increased approximately $38,000 for the
year ended December 31, 1996 as compared to the corresponding period in 1995
primarily due to an increase in legal costs relating to the Kinnes litigation
described in Note 7 to the Financial Statements. 
    

1995 vs. 1994

     Net income decreased by approximately $236,000 for the year ended December
31, 1995 as compared to the corresponding period in 1994 for the following
reasons:

     Interest income from FMBs decreased by approximately $259,000 for the year
ended December 31, 1995 as compared to the corresponding period in 1994
primarily due to reduced interest received from the Sunset Village and Sunset
Creek FMBs. This decrease was partially offset by an increase in interest paid
on the Player's Club FMB as required by the terms of its forbearance agreement.

     Interest income from temporary investments increased approximately $7,000
for the year ended December 31, 1995 as compared to the corresponding period in
1994 primarily due to higher interest rates and invested balances.

     General and administrative expenses increased approximately $53,000 for the
year ended December 31, 1995 as compared to the corresponding period in 1994
primarily due to increased legal fees in 1995 and increased costs associated
with the administration of the Registrant.

General

     The determination as to whether it is in the best interest of the
Registrant to enter into forbearance agreements on the FMBs, or alternatively,
to pursue its remedies under the loan documents, including foreclosure, is based
upon several factors including, but not limited to, property performance, owner
cooperation and projected legal costs.



                                      -10-
<PAGE>


     The difference between the stated interest rates and the rates paid by FMBs
is not accrued as interest income for financial reporting purposes. The accrual
of interest at the stated rate will resume once a property's ability to pay the
stated interest rate has been adequately demonstrated. Interest income of
approximately $1,400,000, $969,000, and $963,000 was not recognized for the
years ended December 31, 1996, 1995, and 1994, respectively.

     From time to time, certain property owners have elected to supplement the
cash flow generated by the properties to meet the required FMB interest
payments. No such payments were made in 1994, 1995 or 1996. There can be no
assurance that in the future any property owner will elect to supplement
property cash flow to satisfy bond interest requirements, if necessary.



                                      -11-


<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)

Property Information

     The following table lists the FMBs that the Registrant owns together with
occupancy rates of the underlying properties:


<TABLE>
<CAPTION>
                                                          Carrying
                                                           Amount        February 11,      Average         Stated      Minimum Pay
                                         Face Amount     at December        1997        Interest Rate     Interest  Rate at December
Property           Location                of FMB        31,1996 (C)      Occupancy     Paid for 1996*      Rate*       31,1996*
--------           --------                ------        -----------      ---------     --------------      -----       --------
<S>                <C>                  <C>             <C>                 <C>             <C>             <C>          <C>
Players Club (A)   Fort Myers, FL       $ 7,200,000     $ 6,843,428         83.9%           7.37%           8.00%        7.00%
Lakepoint          Dekalb County, GA     15,100,000      14,159,707         91.4            6.10            8.50         6.00
Sunset Village     Lancaster, CA         11,375,000       9,085,396         91.4            4.50            8.50         (B)
Sunset Creek       Lancaster, CA          8,275,000       6,004,427         92.8            4.46            8.50         (B)
Orchard Mill       Atlanta, GA           10,500,000       8,676,834         99.2            6.76(D)         9.00         5.00
                                        -----------     -----------

                                        $52,450,000     $44,769,792
                                        ===========     ===========
</TABLE>


*The average interest rate paid represents the interest recorded by the
Registrant while the stated interest rate represents the coupon rate of the FMB
and the minimum pay rate represents the minimum rate required to be paid under
the respective forbearance agreements.

(A)  Summit Tax Exempt L.P. II, of which the general partners are either the
     same or affiliates of the General Partners of the Registrant, acquired the
     other $2,500,000 of the Players Club bond issue.

(B) Interest on this FMB is paid to the extent of the property's net cash flow.

(C) The FMBs are carried at their estimated fair values at December 31, 1996.

(D) Includes receipt of deferred base interest related to prior periods.



                                      -12-


<PAGE>



Item 8.       Financial Statements and Supplementary Data.

<TABLE>
<CAPTION>
(a) 1.        Financial Statements                                                                    Page
              --------------------                                                                    ----

<S>           <C>                                                                                     <C>
              Independent Auditors' Report                                                             14

              Statements of Financial Condition as of December 31, 1996 and 1995                       15

              Statements of Income for the years ended December 31, 1996, 1995 and
              1994                                                                                     16

              Statements of Changes in Partners' Capital (Deficit) for the years
              ended December 31, 1996, 1995 and 1994                                                   17

              Statements of Cash Flows for the years ended December 31, 1996, 1995
              and 1994                                                                                 18

              Notes to Financial Statements                                                            19
</TABLE>



                                      -13-
<PAGE>

[D+T Letterhead]
                          INDEPENDENT AUDITORS' REPORT




To the Partners of
Summit Tax Exempt L.P. III
New York, New York



We have audited the accompanying statements of financial condition of Summit Tax
Exempt L.P. III (a Delaware Limited Partnership) as of December 31, 1996 and
1995, and the related statements of income, changes in partners' capital
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
General Partners. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
General Partners, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Summit Tax Exempt L.P. III as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.



/s/DELOITTE & TOUCHE LLP
New York, New York
March 20, 1997


                                      -14-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                        STATEMENTS OF FINANCIAL CONDITION



<TABLE>
<CAPTION>
                                     ASSETS

                                                                                                           December 31,
                                                                                              -------------------------------------
                                                                                                  1996                     1995
                                                                                              ------------             ------------
<S>                                                                                           <C>                      <C>
Participating first mortgage bonds-at fair value                                              $ 44,769,792             $ 46,686,585
Temporary investments                                                                              300,000                  250,000
Cash and cash equivalents                                                                           59,832                  347,908
Interest receivable, net                                                                           164,883                  132,128
Deferred bond selection fees, net                                                                  667,755                  729,686
Other assets                                                                                             0                    4,209
                                                                                              ------------             ------------

Total assets                                                                                  $ 45,962,262             $ 48,150,516
                                                                                              ============             ============

                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
   Accounts payable and accrued expenses                                                      $    124,106             $     77,880
   Due to affiliates                                                                               100,261                   43,427
                                                                                              ------------             ------------
Total liabilities                                                                                  224,367                  121,307

Contingencies

Partners' capital (deficit):
   BUC$holders (3,081,625 BUC$
     issued and outstanding)                                                                    49,089,896               49,456,927
   General Partners                                                                               (171,793)                (164,303)
   Net unrealized loss on
     participating first mortgage bonds                                                         (3,180,208)              (1,263,415)
                                                                                              ------------             ------------

Total partners' capital                                                                         45,737,895               48,029,209
                                                                                              ------------             ------------

Total liabilities and partners' capital                                                       $ 45,962,262             $ 48,150,516
                                                                                              ============             ============
</TABLE>




See accompanying notes to financial statements


                                      -15-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                              STATEMENTS OF INCOME



<TABLE>
<CAPTION>
                                                                                               Years Ended December 31,
                                                                                ----------------------------------------------------
                                                                                   1996                 1995                 1994
                                                                                ----------           ----------           ----------
<S>                                                                             <C>                  <C>                  <C>
Revenues:

   Interest income:
     Participating first mortgage bonds                                         $3,074,857           $3,185,563           $3,444,722
     Temporary investments                                                          12,455               20,752               13,908
                                                                                ----------           ----------           ----------

     Total revenues                                                              3,087,312            3,206,315            3,458,630
                                                                                ----------           ----------           ----------

Expenses:

   General and administrative                                                      239,354              201,739              148,351
   Loan servicing fees                                                             131,125              131,125              131,125
   Amortization of deferred bond selection fees                                     61,931               61,332               61,633
   Provision for uncollectible interest                                                  0                    0               69,405
                                                                                ----------           ----------           ----------

     Total expenses                                                                432,410              394,196              410,514
                                                                                ----------           ----------           ----------

     Net income                                                                 $2,654,902           $2,812,119           $3,048,116
                                                                                ==========           ==========           ==========

Allocation of Net Income:

   BUC$holders                                                                  $2,344,799           $2,498,872           $2,730,149
                                                                                ==========           ==========           ==========
   General Partners:
     Special distribution                                                       $  262,250           $  262,250           $  262,250
     Other                                                                          47,853               50,997               55,717
                                                                                ----------           ----------           ----------

                                                                                $  310,103           $  313,247           $  317,967
                                                                                ==========           ==========           ==========

Net income per BUC                                                              $      .76           $      .81           $      .89
                                                                                ==========           ==========           ==========
</TABLE>



See accompanying notes to financial statements


                                      -16-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
              STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)



<TABLE>
<CAPTION>
                                                                                                                 Net Unrealized
                                                                                                                 Gain (Loss) on
                                                                                                                 Participating First
                                                      Total             BUC$holders        General Partners      Mortgage Bonds
                                                      -----             -----------        ----------------      --------------
<S>                                               <C>                  <C>                  <C>                  <C>
Partners' capital (deficit) -
   December 31, 1993                              $ 49,491,235         $ 49,651,566         $   (160,331)

Cumulative effect through
   January 1, 1994 of
   accounting change (Note 2)                         (475,556)                   0                    0         $   (475,556)

Net income                                           3,048,116            2,730,149              317,967                    0
Distributions                                       (3,029,423)          (2,711,830)            (317,593)                   0

Net change in fair value of
   participating first mortgage
   bonds                                              (961,930)                   0                    0             (961,930)
                                                  ------------         ------------         ------------         ------------

Partners' capital (deficit) -
   December 31, 1994                                48,072,442           49,669,885             (159,957)          (1,437,486)

Net income                                           2,812,119            2,498,872              313,247                    0
Distributions                                       (3,029,423)          (2,711,830)            (317,593)                   0

Net change in fair value of
   participating first mortgage
   bonds                                               174,071                    0                    0              174,071
                                                  ------------         ------------         ------------         ------------

Partners' capital (deficit) -
   December 31, 1995                                48,029,209           49,456,927             (164,303)          (1,263,415)

Net income                                           2,654,902            2,344,799              310,103                    0
Distributions                                       (3,029,423)          (2,711,830)            (317,593)                   0

Net change in fair value of
   participating first mortgage
   bonds                                            (1,916,793)                   0                    0           (1,916,793)
                                                  ------------         ------------         ------------         ------------

Partners' capital (deficit) -
   December 31, 1996                              $ 45,737,895         $ 49,089,896         $   (171,793)        $ (3,180,208)
                                                  ============         ============         ============         ============
</TABLE>


See accompanying notes to financial statements



                                      -17-
<PAGE>



                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                              Year ended December 31,
                                                                              ------------------------------------------------------
                                                                                  1996                 1995                 1994
                                                                              -----------          -----------          -----------
<S>                                                                           <C>                  <C>                  <C>
Cash flows from operating activities:
Interest received                                                             $ 3,054,557          $ 3,301,923          $ 3,448,922
Fees and expenses paid                                                           (263,210)            (316,869)            (280,770)
                                                                              -----------          -----------          -----------

Net cash provided by operating activities                                       2,791,347            2,985,054            3,168,152
                                                                              -----------          -----------          -----------

Cash flows from investing activities:
Net (purchase) sale of temporary investments                                      (50,000)             316,327             (166,287)
                                                                              -----------          -----------          -----------

Cash flows from financing activities:
Distributions paid                                                             (3,029,423)          (3,029,423)          (3,029,423)
                                                                              -----------          -----------          -----------

Net (decrease) increase in cash and cash equivalents                             (288,076)             271,958              (27,558)

Cash and cash equivalents at beginning of year                                    347,908               75,950              103,508
                                                                              -----------          -----------          -----------

Cash and cash equivalents at end of year                                      $    59,832          $   347,908          $    75,950
                                                                              -----------          -----------          -----------
Schedule reconciling net income to net cash flow provided by operating
   activities:
Net income                                                                    $ 2,654,902          $ 2,812,119          $ 3,048,116
                                                                              ===========          ===========          ===========
Adjustments to reconcile net income to net cash provided by operating
   activities:

Provision for uncollectible interest                                                    0                    0               69,405
Amortization of deferred bond selection fees                                       61,931               61,332               61,633

Changes in:
   Interest receivable                                                            (32,755)              95,608               (9,708)
   Other assets                                                                     4,209                1,114               76,154
   Accounts payable and accrued expenses                                           46,226               (4,185)             (57,304)
   Due to affiliates                                                               56,834               19,066              (20,144)
                                                                              -----------          -----------          -----------

Total adjustments                                                                 136,445              172,935              120,036
                                                                              -----------          -----------          -----------

Net cash provided by operating activities                                     $ 2,791,347          $ 2,985,054          $ 3,168,152
                                                                              ===========          ===========          ===========
</TABLE>



See accompanying notes to financial statements



                                      -18-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994

NOTE 1 - General

     Summit Tax Exempt L.P. III (the "Partnership"), a Delaware limited
partnership, was formed February 25, 1987 and will terminate on December 31,
2021 unless terminated sooner under the provisions of the Agreement of Limited
Partnership (the "Partnership Agreement"). The Partnership was formed to invest
in tax-exempt participating first mortgage revenue bonds ("FMBs") issued by
various state or local governments or their agencies or authorities. The FMBs
are secured by participating first mortgage loans ("Mortgage Loans") on
multi-family residential apartment projects (the "Properties"). The general
partners of the Partnership (the "General Partners") are Prudential-Bache
Properties, Inc. ("PBP") (a wholly-owned subsidiary of Prudential Securities
Group Inc.) and Related Tax Exempt Associates III, Inc. ( the "Related General
Partner"). Related BUC$ Associates III, Inc. (the "Assignor Limited Partner"),
which acquired and holds limited partnership interests on behalf of those
persons who purchase Beneficial Unit Certificates ("BUC$"), has assigned to
those persons substantially all of its rights and interest in and under such
limited partnership interests. The Related General Partner and the Assignor
Limited Partner are under common ownership. As of December 31, 1996, the
Partnership has invested in a total of five FMBs.


NOTE 2 - Summary of Significant Accounting Policies

     a) Basis of Accounting

     The books and records of the Partnership are maintained on the accrual
basis of accounting in accordance with generally accepted accounting principles.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partners to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

     b) Participating first mortgage bonds

     Effective January 1, 1994, the Partnership accounts for its investments in
the FMBs as debt securities under the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115").

     The Partnership has a right to require redemption of the FMBs approximately
twelve years after their issuance. The Partnership anticipates holding the FMBs
for approximately 12 to 15 years from the date of issuance; however, it can and
may elect to hold until maturity. As such, SFAS 115 requires the Partnership to
classify these investments as "available for sale." Accordingly, investments in
FMBs are carried at their estimated fair values, with unrealized gains and
losses reported in a separate component of partners' capital. The cumulative
effect of adopting this accounting was a decrease in partners' capital at
January 1, 1994 of approximately $476,000 due to unrealized holding losses.
Unrealized holding gains or losses do not affect the cash flow generated from
property operations, distributions to BUC$holders, the characterization of the
tax-exempt income stream or the financial obligations under the FMBs.

     The Partnership periodically evaluates each FMB to determine whether a
decline in fair value below the FMB's cost basis is other than temporary. Such a
decline is considered to be other than temporary if, based on current
information and events, it is probable that the Partnership will be unable to
collect all amounts due



                                      -19-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 2 - Summary of Significant Accounting Policies (continued)


according to the existing contractual terms of the bonds. If the decline is
judged to be other than temporary, the cost basis of the bond is written down to
its then estimated fair value, with the amount of the write-down accounted for
as realized loss.

     Because the FMBs are not readily marketable, the Partnership estimates fair
value for each bond as the present value of its expected cash flows using a
discount rate for comparable tax-exempt investments. This process is based upon
projections of future economic events affecting the real estate collateralizing
the bonds, such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates, and upon determination of an
appropriate market rate of interest, all of which are based on good faith
estimates and assumptions developed by the Partnership's management. Changes in
market conditions and circumstances may occur which would cause these estimates
and assumptions to change, therefore, actual results may vary from the estimates
and the variance may be material.

     Interest income from FMBs is recognized at the stated rate when
collectibility of future amounts is reasonably assured. Interest income from
FMBs with modified terms where the collectibility of future amounts is uncertain
is recognized based upon expected cash receipts.

     c) Temporary Investments

     Temporary investments at December 31, 1996 and 1995 represent tax-exempt
municipal preferred stock which is carried at cost which approximates market
value.

     d) Cash and cash equivalents

     Cash and cash equivalents include cash on hand, cash in banks, and
investments in short-term instruments with an original maturity of three months
or less, for which cost approximates market value.

     e) Income taxes

     The Partnership is not required to provide, or pay, any Federal income
taxes. Income tax attributes that arise from its operations are passed directly
to the BUC$holders. The Partnership may be subject to other state and local
taxes in jurisdictions in which it operates.

     f) Profit and loss allocations and distributions

     As more fully described in the Partnership Agreement, the General Partners
receive a special distribution equal to a .5% per annum of the total invested
assets (which equals the face amount of the FMBs), payable quarterly, for
managing the affairs of the Partnership.

     Income is allocated first to the General Partners in an amount equal to the
special distribution. The net remaining profits or losses and distributions are
then allocated 98% to the BUC$holders and 2% to the General Partners, in
accordance with the Partnership Agreement.

     g) Bond selection fees

     The General Partners were paid bond selection fees (equal to 2% of the
gross proceeds from the initial offering) for evaluating and selecting FMBs,
negotiating the terms of mortgage loans and coordinating the



                                      -20-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 2 - Summary of Significant Accounting Policies (continued)


development effort with property developers and government agencies. These fees
have been capitalized and are being amortized over the terms of the FMBs. The
accumulated amortization as of December 31, 1996 and 1995, was approximately
$565,000 and $503,000, respectively.

     h) Fair value of financial instruments

     As described in Note 2.b. above, the Partnership's investment in FMBs are
carried at estimated fair values. The Partnership has determined that the fair
value of its remaining financial instruments, including its temporary
investments and cash and cash equivalents approximates their carrying values.


NOTE 3 - Participating First Mortgage Bonds

     Overview

     The principal and interest payments on each FMB are payable only from the
cash flows, including proceeds in the event of sale, from the Properties
underlying the FMBs. None of these FMBs constitute a general obligation of any
state or local government, agency or authority. The FMBs are secured by the
mortgage loans on the underlying Properties and the structure of each mortgage
loan mirrors the structure of the corresponding FMB.

     Unless otherwise modified, the principal of the FMBs will not be amortized
during their respective terms (which are generally up to 24 years) and will be
required to be repaid in lump sum "balloon" payments at the expiration of the
respective terms or at such earlier times as the Partnership may require
pursuant to the terms of the bond documents. The Partnership has a right to
require redemption of the FMBs approximately twelve years after their issuance.
The Partnership anticipates holding the FMBs for approximately 12 to 15 years
from the date of issuance; however, it can and may elect to hold until maturity.

     In addition to the stated rates of interest ranging from 8.0% to 9.0% per
annum, each of the FMBs provides for "contingent interest" which is equal to:
(a) an amount equal to 50% to 100% of net property cash flow and 75% to 100% of
net sale or refinancing proceeds until the borrower has paid, during the
post-construction period, annually compounded interest at 9% on a cumulative
basis, and thereafter (b) an amount equal to 25% of remaining net property cash
flow and 25% of remaining net sale or refinancing proceeds until the borrower
has paid interest at a simple annual rate of 16% over the term of the FMB. Both
the stated and contingent interest are exempt from Federal income taxation. The
Partnership has not received any contingent interest to date.

     In order to protect the tax-exempt status of the FMBs, the owners of the
Properties are required to enter into certain agreements to own, manage and
operate such Properties in accordance with requirements of the Internal Revenue
Code.

     Forbearance agreements have been executed with the owners of all five of
the properties.

     Lakepoint

     During 1991, the Partnership entered into a forbearance agreement with the
owner of the Lakepoint property allowing interest payments at a pay rate of 7.5%
per annum in 1991, 8.0% in 1992 and 8.5% in 1993. Due to weakness in the market
in June 1993, the forbearance agreement was further modified to allow for a pay
rate of 7.5% from January 1992 through March 1993 and 6.0% from April 1993
through December 1995. In May 1996, the General Partners granted an extension of
the forbearance agreement providing for a minimum rate of 6.0% per annum to be
paid through December 15, 1997.



                                      -21-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 3 - Participating First Mortgage Bonds (continued)


     Orchard Mill

     The 1991 forbearance agreement relating to the Orchard Mill FMB permits
interest to be paid only to the extent of the net cash flow from the property.
Pursuant to the terms of a forbearance agreement with Orchard Mill effective as
of May 1, 1995, the minimum monthly interest pay rate was established at a 5%
annual rate with all remaining cash flow generated by the property payable to
the Partnership and applied to accrued and unpaid base interest and contingent
interest as set forth in the forbearance agreement and loan agreements. For the
year ended December 31, 1996, Orchard Mill has paid interest monthly at an
annual rate equal to 6.76%, consistent with the terms of the forbearance
agreement.

     Players Club

     In 1992, the Partnership entered into a forbearance agreement with the
owner of the Players Club property. This agreement was substantially modified on
January 1, 1994 , January 1, 1995, January 1, 1996 and again on January 1, 1997
to require minimum debt service payments of 6.0% per annum through the end of
1994, 7.0% for 1995 and 1996 and 6.25% through the end of 1997.

     Sunset Village/Sunset Creek

     Forbearance agreements were also entered into with the owner of the Sunset
Village and Sunset Creek properties in 1992 allowing debt service payments at a
rate of 7.0% per annum through April 1993 at which time the pay rate increased
to 7.25% and was scheduled to increase in annual increments to the stated rate
of 8.5% in May 1996. Effective with the May 1, 1995 payment date, the Sunset
Village and Sunset Creek FMBs have made payments based on the monthly net cash
flow generated by the operations of the underlying properties in accordance with
the terms of the agreement outlined below. Effective as of August 1, 1995, the
original owner and obligor of the Sunset Creek and Sunset Village FMBs
transferred the deeds to the underlying properties to an affiliate of the
Related General Partner for limited consideration. Pursuant to the agreement,
the Related General Partner's affiliate, who has not made an equity investment
in the underlying property, assumed the day-to-day responsibilities and
obligations of operating the properties. The Partnership receives the monthly
net cash generated by these properties as payment toward debt service.

     General

     The determination as to whether it is in the best interest of the
Partnership to enter into forbearance agreements on the FMBs, or alternatively,
to pursue its remedies under the loan documents, including foreclosure, is based
upon several factors. These factors include, but are not limited to, property
performance, owner cooperation and projected legal costs.

     The difference between the stated interest rates and the rates paid by FMBs
is not accrued as interest income for financial reporting purposes. The accrual
of interest at the stated rate will resume once a property's ability to pay the
stated interest rate has been adequately demonstrated. Interest income of
approximately $1,400,000, $969,000, and $963,000 was not recognized for the
years ended December 31, 1996, 1995, and 1994, respectively.



                                      -22-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 3 - Participating First Mortgage Bonds (continued)

     The following FMBs' interest income exceeded 15% of the Registrant's total
revenue for each of the three years in the period ended December 31, 1996:


                                           1996            1995             1994
                                           ----            ----             ----

     Lakepoint                              30%             29%              29%
     Sunset Village                         17%             21%              22%
     Orchard Mill                           24%             19%              21%
     Sunset Creek                            *              15%              16%
     Players Club                           17%             16%               *

* FMB interest income was less than 15% of the Registrant's total revenue for
the year.


     The cost basis of the FMBs was $47,950,000 at December 31, 1996 and 1995.
The net unrealized loss on FMBs consists of gross unrealized gains and losses of
$0 and $3,180,208, respectively, at December 31, 1996 and $488,045 and
$1,751,460, respectively, at December 31, 1995.


                                      -23-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994

NOTE 3 - Participating First Mortgage Bonds (continued)

     Descriptions of the various FMBs owned by the Partnership at December 31,
1996 are as follows:

<TABLE>
<CAPTION>
                                                        Minimum                                                          Carrying
                                         Average        Pay Rate    Stated                                                Amount
                                      Interest Rate   at December  Interest                                             at December
Property            Location          Paid for 1996*    31,1996*     Rate*   Call Date    Maturity Date  Face Amount   31, 1996 (C)
--------            --------          --------------    --------     -----   ---------    -------------  -----------   ------------
<S>                 <C>                   <C>             <C>        <C>          <C>            <C>     <C>           <C>
Players Club (A)    Ft. Myers, FL         7.37%           7.00%      8.00%   Aug. 1999      Aug. 2007    $ 7,200,000   $  6,843,428
Lakepoint           Dekalb City, GA       6.10            6.00       8.50    Jan. 2000      Oct. 2007     15,100,000     14,159,707
Sunset Village      Lancaster, CA         4.50            (B)        8.50    Mar. 2000      Mar. 2008     11,375,000      9,085,396
Sunset Creek        Lancaster, CA         4.46            (B)        8.50    Mar. 2000      Mar. 2008      8,275,000      6,004,427
Orchard Mill        Atlanta, GA           6.76(D)         5.00       9.00    Apr. 2001      Mar. 2008     10,500,000      8,676,834
                                                                                                         -----------    -----------

                                                                                                         $52,450,000    $44,769,792
                                                                                                         ===========    ===========
</TABLE>

*The average interest rate paid represents the interest recorded by the
Partnership while the stated interest rate represents the coupon rate of the FMB
and the minimum pay rate represents the minimum rate required to be paid under
the respective forbearance agreements.

(A)  Summit Tax Exempt L.P. II, of which the general partners are either the
     same or affiliates of the General Partners of the Partnership, acquired the
     other $2,500,000 of the Players Club bond issue.

(B) Interest on this FMB is paid to the extent of the property's net cash flow.

(C) The FMBs are carried at their estimated fair values at December 31, 1996.

(D) Includes receipt of deferred base interest related to prior periods.


                                      -24-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 4 -  Summarized Financial Information

          The following summarized financial information is for the underlying
property of the Players Club FMB:

                                               Years Ended December 31,
                                      -----------------------------------------
                                          1996           1995           1994
                                      -----------    -----------    -----------
RESULTS OF OPERATIONS
---------------------

Rental income                         $ 1,621,939    $ 1,689,065    $ 1,696,494
Other income                               86,384         85,514         74,214
Interest expense                         (855,844)      (854,043)      (840,581)
Depreciation and amortization expense    (323,215)      (323,274)      (323,517)
Operating expenses                     (1,099,372)    (1,152,410)    (1,215,691)
                                      -----------    -----------    -----------
Net loss                              $  (570,108)   $  (555,148)   $  (609,081)
                                      ===========    ===========    =========== 

                                              December 31,
                                      --------------------------
                                          1996           1995
                                      -----------    -----------
FINANCIAL POSITION
------------------

Property and equipment, net of
    accumulated depreciation          $ 7,713,653    $ 7,994,584
Other assets                              428,169        553,095
                                      -----------    -----------

Total assets                          $ 8,141,822    $ 8,547,679
                                      ===========    ===========

Mortgage notes payable                $ 9,700,000    $ 9,700,000
Other liabilities                       1,727,404      1,563,153
                                      -----------    -----------

Total liabilities                     $11,427,404    $11,263,153
                                      ===========    ===========

     The following summarized financial information is for the underlying
property of the Lakepoint FMB:

                                               Years Ended December 31,
                                      -----------------------------------------
                                          1996           1995           1994
                                      -----------    -----------    -----------
RESULTS OF OPERATIONS
---------------------

Rental income                         $ 2,406,303    $ 2,248,016    $ 2,077,324
Other income                                5,144          1,775          1,165
Interest expense                       (1,309,189)    (1,295,562)    (1,301,326)
Depreciation and amortization expense    (356,173)      (356,172)      (356,172)
Operating expenses                     (1,351,485)    (1,287,692)    (1,221,864)
                                      -----------    -----------    -----------
Net loss                              $  (605,400)   $  (689,635)   $  (800,873)
                                      ===========    ===========    =========== 


                                      -25-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 4 -  Summarized Financial Information (continued)

                                              December 31,
                                      --------------------------
                                          1996           1995
                                      -----------    -----------
FINANCIAL POSITION
------------------

Property and equipment, net of
    accumulated depreciation          $10,759,168    $11,080,188
Other assets                              564,007        412,904
                                      -----------    -----------

Total assets                          $11,323,175    $11,493,092
                                      ===========    ===========

Bonds payable                         $14,767,800    $14,737,600
Other liabilities                       2,511,240      2,105,957
                                      -----------    -----------

Total liabilities                     $17,279,040    $16,843,557
                                      ===========    ===========

     The following summarized financial information is for the underlying
property of the Sunset Village FMB:

                                               Years Ended December 31,
                                      -----------------------------------------
                                          1996           1995           1994
                                      -----------    -----------    -----------
RESULTS OF OPERATIONS
---------------------

Rental income                         $ 1,055,099    $ 1,088,497    $ 1,189,634
Other income                               45,054         50,748         69,755
Interest expense                         (998,363)      (962,164)      (995,257)
Depreciation and amortization expense    (265,018)      (381,282)      (464,304)
Loss on impairment of assets                    0     (1,009,634)             0
Operating expenses                       (570,188)      (494,626)      (415,891)
                                      -----------    -----------    -----------

Net loss                              $  (733,416)   $(1,708,461)   $  (616,063)
                                      ===========    ===========    ===========

                                              December 31,
                                      --------------------------
                                          1996           1995
                                      -----------    -----------
FINANCIAL POSITION
------------------

Property and equipment, net of
    accumulated depreciation          $ 7,384,558    $ 7,649,576
Other assets                               98,700         82,744
                                      -----------    -----------

Total assets                          $ 7,483,258    $ 7,732,320
                                      ===========    ===========

Mortgage notes payable                $11,375,000    $11,375,000
Other liabilities                         730,243        245,884
                                      -----------    -----------

Total liabilities                     $12,105,243    $11,620,884
                                      ===========    ===========


                                      -26-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 4 -   Summarized Financial Information (continued)

           The following summarized financial information is for the underlying
property of the Sunset Creek FMB:

                                               Years Ended December 31,
                                      -----------------------------------------
                                          1996           1995           1994
                                      -----------    -----------    -----------
RESULTS OF OPERATIONS
---------------------

Rental income                         $   769,692    $   790,194    $   863,315
Other income                               31,268         37,860         57,530
Interest expense                         (722,806)      (714,232)      (725,222)
Depreciation expense                     (187,769)      (271,136)      (330,645)
Loss on impairment of assets                    0       (776,574)             0
Operating expenses                       (412,144)      (373,787)      (310,390)
                                      -----------    -----------    -----------

Net loss                              $  (521,759)   $(1,307,675)   $  (445,412)
                                      ===========    ===========    ===========

                                              December 31,
                                      --------------------------
                                          1996           1995
                                      -----------    -----------
FINANCIAL POSITION
------------------

Property and equipment, net of
    accumulated depreciation          $ 5,353,994    $ 5,541,763
Other assets                               79,953         56,994
                                      -----------    -----------

Total assets                          $ 5,433,947    $ 5,598,757
                                      ===========    ===========

Mortgage notes payable                $ 8,275,000    $ 8,275,000
Other liabilities                         539,573        182,628
                                      -----------    -----------

Total liabilities                     $ 8,814,573    $ 8,457,628
                                      ===========    ===========

           The following summarized financial information is for the underlying
property of the Orchard Mill FMB:

                                               Years Ended December 31,
                                      -----------------------------------------
                                          1996           1995           1994
                                      -----------    -----------    -----------
RESULTS OF OPERATIONS
---------------------

Rental income                         $ 1,561,269    $ 1,478,112    $ 1,380,533
Other income                               10,669          4,141          3,199
Interest expense                         (960,750)      (953,460)      (958,125)
Depreciation and amortization expense    (278,314)      (302,608)      (316,656)
Operating expenses                       (999,266)      (871,406)      (807,573)
                                      -----------    -----------    -----------

Net loss                              $  (666,392)   $  (645,221)   $  (698,622)
                                      ===========    ===========    ===========


                                      -27-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 4 -   Summarized Financial Information (continued)

                                              December 31,
                                      --------------------------
                                          1996           1995
                                      -----------    -----------
FINANCIAL POSITION
------------------

Property and equipment, net of
    accumulated depreciation          $ 7,984,769    $ 8,221,300
Other assets                              709,898        753,838
                                      -----------    -----------

Total assets                          $ 8,694,667    $ 8,975,138
                                      ===========    ===========

Notes payable                         $10,218,250    $10,197,250
Other liabilities                       3,209,700      2,844,779
                                      -----------    -----------

Total liabilities                     $13,427,950    $13,042,029
                                      ===========    ===========


                                      -28-
<PAGE>

                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 5 - Income Taxes

     Following is a reconciliation of net income for financial statement
purposes with net income for Federal income tax reporting purposes:

<TABLE>
<CAPTION>
                                                                              1996                   1995                    1994
                                                                          -----------            -----------             -----------
<S>                                                                       <C>                    <C>                     <C>
     Net income per financial statements                                  $ 2,654,902            $ 2,812,119             $ 3,048,116
     Uncollected interest from FMBs                                         1,399,894                969,000               1,031,827
     Provision for uncollectible interest                                           0                      0                  69,405
     Property tax loan deferred
       for tax reporting purposes, net                                              0                (82,204)                      0
     Amortization of deferred bond
       selection fees                                                          61,931                 61,332                  61,633
                                                                          -----------            -----------             -----------

     Net income for tax purposes                                          $ 4,116,727            $ 3,760,247             $ 4,210,981
                                                                          ===========            ===========             ===========
</TABLE>

     Net income for tax purposes is generally exempt from Federal income tax.
The differences between the tax and book bases of partner's capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments, the recording of distributions and the Partnership's accounting for
the FMBs at fair value for book purposes and cost for tax purposes.

NOTE 6 - Related Parties

     The General Partners and their affiliates perform services for the
Partnership which include, but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; asset management;
investor communications; printing and other administrative services. The General
Partners and their affiliates receive reimbursements for costs incurred in
connection with these services, the amount of which is limited by the
Partnership Agreement. The costs and expenses were as follows:

<TABLE>
<CAPTION>
                                                                                                   Year Ended December 31,
                                                                                      ----------------------------------------------
                                                                                        1996               1995               1994
                                                                                      --------           --------           --------
<S>                                                                                   <C>                <C>                <C>
     Prudential-Bache Properties, Inc. and affiliates
       General and administrative                                                     $ 39,778           $ 71,153           $ 61,866

     Related Tax Exempt Associates III, Inc. and affiliates
       General and administrative                                                       48,805             21,853              8,521
       Loan servicing fee                                                              131,125            131,125            131,125
                                                                                      --------           --------           --------

                                                                                       179,930            152,978            139,646
                                                                                      --------           --------           --------

                                                                                      $219,708           $224,131           $201,512
                                                                                      ========           ========           ========
</TABLE>

     Effective October 1, 1995 the Related General Partner has assumed from PBP,
the responsibilities and duties of the Tax Matters Partner as defined in the
Partnership Agreement.



                                      -25-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 6 - Related Parties (continued)


     An affiliate of the Related General Partner receives the loan servicing fee
in the amount of .25% per annum of the principal amount outstanding of mortgage
loans serviced by the affiliate.

     During 1995 and January 1996, a division of Prudential Securities
Incorporated ("PSI"), an affiliate of PBP, was responsible for the purchase,
sale and safekeeping of the Partnership's temporary investments. This account
was maintained in accordance with the Partnership Agreement.

     PSI owns 17,700 BUC$ at December 31, 1996.

     The Players Club property (securing a $7,200,000 bond in this Partnership)
also secures an FMB for $2,500,000 held by Summit Tax Exempt L.P. II, of which
the general partners are either the same or affiliates of the General Partners
of this Partnership. The original owner of the FMB is an affiliate of the
Related General Partner.

     Effective as of August 1, 1995, the original owner and obligor of the
Sunset Creek and Sunset Village FMBs transferred the deeds to the underlying
properties to an affiliate of the Related General Partner for limited
consideration. Pursuant to the agreement, the Related General Partner's
affiliate, who has not made an equity investment in the underlying property,
assumed the day-to-day responsibilities and obligations of operating the
properties.


NOTE 7 - Contingencies

     On or about October 18, 1993, a putative class action, captioned Kinnes et
al. v. Prudential Securities Group, Inc. et al. (CV-93-654), was filed in the
United States District Court for the District of Arizona, purportedly on behalf
of investors in the Partnership, against the Partnership, PBP, PSI and a number
of other defendants. On November 16, 1993, a putative class action captioned
Connelly et al. v. Prudential-Bache Securities Inc. et al. (93 Civ. 713) , was
filed in the United States District Court for the District of Arizona ,
purportedly on behalf of investors in the Partnership against the Partnership,
PBP, PSI and a number of other defendants. On January 3, 1992, a putative class
action, captioned Levine v. Prudential-Bache Properties Inc. et al.. (92 Civ.
52), was filed in the United States District Court for the Northern District of
Illinois purportedly on behalf of investors in the Partnership against the
General Partners, PSI and a number of other defendants. Subsequently the Related
General Partner was dismissed from the Levine litigation.

     By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, the Kinnes case, by order dated May 4, 1994, the Connelly case and by
order dated July 13, 1994, the Levine case, to a single judge of the United
States District Court for the Southern District of New York (the "Court") and
consolidated for pretrial proceedings under the caption In re Prudential
Securities Incorporated Limited Partnerships Litigation (MDL Docket 1005) (the
"Class Action"). On June 8, 1994, plaintiffs in the transferred cases filed a
complaint that consolidated the previously filed complaints and named as
defendants, among others, PSI, certain of its present and former employees and
the General Partners. The Partnership was not named a defendant in the
consolidated complaint, but the name of the Partnership was listed as being
among the limited partnerships at issue in the case.

     On August 9, 1995 PBP, PSI and other Prudential defendants entered into a
Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
Court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI. The Levine



                                      -26-
<PAGE>


                           SUMMIT TAX EXEMPT L.P. III
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994


NOTE 7 - Contingencies (continued)


and Connelly cases were dismissed with prejudice as to the Prudential defendants
by court order dated October 25, 1996. The consolidated action remains pending
against the Related General Partner and certain of its affiliates.

     On December 31, 1996, the Court issued a preliminary approval order (the
"Order") with respect to settlement (the "Related Settlement") of the Class
Action against the Related General Partner and certain of its affiliates.
Pursuant to the stipulation of settlement entered into with counsel for the
class on December 24, 1996, the proposed Related Settlement contemplates, among
other matters, the reorganization (the "Reorganization") of the Partnership and
two other partnerships co-sponsored by affiliates of the Related General Partner
and PBP.

     The proposed Related Settlement and Reorganization are subject to
objections by the BUC$holders and limited partners of the Partnership as well as
each of the other concerned partnerships and final approval of the Court after
review of the proposals at a fairness hearing.

     Under the proposed Reorganization plan, the BUC$holders of the Partnership,
and Summit Tax Exempt Bond Fund L.P. and Summit Tax Exempt L.P. II, will receive
shares in a newly formed business trust. It is anticipated that the shares will
be allocated proportionately among the partnerships and their respective
investors based upon appraisals and other factors as supported by a third-party
fairness opinion. Detailed information about the proposed Related Settlement and
Reorganization will be sent to BUC$holders in the near future. The terms of the
Reorganization include, among other matters, affiliates of the Related Capital
Company ("RCC") of PBP's general partner interest (the "PBP Interest"), transfer
to the BUC$holders of one-half of the PBP Interest, reduction of fees currently
payable to the General Partners by 25%, filing an application to list the new
company's shares on an exchange and the creation of an infinite, as opposed to
finite, life-operating business.

     In connection with the proposed Related Settlement and Reorganization, on
December 19, 1996, PBP and RCC entered into an agreement for the purchase by RCC
or its affiliates of the PBP Interest. The agreement is subject to numerous
conditions, including the effectiveness of the Related Settlement of the Class
Action and the approval of the sale and withdrawal of PBP as a general partner
of the Partnership by the Court.

     Pending final approval of the Related Settlement, the Court's Order
prohibits class members (including the BUC$holders) from, among other matters,
(i) transferring their BUC$ unless the transferee agrees to be bound by the
Related Settlement; (ii) granting a proxy to object to the Reorganization; or
(iii) commencing a tender offer for the BUC$. In addition, the General Partners
are enjoined from (i) recording any transfers made in violation of the Order and
(ii) providing the list of investors in any of the partnerships which are the
subject of the Reorganization to any person conducting a tender offer.

     There can be no assurance that the conditions to the closing of the
proposed Related Settlement and Reorganization will be satisfied that a closing
may occur in the projected time frame. In the event a settlement cannot be
reached, the Related General Partner believes it has meritorious defenses to the
consolidated complaint and intends to vigorously defend this action.


NOTE 8 - Subsequent Event

     In February 1997, distributions of approximately $678,000 and $14,000 were
paid to the BUC$holders and General Partners, respectively, for the quarter
ended December 31, 1996.


                                      -27-
<PAGE>



   
                            FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITOR'S REPORT

                                    HRA, LTD
                              LAKEPOINT APARTMENTS

                           DECEMBER 31, 1996 AND 1995





<PAGE>



                                    HRA, LTD
                              Lakepoint Apartments

                                TABLE OF CONTENTS

                                                                            PAGE

INDEPENDENT AUDITOR'S REPORT                                                  3

FINANCIAL STATEMENTS

       BALANCE SHEETS                                                         4

       STATEMENT OF OPERATIONS                                                5

       STATEMENT OF CHANGES IN PARTNERS' DEFICIT                              6

       STATEMENT OF CASH FLOWS                                                7

       NOTES TO FINANCIAL STATEMENTS                                          8

SUPPLEMENTARY INFORMATION

       INDEPENDENT AUDITOR'S REPORT ON
         SUPPLEMENTARY INFORMATION                                           13

       SCHEDULE OF OPERATING EXPENSES                                        14



<PAGE>


                      [LETTERHEAD OF TIMOTHY F. KERCHEVAL]


                          INDEPENDENT AUDITOR'S REPORT

To the Partners
HRA Ltd.

     I have audited the accompanying balance sheets of HRA, LTD. [a Georgia
limited partnership] as of December 31, 1996 and 1995, and the related
statements of operations, changes in partners' deficit, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.

     I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles use and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.

     In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HRA, LTD. as of December 31,
1996 and 1995, and results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.

     The accompanying financial statements have been prepared assuming that the
Company has suffered recurring losses from operations and has a net capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note G. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


                                      /s/ Timothy F. Kercheval, CPA

Atlanta, Georgia
February 19, 1996

                                      -3-

<PAGE>


                                    HRA, Ltd.
                              Lakepoint Apartments

                                 BALANCE SHEETS

                           December 31, 1996 and 1995

<TABLE>
<CAPTION>
                                       Assets
                                                               1996            1995
                                                           ------------    ------------
<S>                                                        <C>             <C>
OPERATING PROPERTIES
    Land                                                   $  1,340,680    $  1,340,680
    Buildings                                                11,643,688      11,643,688
    Furniture and fixtures                                      641,519         641,519
                                                           ------------    ------------
                                                             13,625,887      13,625,887
Less accumulated depreciation                                (2,866,719)     (2,545,699)
                                                           ------------    ------------
                                                             10,759,168      11,080,188
                                                           ------------    ------------
CURRENT ASSETS
    Cash                                                   $     91,054    $      5,754
    Cash - security deposits                                    101,381          90,146
    Escrow Funds                                                127,223          78,523
    Rent receivable                                              11,906           5,284
    Accounts receivable - other                                   4,199            --
    Bond issue costs, net of accumulated amortization of
       $128,177 for 1996 and $93,024 for 1995                    54,887          59,840
    Due from partners                                            53,269          53,269
    Due from affiliates                                         120,088         120,088
                                                           ------------    ------------
       Total current assets                                     564,007         412,904
                                                           ------------    ------------
                                                           $ 11,323,175    $ 11,493,092
                                                           ============    ============

                                LIABILITIES AND PARTNERS' DEFICIT

LIABILITIES
    Bonds payable                                          $ 14,767,800    $ 14,737,600
                                                           ------------    ------------
OTHER LIABILITES
    Accounts payable                                            109,292          92,391
    Interest payable                                          2,253,163       1,865,073
    Payable to partners                                          49,269          49,269
    Security deposits                                            97,898          98,265
    Prepaid rents                                                 1,618             959
                                                           ------------    ------------
                                                              2,511,240       2,105,957
                                                           ------------    ------------
PARTNERS' DEFICIT                                            (5,955,865)     (5,350,465)
                                                           $ 11,323,175      11,493,092
                                                           ============    ============
</TABLE>

                        See notes to financial statements

                                      -4-

<PAGE>


                                    HRA, Ltd.
                              Lakepoint Apartments
                             STATEMENT OF OPERATIONS

                     Years ended December 31, 1996 and 1995

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

Revenue                                          $ 2,406,303        $ 2,248,016
                                                 -----------        -----------

Expenses
   Operating                                       1,351,485          1,287,692
   Interest                                        1,309,189          1,295,562
   Amortization                                       35,153             35,153
   Depreciation                                      321,020            321,019
                                                 -----------        -----------

                                                   3,016,847          2,939,426
                                                 -----------        -----------

        Loss from operations                        (610,544)          (691,410)
Other income
   Interest                                            5,144              1,775
                                                 -----------        -----------
        Net loss                                 $  (605,400)       $  (689,635)
                                                 ===========        ===========



                        See notes to financial statements

                                       -5-



<PAGE>




                                    HRA, Ltd.
                              Lakepoint Apartments

                   STATEMENTS OF PARTNERS' EQUITY AND DEFICIT

                     Years ended December 31, 1996 and 1995


                                  General           Limited
                                  Partner           Partner            Total
                                -----------       -----------       -----------
Balances,
   January 1, 1995              $   (50,918)      $(4,609,912)      $(4,660,830)

Net loss                             (6,896)         (682,739)         (689,635)
                                -----------       -----------       -----------

Balances,
   December 31, 1995                (57,814)       (5,292,651)       (5,350,465)

Net loss                             (6,054)         (599,346)         (605,400)
                                -----------       -----------       -----------

Balances,
   December 31, 1996            $   (63,868)      $(5,891,997)      $(5,955,865)
==========================      ===========       ===========       ===========




                       See notes to financial statements

                                       -6-



<PAGE>




                                    HRA, Ltd.
                              Lakepoint Apartments

                            STATEMENTS OF CASH FLOWS

                     Years ended December 31, 1996 and 1995

<TABLE>
<CAPTION>
                                                                    1996        1995
                                                                 ---------    ---------
<S>                                                              <C>          <C>
Cash flows from operating expenses
     Net loss                                                    $(605,400)   $(689,635)
     Adjustments to reconcile net loss to net cash provided by
     operating activities
     Depreciation and amortization                                 356,173      356,172
     Decrease (increase) in assets
          Accounts receivable - tenants                             (6,622)         647
          Accounts receivable - older                               (4,199)       7,500
          Prepaid expenses                                            --           --
          Due from affiliates                                         --         (9,000)
          Tax and insurance escrow/security                          1,087      (33,863)
     Increase (decrease) in liabilities
          Accounts payable and accrued expenses                    404,991      370,927
          Prepaid rents                                                659          959
          Secured deposits - net                                   (11,602)       3,631
                                                                 ---------    ---------
               Net cash provided by operating activities           135,087        7,338
                                                                 ---------    ---------
Cash flows from investing activities
     Deposits to reserve for replacements                             --         32,862
     Withdrawals from reserve for replacements                     (49,787)     (43,200)
                                                                 ---------    ---------
          Net cash used in investing activities                    (49,787)     (10,338)
                                                                 ---------    ---------
     NET INCREASE (DECREASE) IN CASH                                85,300       (3,000)
Cash, beginning                                                      5,754        8,754
                                                                 ---------    ---------
Cash, ending                                                     $  91,054    $   5,754
                                                                 =========    =========
Supplemental disclosure of cash flow information
     Cash paid during the year for interest                      $ 921,099    $ 918,583
                                                                 =========    =========
</TABLE>



                        See notes to financial statements

                                       -7-



<PAGE>




                                    HRA, Ltd.
                              Lakepoint Apartments

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1996 and 1995

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Terms of Partnership Agreement

     HRA, Ltd., a Georgia limited partnership, was formed October 30, 1987. The
     general and limited partners have ownership interests of 1 percent and 99
     percent, respectively. The purpose of the partnership is to develop, own
     and, operate Lakepoint Apartments, which consist of 360 units located in
     DeKalb County, Georgia.

     Capitalization

     All cost related to planning, development and construction of the buildings
     have been capitalized as construction costs. Costs incurred to form the
     partnership, obtain financing, and promote the development have also been
     capitalized.

     Capitalized construction period interest of $1,174,760 is being depreciated
     over the building's useful life of 40 years. Bond issue costs and original
     issue discounts incurred in obtaining financing have been capitalized and
     are being amortized on a straight-line basis over 20 years which is the
     life of the bonds.

     Operating Properties

     Operating properties are carried at cost. Expenditures for maintenance and
     repairs are expensed currently, while renewals and betterments that
     materially extend the life of an asset are capitalized. The cost of assets
     sold, retired, or otherwise disposed of, and the related allowance for
     depreciation, are eliminated from the accounts and any resulting gain or
     loss is included in operations.

     Amortization

     Organization costs relating to initial operations have been capitalized and
     are being amortized on a straight-line basis over a five-year period.


                                      -8-

<PAGE>


                                    HRA, Ltd.
                              Lakepoint Apartments

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (Continued)

     Income Taxes

     No provision has been made for income taxes since each partner's
     proportionate share of the partnership income or loss is passed through to
     be included on the separate tax return of the partner.

     Property and Equipment

     Depreciation is provided using both straight-line and accelerated methods
     over the estimated useful lives of the assets which are as follows:

         Buildings                                               40 years
         Furniture and Fixtures                              5 - 12 years


NOTE B - TENANT SECURITY DEPOSITS

     Tenant security deposits are held in a separate account. As of December 31,
     1996 and 1995, the parnership's liability for tenant security deposits
     exceeded the cash balance by $3,483 and $8,119 respectively.

NOTE C - ESCROW FUNDS

     The escrow accounts represent funds held at NationsBank for replacement and
     funds held by Related Mortgage, the mortgagee, for tax and insurance costs.
     Replacement funds are disbursed when a satisfactory schedule of cost is
     presented and approved. At December 31, 1996 and 1995, HRA, LTD. had the
     following amounts remaining in the escrow account as follows:



                                      -9-
<PAGE>


                                    HRA, Ltd.
                              Lakepoint Apartments

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995

NOTE C - ESCROW FUNDS (Continued)

                                                        1996              1995
                                                      --------          --------
     Replacement reserve                              $ 87,495          $ 37,708
     Tax and insurance escrow                           39,728            40,815
                                                      --------          --------
                                                      $127,223          $ 78,523
                                                      ========          ========

NOTE D - BONDS PAYABLE

     Bonds payable consist of the following:

                                             Collateral      1996           1995
                                             ----------      ----           ----

Housing Authority of DeKalb                 Land and                            
     County--Bonds dated November 18,       Buildings   $14,768,000  $14,737,600
     1987; face value of $15,100,000;                   ===========  ===========
     interest at 8.5 percent per annum,     
     payable monthly at 8 percent per
     annum; principal is due October 31,
     2007; the bonds are shown net of
     original issue discount of $332,200
     and $362,400 for 1996 and 1995,
     respectively.

     The above bonds are secured by the operating properties. In addition, the
     local multi-family housing authority has guaranteed the bonds.

     The bond agreement provides for contingent interest to be paid when
     positive operating cash flows, sale, or refinancing criteria have been met.
     The contingent interest could equal up to 16 percent of the bond value
     based on net cash flow. As of December 31, 1996 and 1995, no contingent
     interest has been calculated since the criteria has not been met.

NOTE E - RELATED PARTIES

     The developer for the project was Ealco, Inc., the general partner for HRA,
     Ltd. The management company for Lakepoint Apartments is Dominion
     Management, which is related through common ownership with Ealco, Inc. Fees
     paid to the management company were $119,959 and $112,655 for 1996 and
     1995, respectively.


                                      -10-



<PAGE>


                                    HRA, Ltd.
                              Lakepoint Apartments

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995

NOTE E - RELATED PARTIES (Continued)

     As of December  31, 1996 and 1995,  HRA,  Ltd. had amounts due from related
     parties as follows:

                                                       1996               1995
                                                     --------           --------
     FAI, Ltd.                                       $ 78,888           $ 78,888
     BRA, Ltd.                                          7,200              7,200
     Arcway Associates                                 29,000             29,000
     Ealco                                              5,000              5,000
                                                     --------           --------
                                                     $120,088           $120,088
                                                     ========           ========

NOTE F - RENTALS UNDER OPERATING LEASES

     The rental lease periods for Lakepoint Apartments typically range from six
     months to one year. At December 31, 1996 and 1995, rent potential for the
     360 units was approximately $211,833 per month. The units were
     approximately 91 percent and 94 percent leased at December 31, 1996 and
     1995, respectively

NOTE G - GOING CONCERN

     The conditions that raise significant doubt about the ability of HRA, Ltd.
     to continue as a going concern include recurring operating losses and
     working capital deficiencies. Additional owners' capital has been obtained
     and plans to reduce or delay expenditures have been pursued. Significant
     doubt, however, remains about the partnership's ability to continue as a
     going concern for a reasonable period of time.



                                      -11-



<PAGE>




                           SUPPLEMENTARY INFORMATION





<PAGE>

                      [LETTERHEAD OF TIMOTHY F. KERCHEVAL]


            INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION

To the Partners
HRA, Ltd.

My report on my audit of the basic financial statements of HRA, Ltd., for the
years ended December 31, 1996 and 1995, appears on page 3. The audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The supplementary information is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in my opinion, the information is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.

Atlanta, Georgia
February 19, 1997



                                      /s/ Timothy F. Kercheval, CPA





                                      -13-



<PAGE>


                                    HRA, Ltd.
                              Lakepoint Apartments

                         SCHEDULE OF OPERATING EXPENSES

                     years ended December 31, 1996 and 1995

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

Advertising and promotion                          $   39,040         $   42,898

Management fees                                       119,959            112,655

Office                                                182,777            115,403

Insurance                                              34,484             49,037

Professional services                                  20,097             20,987

Repairs end maintenance                               347,572            406,789

Salaries                                              289,511            236,305

Property taxes                                        184,884            169,598

Utilities                                             133,161            134,020
                                                   ----------         ----------
                                                   $1,351,485         $1,287,692
                                                   ==========         ==========


                                      -14-



<PAGE>




                            FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITOR'S REPORT

                                    HRA, LTD
                              LAKEPOINT APARTMENTS

                           DECEMBER 31, 1995 AND 1994




<PAGE>


                                    HRA, LTD
                              Lakepoint Apartments

                                TABLE OF CONTENTS

                                                                           PAGE

INDEPENDENT AUDITOR'S REPORT                                                  3

FINANCIAL STATEMENTS

     BALANCE SHEETS                                                           4

     STATEMENT OF OPERATIONS                                                  5

     STATEMENT OF CHANGES IN PARTNERS' DEFICIT                                6

     STATEMENT OF CASH FLOWS                                                  7

     NOTES TO FINANCIAL STATEMENTS                                            8

SUPPLEMENTARY INFORMATION

     INDEPENDENT AUDITOR'S REPORT ON
       SUPPLEMENTARY INFORMATION                                             13

     SCHEDULE OF OPERATING EXPENSES                                          14




<PAGE>

                      [LETTERHEAD OF TIMOTHY F. KERCHEVAL]


                          INDEPENDENT AUDITOR'S REPORT

To the Partners
HRA Ltd.

     I have audited the accompanying balance sheets of HRA, LTD. [a Georgia
limited partnership] as of December 31, 1995 and 1994, and the related
statements of operations, changes in partners' deficit, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.

     I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.

     In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position, of HRA, LTD. as of December
31, 1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.

     The accompanying financial statements have been prepared assuming that the
Company has suffered recurring losses from operations and has a net capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note G. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Atlanta, Georgia
March 12, 1996

                                      /s/ Timothy F. Kercheval, CPA


                                      -3-

<PAGE>

                                    HRA, Ltd.
                              Lakepoint Apartments

                                 BALANCE SHEETS

                           December 31, 1995 and 1994

<TABLE>
<CAPTION>
                                          ASSETS

                                                               1995            1994
                                                           ------------    ------------
<S>                                                        <C>             <C>
OPERATING PROPERTIES
   Land                                                    $  1,340,680    $  1,340,680
   Buildings                                                 11,643,688      11,643,688
   Furniture and fixtures                                       641,519         641,519
                                                           ------------    ------------
                                                             13,625,887      13,625,887
   Allowance for depreciation                                (2,545,699)     (2,224,680)
                                                           ------------    ------------
                                                             11,080,188      11,401,207
                                                           ------------    ------------
CURRENT ASSETS
   Cash                                                           5,754           8,754
   Cash - security deposits                                      90,146          66,945
   Escrow funds                                                  78,523          57,523
   Rent receivable                                                5,284           5,931
   Accounts receivable - other                                     --             7,500
   Bond issue costs, net of accumulated
     amortization of $93,024 for 1995                            59,840          64,793
   Due from partners                                             53,269          53,269
   Due from affiliates                                          120,088         111,088
                                                           ------------    ------------
     Total current assets                                       412,904         375,803
                                                           ------------    ------------
                                                           $ 11,493,092    $ 11,777,010
                                                           ============    ============

                             LIABILITIES AND PARTNERS' DEFICIT

LIABILITIES
   Bonds payable                                           $ 14,737,600    $ 14,707,400
                                                           ------------    ------------
OTHER LIABILITIES
   Accounts payable                                              92,391          98,442
   Interest payable                                           1,865,073       1,488,095
   Payable to partners                                           49,269          49,269
   Security deposits                                             98,265          94,634
   Prepaid rents                                                    959            --
                                                           ------------    ------------
                                                              2,105,957       1,730,440
                                                           ------------    ------------
PARTNERS' DEFICIT                                            (5,350,465)     (4,660,830)
                                                           ------------    ------------
                                                           $ 11,493,092    $ 11,777,010
                                                           ============    ============
</TABLE>



                                       -4-     See notes to financial statements



<PAGE>


                                    HRA, Ltd.
                              Lakepoint Apartments

                            STATEMENTS OF OPERATIONS

                     Years ended December 31, 1995 and 1994

                                                    1995               1994
                                                 -----------        -----------
Revenue                                          $ 2,248,016        $ 2,077,324
                                                 -----------        -----------

Expenses
   Operating                                       1,287,692          1,221,864
   Interest                                        1,295,562          1,301,326
   Amortization                                       35,153             35,153
   Depreciation                                      321,019            321,019
                                                 -----------        -----------
                                                   2,939,426          2,879,362
                                                 -----------        -----------
          Loss from operations                   $  (691,410)       $  (802,038)
                                                 -----------        -----------
Other income
   Interest                                            1,775              1,165
                                                 -----------        -----------

          Net loss                                  (689,635)          (800,873)
                                                 ===========        ===========



                                       -5-     See notes to financial statements






<PAGE>


                                    HRA, Ltd.
                              Lakepoint Apartments

                         STATEMENTS OF PARTNERS' DEFICIT

                     Years ended December 31, 1995 and 1994

                                General partners  Limited partners     Total
                                ----------------  ----------------     -----
Balances,
   January 1, 1994                $   (42,909)     $(3,817,048)     $(3,859,957)

Net loss                               (8,009)        (792,864)        (800,873)
                                  -----------      -----------      -----------

Balances,
   December 31, 1994                  (50,918)      (4,609,912)      (4,660,830)

Net loss                               (6,896)        (682,739)        (689,635)
                                  -----------      -----------      -----------

Balances,
   December 31, 1995              $   (57,814)     $(5,292,651)     $(5,350,465)
                                  ===========      ===========      ===========


                                       -6-     See notes to financial statements





<PAGE>




                                    HRA, Ltd.
                              Lakepoint Apartments

                            STATEMENTS OF CASH FLOWS

                     Years ended December 31, 1995 and 1994


                                                            1995         1994
                                                         ---------    ---------
Cash flows from operating activities
     Net loss                                            $(689,635)   $(800,873)
     Adjustments to reconcile net income or loss to
     net cash provided by operating activities
     Depreciation and amortization                         356,172      356,172
     Decrease (increase) in assets
       Accounts receivable - tenants                           647       (2,114)
       Accounts receivable - other                           7,500       39,712
       Prepaid expenses                                       --         22,359
       Due from affiliates                                  (9,000)
       Tax and insurance escrow/security                   (33,863)     (13,716)
     Increase (decrease) in liabilities
       Accounts payable and accrued expenses               370,927      379,406
       Prepaid rents                                           959         --
       Security deposits - net                               3,631         --
                                                         ---------    ---------
          Net cash provided by operating activities          7,338      (19,054)
                                                         ---------    ---------
Cash flows from investing activities
     Withdrawals from reserve for replacements              32,862       82,692
     Deposits to reserve for replacements                  (43,200)     (32,400)
                                                         ---------    ---------
          Net cash used in investing activities            (10,338)      50,292
                                                         ---------    ---------

          NET INCREASE/DECREASE IN CASH                     (3,000)      31,238

     Cash, beginning                                         8,754      (22,484)
                                                         ---------    ---------
     Cash, ending                                        $   5,754    $   8,754
                                                         =========    =========
     Supplemental disclosure of cash flow information
       Cash paid during the year for interest            $ 918,583    $ 916,067
                                                         =========    =========



                                       -7-     See notes to financial statements




<PAGE>


                                    HRA, Ltd.
                              Lakepoint Apartments

                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Terms of Partnership Agreement

     HRA, LTD., a Georgia limited partnership, was formed October 30, 1987. The
     general and limited partners have ownership interests of 1% and 99%,
     respectively. The purpose of the partnership is to develop, own and,
     operate Lakepoint Apartments, which consist of 360 units located in DeKalb
     County, Georgia.

     Capitalization

     All costs related to planning, development, and construction of the
     buildings have been capitalized as construction costs. Costs incurred to
     form the partnership, obtain financing, and promote the development have
     also been capitalized.

     Capitalized construction period interest of $1,174,760 is being depreciated
     over the building's useful life of 40 years. Bond issue costs and original
     issue discounts incurred in obtaining financing have been capitalized and
     are being amortized on a straight-line basis over 20 years which is the
     life of the bonds.

     Operating Properties

     Operating properties are carried at cost. Expenditures for maintenance and
     repairs are expensed currently, while renewals and bettemments that
     materially extend the life of an asset are capitalized. The cost of assets
     sold, retired, or otherwise disposed of, and the related allowance for
     depreciation, are eliminated from the accounts and any resulting gain or
     loss is included in operations.

     Amortization

     Organization costs relating to initial operations have been capitalized and
     are being amortized on a straight-line basis over a five-year period.

                                       -8-
<PAGE>




                                    HRA, Ltd.
                              Lakepoint Apartments

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                December 31, 1995

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Income Taxes

     No provision has been made for income taxes since each partner's
     proportionate share of the partnership income or loss is passed through to
     be included on the separate tax return of the partner.

     Property and Equipment

     Depreciation is provided using both straight-line and accelerated methods
     over the estimated useful lives of the assets which are as follows:

         Buildings                                40 years
         Furniture and Fixtures                 5-12 years

NOTE B - TENANT SECURITY DEPOSITS

     Tenant security deposes are held in a separate account. As of December 31,
     1995 and 1994, the partnership's liability for tenant security deposits
     exceeded the cash balance by $8,119 and $27,689 respectively.

NOTE C - ESCROW FUNDS

     The escrow accounts represent funds held at NationsBank for replacement and
     funds held by Related Mortgage, the mortgagee, for tax and insurance costs.
     Replacement funds are disbursed when a satisfactory schedule of cost is
     presented and approved. At December 31, 1995 and 1994, HRA, LTD. had the
     following amounts remaining in the escrow account as follows:

                                       -9-

<PAGE>




                                    HRA, Ltd.
                              Lakepoint Apartments

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                December 31, 1995

NOTE C - ESCROW FUNDS (Continued)

                                                        1995              1994
                                                       -------           -------
     Replacement reserve                               $37,708            27,370
     Tax and insurance escrow                           40,815            30,153
                                                       -------           -------
                                                       $78,523           $57,523
                                                       =======           =======

NOTE D - BONDS PAYABLE

     Bonds payable consist of the following:

                                           Collateral       1995         1994
                                           ----------       ----         ----

Housing Authority of DeKalb County--      Land
     Bonds dated November 18, 1987,       and Buildings $14,737,600  $14,707,400
     face value of $15,100,000;                         ===========  ===========
     interest accrued at 8.5% per         
     annum, payable monthly at 8% per
     annum; principal is due October
     31, 2007; the bonds are shown net
     of original issue discount of
     $362,400 and $392,600 for 1995
     and 1994 respectively.

     The above bonds are secured by the operating properties. In addition, the
     local multi-family housing authority has guaranteed the bonds.

     The bond agreement provides for contingent interest to be paid when
     positive operating cash flows, sale, or refinancing criteria have been met.
     The contingent interest could equal up to 16% of the bond value based on
     net cash flow. As of December 31, 1995 and 1994, no contingent interest has
     been calculated since the criteria has not been met.

                                      -10-




<PAGE>




                                    HRA, Ltd.
                              Lakepoint Apartments

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                December 31, 1995

NOTE E - RELATED PARTIES

     The developer for the project was Ealco, Inc., the general partner for HRA,
     Ltd. The management company for Lakepoint Apartments is Dominion
     Management, which is related through common ownership with Ealco, Inc. Fees
     paid to the management company were $112,655 and $104,861 for 1995 and
     1994, respectively.

     As of December  31, 1995 and 1994,  HRA, Ltd. had amounts due from  related
     parties as follows:

                                                       1995               1994
                                                     --------           --------
     FAI, Ltd.                                       $ 78,888           $ 78,888
     BRA, Ltd                                           7,200              7,200
     Arcway Associates                                 29,000             25,000
     Ealco                                              5,000               --
                                                     --------           --------
                                                     $120,088           $111,088
                                                     ========           ========

NOTE F - RENTALS UNDER OPERATING LEASES

     The rental lease periods for Lakepoint Apartments typically range from six
     months to one year. At December 31, 1995 and 1994, rent potential for the
     360 units was approximately $199,000 per month. The units were
     approximately 94% and 93% leased at December 31, 1995 and 1994,
     respectively

NOTE G - GOING CONCERN

     The conditions that raise significant doubt about the ability of HRA, Ltd.
     to continue as a going concern include recurring operating losses and
     working capital deficiencies. Additional owners' capital has been obtained
     and plans to reduce or delay expenditures have been pursued. Significant
     doubt, however, remains about the partnership's ability to continue as a
     going concern for a reasonable period of time.


                                      -11-

<PAGE>




                           SUPPLEMENTARY INFORMATION




<PAGE>

                      [LETTERHEAD OF TIMOTHY F. KERCHEVAL]


            INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION

To the Partners
HRA, Ltd.

My report on my audit of the basic financial statements of HRA, Ltd. for the
years ended December 31, 1995 and 1994 appears on page 3. The audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The supplementary information is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in my opinion, the information is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.

Atlanta, Georgia
March 12, 1996


                                      /s/ Timothy F. Kercheval, CPA

                                      -13-

<PAGE>




                                    HRA, Ltd.
                              Lakepoint Apartments

                         SCHEDULE OF OPERATING EXPENSES

                     Years ended December 31, 1995 and 1994

                                                      1995               1994
                                                   ----------         ----------

Advertising and promotion                          $   42,898         $   37,317

Management fees                                       112,655            104,861

Office                                                115,403            125,366

Insurance                                              49,037             20,238

Professional services                                  20,987             19,894

Repairs and maintenance                               406,789            347,664

Salaries                                              236,305            272,115

Property taxes                                        169,598            164,826

Utilities                                             134,020            129,583
                                                   ----------         ----------

                                                   $1,287,692         $1,221,864
                                                   ==========         ==========



                                      -14-

    
<PAGE>




Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

     None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     The Registrant has no directors or executive officers. The Registrant's
affairs are managed and controlled by the General Partners. Certain information
concerning the directors and officers of the General Partners are set forth
below.

     The Related General Partner assumed the responsibilities of the Tax Matters
Partner as of October 1, 1995.

     The Registrant, the Registrant's General Partners and their directors and
executive officers, and any persons holding more than ten percent of the
Registrant's BUC$ are required to report their initial ownership of such BUC$
and any subsequent changes in that ownership to the Securities and Exchange
Commission on Forms 3, 4 and 5. Such executive officers, directors and persons
who own greater than ten percent of the Registrant's BUC$ are required by
Securities and Exchange Commission regulations to furnish the Registrant with
copies of all Forms 3, 4 or 5 they file. All of these filing requirements were
satisfied on a timely basis for the current year. In making these disclosures,
the Registrant has relied solely on written representations of the General
Partners' directors and executive officers and persons who own greater than ten
percent of the Registrant's BUC$ or copies of the reports they have filed with
the Securities and Exchange Commission during and with respect to its most
recent fiscal year.

Prudential-Bache Properties, Inc.

     The directors and executive officers of PBP with regard to managing the
Registrant are as follows:

<TABLE>
<CAPTION>
     Name                               Position
     ----                               --------
     <S>                                <C>
     Brian J. Martin                    President, Chief Executive Officer, Chairman of the
                                        Board of Directors and Director

     Barbara J. Brooks                  Vice President-Finance and Chief Financial Officer

     Eugene D. Burak                    Vice President

     Chester A. Piskorowski             Senior Vice President

     Frank W. Giordano                  Director

     Nathalie P. Maio                   Director
</TABLE>


     BRIAN J. MARTIN, age 46, is the President, Chief Executive Officer,
Chairman of the Board of Directors and a Director of PBP. He is a Senior Vice
President of Prudential Securities Incorporated ("PSI"), an affiliate of PBP.
Mr. Martin also serves in various capacities for other affiliated companies. Mr.
Martin joined PSI in September 1980. Mr. Martin is a member of the Pennsylvania
Bar.

     BARBARA J. BROOKS, age 48, is the Vice President-Finance and Chief
Financial Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also
serves in various capacities for other affiliated companies. She has held
several positions within PSI since 1983. Ms. Brooks is a certified public
accountant.



                                      -28-
<PAGE>


     EUGENE D. BURAK, age 51, is a Vice President of PBP. He is a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. Mr. Burak is a certified public accountant.

     CHESTER A. PISKOROWSKI, age 53, is a Senior Vice President of PBP. He is a
Senior Vice President of PSI and is the Senior Manager of the Specialty Finance
Asset Management area. Mr. Piskorowski has held several positions within PSI
since April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.

     FRANK W. GIORDANO, age 54, is a Director of PBP. He is a Senior Vice
President of PSI and an Executive Vice President and General Counsel of
Prudential Mutual Fund Management LLC, an affiliate of PSI. Mr. Giordano also
serves in various capacities for other affiliated companies. He has been with
PSI since July 1967.

     NATHALIE P. MAIO, age 46 is a Director of PBP. Ms. Maio is a Senior Vice
President and Deputy General Counsel of PSI and supervises non-litigation legal
work. She joined the Law Department of PSI in 1983; presently, she also serves
in various capacities for other affiliated companies.

     THOMAS F. LYNCH, III ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director of PBP effective May 2, 1997.
Effective May 2, 1997, Brian J. Martin was elected President, Chief Executive
Officer, Chairman of the Board of Directors and Director of PBP.

     There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and executive officers have
indefinite terms.

The Related General Partner

     The directors and executive officers of the Related General Partner with
respect to the Partnership and their positions with the Related General Partner
are as follows:


     Name                                     Position
     ----                                     --------

     J. Michael Fried                         President and Director

     Stuart J. Boesky                         Vice President

     Alan P. Hirmes                           Vice President

     Richard A. Palermo                       Treasurer

     Stephen M. Ross                          Director

     Lynn A. McMahon                          Secretary




                                      -29-
<PAGE>


     J. MICHAEL FRIED, 52, is President and a Director of the Related General
Partner. Mr. Fried is President, a Director and a principal shareholder of
Related Capital Company ("Capital"), a real estate finance and acquisition
affiliate of the Related General Partner. In that capacity, he is the chief
executive officer of Capital, and is responsible for initiating and directing
all of Capital's syndication, finance, acquisition and investor reporting
activities. Mr. Fried practiced corporate law in New York City with the law firm
of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Capital in 1979.
Mr. Fried graduated from Brooklyn Law School with a Juris Doctor degree, magna
cum laude; from Long Island University Graduate School with a Master of Science
degree in Psychology; and from Michigan State University with a Bachelor of Arts
degree in History.

     STUART J. BOESKY, 40, is a Vice President of the Related General Partner.
Mr. Boesky practiced real estate and tax law in New York City with the law firm
of Shipley & Rothstein from 1984 until February 1986 when he joined Capital
where he presently serves as Managing Director. From 1983 to 1984 Mr. Boesky
practiced law with the Boston law firm of Kaye, Fialkow, Richard & Rothstein
(which subsequently merged with Strook & Strook & Lavan) and from 1978 to 1980
was a consultant specializing in real estate at the accounting firm of Laventhol
& Horwath. Mr. Boesky graduated from Michigan State University with a Bachelor
of Arts degree and from Wayne State University School of Law with a Juris Doctor
degree. He then received a Master of Law degree in Taxation from Boston
University School of Law.

     ALAN P. HIRMES, 42, is a Vice President of the Related General Partner. Mr.
Hirmes has been a Certified Public Accountant in New York since 1978. Prior to
joining Capital in October 1983, Mr. Hirmes was employed by Weiner & Co.,
certified public accountants. Mr. Hirmes is also a Managing Director of Capital.
Mr. Hirmes graduated from Hofstra University with a Bachelor of Arts degree.

     RICHARD A. PALERMO, 36, is Treasurer of the Related General Partner. Mr.
Palermo has been a Certified Public Accountant in New York since 1985. Prior to
joining Related in September 1993, Mr. Palermo was employed by Sterling Grace
Capital Management from October 1990 to September 1993, Integrated Resources,
Inc. from October 1988 to October 1990 and E.F. Hutton & Company, Inc. from June
1986 to October 1988. From October 1982 to June 1986, Mr. Palermo was employed
by Marks Shron & Company and Mann Judd Landau, certified public accountants. Mr.
Palermo graduated from Adelphi University with a Bachelor of Business
Administration degree.

     STEPHEN M. ROSS, 56, is a Director of the Related General Partner. Mr. Ross
is President of The Related Companies, L.P. He graduated from The University of
Michigan with a Bachelor of Business Administration degree and from Wayne State
University School of Law. Mr. Ross then received a Master of Law degree in
taxation from New York University School of Law. He joined the accounting firm
of Coopers & Lybrand in Detroit as a tax specialist and later moved to New York,
where he worked for two large Wall Street investment banking firms in their real
estate and corporate finance departments. Mr. Ross formed The Related Companies,
Inc. in 1972, to develop, manage, finance and acquire subsidized and
conventional apartment developments. To date, The Related Companies, Inc. has
developed multi-family properties totaling in excess of 25,000 units, all of
which it manages.

     LYNN A. McMAHON, 41, is Secretary of the Related General Partner. Since
1983, she has served as Assistant to the President of Capital. From 1978 to 1983
she was employed at Sony Corporation of America in the Government Relations
Department.

     There are no family relationships among any of the foregoing directors or
officers. All of the foregoing officers and/or directors have indefinite terms.



                                      -30-
<PAGE>


Item 11. Executive Compensation.

     The Registrant does not pay or accrue any fees, salaries or any other form
of compensation to directors and officers of the General Partners for their
services. Certain officers and directors of the General Partners receive
compensation from affiliates of the General Partners, not from the Registrant,
for services performed for various affiliated entities, which may include
services performed for the Registrant; however, the General Partners believe
that any compensation attributable to services performed for the Registrant is
immaterial. See Item 13 Certain Relationships and Related Transactions for
information regarding compensation to the General Partners.


Item 12. Security Ownership of Certain Beneficial Owners and Management.

     As of March 3, 1997, the directors and officers of the Related General
Partner directly own 99.97% of the voting securities of the Related General
Partner; however, no director or officer of either General Partner owns directly
or beneficially any interest in the voting securities of PBP.

     As of March 3, 1997, no director or officer of either of the General
Partners own directly or beneficially BUC$ issued by the Registrant.

     As of March 3, 1997, no BUC$holder beneficially owns more than five percent
(5%) of the BUC$ issued by the Registrant.


Item 13. Certain Relationships and Related Transactions.

     The Registrant has, and will continue to have, certain relationships with
the General Partners and their affiliates. However, there have been no direct
financial transactions between the Registrant and the directors or officers of
the General Partners.

   
     Reference is made to Notes 1 and 6 to the financial statements in Item 8,
which identify the related parties and discuss the services provided by these
parties and the amounts paid or payable for their services.
    


                                      -31-
<PAGE>


                                     PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K.
<TABLE>
<CAPTION>
                                                                                                 Sequential
                                                                                                    Page
                                                                                                 ----------
<S>           <C>                                                                                <C>
(a) 1.        Financial Statements

              Independent Auditors' Report                                                          14

              Statements of Financial Condition as of December 31, 1996 and 1995                    15

              Statements of Income for the years ended December 31, 1996, 1995 and 1994             16

              Statements of Changes in Partners' Capital (Deficit) for the years
              ended December 31, 1996, 1995 and 1994                                                17

              Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994         18

              Notes to Financial Statements                                                         19

(a) 2.        Financial Statement Schedules

              All schedules have been omitted because they are not applicable or
              the required information is included in the financial statements
              or notes hereto.

   
              Separate Financial Statements of HRA, Ltd. (Lakepoint Apartments)                     32
    

(a) 3.        Exhibits

3(a) and 4(a) Partnership Agreement, incorporated by reference to
              Exhibit A to the Prospectus of Registrant, dated June 10, 1987,
              filed pursuant to Rule 424(b) under the Securities Act of 1933,
              File No. 33-13184

3(b) and 4(b) Certificate of Limited Partnership (incorporated by reference to Exhibit
              4 to the Registration  Statement of Form S-11, File No. 33-13184)

3(c) and 4(c) Amendment No. 1 to the Partnership Agreement, dated
              October 1, 1995 (incorporated by reference to Exhibit 3(c) and
              4(c) in the Registrant's Annual Report on Form 10-K dated December
              31, 1995)

10(a)         First Mortgage Bond, dated as of August 14, 1987, with respect to
              the Players Club project at Fort Myers in the principal amount of
              $7,200,000 (incorporated by reference to Exhibit 10(a) in the
              Registrant's Current Report on Form 8-K dated August 14, 1987)

10(b)         First Mortgage Bond, dated as of November 18, 1987, with respect
              to the Lakepoint project, in the principal amount of $15,100,000
              (incorporated by reference to Exhibit 10(a) in the Registrant's
              Current Report on Form 8-K dated November 18, 1987)

10(c)         First Mortgage Bonds, dated March 25, 1988, with respect to the
              Sunset Village and Sunset Creek projects in the principal amounts
              of $11,375,000 and $8,275,000, respectively (incorporated by
              reference to Exhibits 10(a) and 10(b) in the Registrant's Current
              Report on Form 8-K dated March 25, 1988)
</TABLE>



                                      -32-
<PAGE>


Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K.
<TABLE>
<CAPTION>
                                                                                                 Sequential
                                                                                                    Page
                                                                                                 ----------
<S>           <C>                                                                                <C>
10(d)         First Mortgage Bond, dated as of May 1, 1989, with respect to the
              Ashley Knoll project (now named Orchard Mill) in the principal
              amount of $10,500,000 (incorporated by reference to Exhibits
              10(a), 10(b) and 10(c) in the Registrant's Current Report on Form
              8-K dated May 1, 1989)

10(e)         Settlement Agreement for the Lakepoint First Mortgage Bond dated
              June 28, 1991 (incorporated by reference to Exhibit 10(e) in the
              Registrant's 1991 Annual Report on Form 10-K)

10(f)         Settlement Agreement for the Players Club First Mortgage Bond
              dated February 1, 1992 (incorporated by reference to exhibit 10(f)
              in the Registrant's 1992 Annual Report on Form 10-K)

10(g)         Settlement Agreement for the Sunset Village First Mortgage Bond
              dated July 10, 1992 (incorporated by reference to Exhibit 10(g) in
              the Registrant's 1992 Annual Report in Form 10-K)

10(h)         Settlement Agreement for the Sunset Creek First Mortgage Bond
              dated July 10,1992 (incorporated by reference to exhibit 10(h) in
              the Registrant's 1992 Annual Report on Form 10-K)

10(i)         Amended Settlement Agreement for the Lakepoint First Mortgage Bond
              dated June 1, 1993 (incorporated by reference to Exhibit 10(i) in
              the Registrant's 1993 Annual Report on Form 10-K)

10(j)         Amended Settlement Agreement for the Players Club First Mortgage
              Bond dated December 1, 1993 (incorporated by reference to Exhibit
              10(j) in the Registrant's 1993 Annual Report on Form 10-K)

10(k)         Amended Settlement Agreement for the Players Club First Mortgage
              Bond dated December 1, 1994 (incorporated by reference to Exhibit
              10(k) in the Registrant's 1994 Annual Report on Form 10-K)

10(l)         Amended Settlement Agreement for the Lakepoint First Mortgage Bond
              dated May 1, 1996 (incorporated by reference to Exhibit 10(l) in
              the Registrant's 1995 Annual Report on Form 10-K/A-1)

10(m)         Settlement Agreement for Orchard Mill First Mortgage Bond dated
              May 1, 1995 (incorporated by reference to Exhibit 10(m) in the
              Registrant's September 30, 1996 Quarterly Report on Form 10-Q)

27            Financial Data Schedule (filed herewith)                                           68

(b)           Reports on Form 8-K                                                                

              Current Report on Form 8-K dated December 31, 1996, was filed on
              January 10, 1997 relating to a preliminary approval order with
              respect to the settlement of class action litigation.
</TABLE>



                                      -33-
<PAGE>



                                   SIGNATURES



     Pursuant to the requirements of Section 13 or 15(d) 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.


                           SUMMIT TAX EXEMPT L.P. III


                                  By:  RELATED TAX EXEMPT ASSOCIATES III, INC.
                                       a General Partner

Date:  July 30, 1997

                                       By:   /s/ J. Michael Fried
                                             -----------------------------------
                                             J. Michael Fried
                                             President and Director


                                  and


                                  By:  PRUDENTIAL-BACHE PROPERTIES, INC.,
                                       a General Partner

Date:  July 30, 1997

                                       By:   /s/ Brian J. Martin       
                                             -----------------------------------
                                             Brian J. Martin
                                             President, Chief Executive Officer,
                                             Chairman of the Board of Directors
                                             and Director



                                      -34-
<PAGE>


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
report has been signed below by the following persons on behalf by the
registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
      Signature                                            Title                                          Date
      ---------                                            -----                                          ----
<S>                                        <C>                                                      <C>
                                           President (principal executive officer)
/s/ J. Michael Fried                       and Director of Related Tax Exempt
---------------------------------          Associates III, Inc. (a General Partner of the
J. Michael Fried                           Registrant)                                              July 30, 1997


/s/ Alan P. Hirmes                         Vice President (principal financial officer) of
---------------------------------          Related Tax Exempt Associates III, Inc.                  July 30, 1997
Alan. P. Hirmes



/s/ Richard A. Palermo                     Treasurer (principal accounting officer)
---------------------------------          of Related Tax Exempt Associates III,
Richard A. Palermo                         Inc.                                                     July 30, 1997


/s/ Stephen M. Ross                        Director of
---------------------------------          Related Tax Exempt Associates III, Inc.                  July 30, 1997
Stephen M. Ross


                                           Chairman of the Board, President,
/s/ Brian J. Martin                        (principal executive officer)
---------------------------------          and Director of Prudential-Bache Properties,
Brian J. Martin                            Inc. (a General Partner of the Registrant)               July 30, 1997



/s/ Barbara J. Brooks                      Vice President - Finance and Chief Financial
---------------------------------          Officer (principal financial officer) of
Barbara J. Brooks                          Prudential-Bache Properties, Inc.                        July 30, 1997


/s/ Nathalie P. Maio
---------------------------------
Nathalie P. Maio                           Director of Prudential-Bache Properties, Inc.            July 30, 1997


/s/ Eugene D. Burak                        Vice President of
---------------------------------          Prudential-Bache Properties, Inc.                        July 30, 1997
Eugene D. Burak


/s/ Frank W. Giordano
---------------------------------
Frank W. Giordano                          Director of Prudential-Bache Properties, Inc.            July 30, 1997
</TABLE>


                                      -35-