<PAGE>1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996
   
Commission file number 0-16542

Exact name of registrant as specified in its charter:  T. ROWE
PRICE REALTY INCOME FUND III, AMERICA'S SALES-COMMISSION-FREE
REAL ESTATE LIMITED PARTNERSHIP

State or other jurisdiction of incorporation or organization:
Delaware                   

IRS Employer Identification Number: 52-1512713     

Address of principal executive offices:  100 East Pratt Street,
Baltimore, Maryland 21202
Registrant's telephone number: 1-800-638-5660       

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act: 
Units of Limited Partnership Interest

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
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 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

Portions of the Prospectus of the Partnership dated January 5,
1987, File Number 33-9899 filed with the Commission pursuant to
Rule 424(b) are incorporated herein in Parts I, III, and IV by
reference.


<PAGE>2




Portions of the Annual Report to Limited Partners of the
Partnership for the fiscal year ended December 31, 1996 dated
February 15, 1996 and filed with the Commission as Exhibit 13 is
incorporated in Parts I, II and IV by reference.  

Index to Exhibits is located on page 24.










































<PAGE>3
                           T. ROWE PRICE REALTY INCOME FUND III,
              AMERICA'S SALES-COMMISSION-FREE REAL ESTATE LIMITED PARTNERSHIP

                                           INDEX
                                                    Page

PART I.

          Item 1.     Business           4
          Item 2.     Properties            13
          Item 3.     Legal Proceedings               13
          Item 4.     Submission of Matters to a Vote of             13
                          Security Holders              

PART II.

          Item 5.    Market for the Partnership's Limited           13
                         Partnership Interests and Related 
                         Security Holder Matters
          Item 6.    Selected Financial Data         15
          Item 7.  Management's Discussion and Analysis           16
                           of Financial Condition and Results 
                           of Operations
          Item 8.     Financial Statements and Supplementary              20
                           Data                
          Item 9.     Changes in and Disagreements with              20
                         Accountants on Accounting and 
                       Financial Disclosure

PART III.

 Item 10.   Directors and Executive Officers of the             20
                  Partnership                   
 Item 11.   Executive Compensation                              22
 Item 12.   Security Ownership of Certain Beneficial            23
                  Owners and Management
 Item 13.   Certain Relationships and Related                   24
              Transactions                  

PART IV.

 Item 14.   Exhibits, Financial Statement Schedules and             24
                  Reports on Form 8-K



<PAGE>4                                   PART I

Item 1.  Business

T. Rowe Price Realty Income Fund III, America's Sales-Commission-Free 
Real Estate Limited Partnership (the "Partnership"), was
formed on October 20, 1986, under the Delaware Revised Uniform
Limited Partnership Act for the purpose of acquiring, operating
and disposing of existing income-producing commercial and
industrial real estate properties.  On January 5, 1987, the
Partnership commenced an offering of $100,000,000 of Limited
Partnership Units ($250 per Unit) pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933
(Registration No. 33-9899) (the "Registration Statement").  The
Prospectus filed pursuant to Rule 424(b) under the Securities Act
of 1933 (the "Prospectus") sets forth a complete description of
the business of the Partnership in the sections entitled
"Investment Objectives" and "Fund Policies" on pages 18 - 25 of
the Prospectus, which pages are incorporated by reference herein. 
The Gross Proceeds from the offering totaled $63,385,000, and an
additional $25,000 was contributed by the initial limited
partner, T. Rowe Price Real Estate Group, Inc.  The offering
terminated on June 30, 1987, and no additional Units will be
sold.  Forty-two Units have been redeemed by the Partnership on a
"hardship" basis; there were 253,599 Units outstanding and 10,364
Limited Partners as of March 17, 1997.  

In December of 1991, LaSalle Advisors Limited Partnership
("LaSalle") entered into a contract with the general partner of
the Partnership, T. Rowe Price Realty Income Fund III Management,
Inc. ("the General Partner") and the Partnership to perform day-to-day 
management and real estate advisory services for the
Partnership under the supervision of the General Partner and its
Affiliates.  LaSalle's duties under the contract include
disposition and asset management services, including
recordkeeping, contracting with tenants and service providers,
and preparation of financial statements and other reports for
management use.  The General Partner continues to be responsible
for overall supervision and administration of the Partnership's
operations, including setting policies and making all disposition
decisions, and the General Partner and its Affiliates continue to
provide administrative, advisory, and oversight services to the
Partnership.  Compensation to LaSalle from the Partnership
consists of accountable expense reimbursements, subject to a
fixed maximum amount per year.  All other compensation to LaSalle
is paid out of compensation and distributions paid to the General
Partner by the Partnership.  

The Partnership is engaged solely in the business of real estate
investment; therefore, presentation of information about industry
segments is not applicable.  In 1996, three of the Partnership's
properties produced 15% or more of the Partnership's revenues
<PAGE>5

from operations: River Run Shopping Center (20%), Winnetka
Industrial Park (18%), and Westbrook Commons (17%). In 1995, two
of the Partnership's properties produced 15% or more of the
Partnership's revenues from operations: Westbrook Commons (21%),
and Winnetka Industrial Park (19%). In 1994, three of the
Partnership's properties produced 15% of more of the
Partnership's revenues from operations:  Westbrook Commons (20%), 
Winnetka Industrial Park (19%), and Brinderson Plaza (16%).  In
none of these periods did any single tenant produce more than 10%
of the Partnership's revenue.

The Partnership owned a 56% interest in a general partnership,
Fairchild 234, the other general partners of which were certain
other affiliated partnerships.  Fairchild 234 owned a note
secured by a deed of trust on Fairchild Corporate Center, located
in Irvine, California.  This property was acquired outright in
February, 1994 by a corporation, the stockholders of which are
the partners of Fairchild 234.  In August, 1996, Fairchild 234
sold its interest in this property for a total sales price of $10
million.  The purchaser, Spieker Properties, L.P., is not an
affiliate of the Partnership, its general partner, or the
Partnership's investment adviser.  Net book value of the
Partnership's interest at the date of sale was $3.8 million,
which represented approximately 8.6% of the Partnership's assets. 
Net proceeds to the Partnership were $5.4 million.

During 1996, the Partnership reviewed its portfolio and operating
plans with the intent to dispose of all its operating properties
by the end of 1998, and to thereafter distribute all of the
Partnership's net assets to the partners.  In this regard the
Partnership has received solicited and unsolicited offers to
purchase one or more of its properties.  The Partnership is
pursuing some of these offers.  Although there is no assurance
that the Partnership will achieve the disposition of all its
operating properties during the proposed time-frame, the
disposition of operating properties is expected to cause a
significant decrease in the Partnership's operating activities in
future periods.

The Partnership owns directly or through joint venture
partnerships the properties or interests set forth in Schedule
III to this Report, "Real Estate and Accumulated Depreciation,"
which is set forth in Exhibit 99(b)to this Report, and which is
incorporated by reference herein and contains information as to
acquisition date and total costs of each of the properties. 
Additional information regarding these properties and/or
interests, including percentage leased as of December 31, 1996 is
set forth in the table, "Real Estate Holdings," appearing on page
4 of the Partnership's 1996 Annual Report to Limited Partners
which is hereby incorporated by reference herein.  A brief
<PAGE>6

narrative description of each property or investment therein
which the Partnership owns is as follows.

Scripps Terrace

The Partnership owns a 100% interest in this property which
consists of two one-story research and development/office/service
buildings containing 57,000 square feet of space.  The property
is located in the center of the Scripps Ranch planned community
in the I-15 Corridor in suburban San Diego, California.

Activity at the property during the year consisted of three new
leases totaling 18,206 square feet, two lease expirations
covering 14,176 square feet, and two renewals totaling 14,489
square feet.  Thus, the property was 90% leased at year-end 1996
versus 82% twelve months earlier.  There are no leases expiring
in 1997.

Net absorption for the year in the Scripps Ranch/Scripps Mesa
market totaled approximately 19,621 square feet.  The year-end
vacancy rate for the submarket decreased by one percentage point
from one year ago to approximately 7%.  However, there continues
to be limited demand for space in multi-tenant properties such as
Scripps Terrace.  Total inventory (leased and available) at year-end 1996
 remained at approximately 1.7 million square feet. 
Average net effective rents remained at roughly the same level as
the previous year - around an average of $6.00 per square foot
per year net of taxes, insurance and utilities ("NNN") for
competitive properties.  There appears to be some activity in the
planning stages for new construction of industrial/R&D buildings
in the Scripps Ranch area. 
 
During 1996, the Partnership recorded a provision for value
impairment of $1,086,000 in connection with Scripps Terrace.  The
General Partner determined that this adjustment was a prudent
course of action based upon the uncertainty of the Partnership's
ability to recover the net carrying value of the project through
future operations over a shorter anticipated holding period and
the ultimate sale of the property.  This determination was based
upon the current market conditions and future performance
expectations for this investment. 

Winnetka

The Partnership owns a 100% interest in Winnetka Industrial Park
which is located in Crystal, Minnesota, a suburb of Minneapolis.
The property consists of two multi-tenant industrial buildings
containing 188,000 square feet of space.

In 1996 a 35,000 square foot tenant, representing 19% of the
<PAGE>7

property, renewed its lease. As a result, the property remained
100% leased at year end.  There are no leases expiring in 1997.



The recent National Association of Industrial and Office Parks
("NAIOP") survey of the Twin Cities' West/Northwest Suburban 
office/warehouse submarket cited an approximate vacancy rate of
3% versus 5% in 1995.  The west and northwest suburban submarket
contains approximately 7.7 million square feet, with
approximately 388,000 square feet of space available.  Net
absorption of approximately 106,000 square feet was recorded
during the four quarters ended June 30, 1996.  Average asking
rates for comparable space increased to approximately $7.22 per
square foot per year net of taxes, insurance, and utilities
("NNN") for the office portion of industrial buildings while
asking rates rose to approximately $3.69 NNN  for the warehouse
portion.  Virtually no free rent is being offered as a concession
to negotiate a transaction, except when space is taken "as-is." 
With the reduction in vacancy rates, speculative construction is
underway.  At present, 20 new buildings are under construction in
the nearby suburb of Plymouth.  These buildings are expected to
compete directly with Winnetka. 

During 1996, Winnetka, together with the Riverview and Wood Dale
properties, was marketed for sale along with two similar
properties owned by T. Rowe Price Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited Partnership
("RIF II ").  The General Partner believes that marketing the
properties together will maximize the sale price of each of the
properties.  The properties were placed for sale as investor
interest is strong in the markets where the assets are located. 
In addition, the projected supply response caused by increased
rental rates is such that future cash flows and values could be
compromised through slowing or decreasing rental rate growth and
higher vacancy.  A letter of intent to sell all five properties
to a single buyer was signed in January, 1997.  Upon completion
of its due diligence the buyer exercised its right to cancel the
purchase.  The Partnership is evaluating other offers on these
properties.

South Point Plaza

The Partnership owns a 50% interest in South Point Partners, a
joint venture with its affiliate, RIF II.  South Point Partners
owns a 100% interest in South Point Plaza Shopping Center ("South
Point"), in Tempe, Arizona.  The property consists of two multi-
tenant buildings in a neighborhood shopping center, which is also
occupied by a supermarket.  The total square footage of the
multi-tenant buildings is 49,000 square feet.  The Partnership
<PAGE>8

also owns pads for two 3,000 square foot single-tenant buildings,
one of which is built-out and currently leased as a restaurant
and one of which was paved over to expand parking area to
accommodate a building expansion. 
 
One new lease of 18,615 square feet and five renewal leases
totaling 6,412 square feet were signed during the year.  This
positive activity was partially offset by the loss of one 1,499
square foot tenant who vacated upon its lease expiration.  Thus,
at year-end, the property improved its leased status to 90%
versus 68% in 1995. Subsequent to year-end, the tenant on the new
lease indicated that due to poor customer traffic it may be
vacating the space and attempting to sublease it.  The tenant
remains obligated for its rent payments over the balance of its
initial lease term, which expires in August, 2001.  Scheduled
expirations in 1997 represent 18% of the property's leasable
area.

The metropolitan area Phoenix retail market remains somewhat
strong.  In the Tempe submarket, approximately 298,895 net square
feet were absorbed during the first three quarters of 1996. 
Although there were additions to the inventory of retail space in
the Tempe submarket, vacancy remained stable at 7%.  This level
is better than the Metropolitan Phoenix vacancy rate of 8%.
Average market rental rates per square foot for space in Tempe
increased approximately 15% over the previous year from $9.67 to
$11.15 per square foot net of taxes, insurance, and utilities. 
Rents at South Point are somewhat below the average, ranging from
$7.50 to $11, because the property is older than competing
centers and is in a less affluent section of Tempe.   

During 1996, the General Partner approved a plan for the
disposition of South Point Plaza.  Based upon the estimated
realizable value less selling costs for the property, the
Partnership recorded a valuation allowance of $29,000.  The
Partnership is currently marketing the property for sale, and
entered into a contract to sell the property on March 20, 1997. 
There is no assurance the sale will be consumated.

Tierrasanta

The Partnership owns a 30% interest in Tierrasanta 234, a joint
venture with its affiliates, RIF II and T. Rowe Price Realty
Income Fund IV, America's Sales-Commission-Free Real Estate
Limited Partnership ("RIF IV").  Tierrasanta 234 owns a 100%
interest in Tierrasanta Research Park in San Diego, California. 
The project contains four buildings utilized for research and
development purposes, for a total of 104,000 square feet of
space.  It is located in the Kearny Mesa market area, north of
San Diego, which is part of the larger "Interstate 15" commercial
<PAGE>9

corridor.

The property lost one 39,971 square-foot tenant when the tenant's
lease expired, and one tenant was renewed for 8,305 square-foot
space to bring the leased status to 62% at year-end, versus 100%
at year-end 1995.  During 1997, only one lease covering 8,900
square feet expires.  There has been interest in the vacant
space, and the market is tightening but several competitive
properties have comparable space available.

Tierrasanta Research Park is part of the Kearny Mesa research and
development ("R&D")/office market.  The Park competes against
both R&D and office buildings.  Overall activity in the submarket
has been good, with approximately 1,475,000 square feet of gross
absorption for the year in R&D space, and slightly higher rents
than year-end 1995, as discussed below.  Vacancy rates at year-end
 1996 were approximately 8.0% and 15.4% for R&D space and
office space, respectively, versus approximately 13% and 19%,
respectively, for the previous year. 

Rental rates in this submarket at year-end for R&D space range
between $6.60 and $9.00 per square foot net of expenses, with
tenant improvements ranging between $5.00 and $15.00 per square
foot.  Office rents are ranging between $10.80 and $16.20 per
square foot with tenant improvements ranging anywhere from $7.00
to $20.00 per square foot.  There continue to be several 15,000
to 25,000 square foot buildings available for lease in the
Kearney Mesa submarket which compete directly with the
Tierrasanta vacancy.

During 1996, the Partnership recorded a provision for value
impairment of $832,000 in connection with Tierrasanta.  The
General Partner determined that this adjustment was a prudent
course of action based upon the uncertainty of the Partnership's
ability to recover the net carrying value of the project through
future operations over a shorter anticipated holding period and
the ultimate sale of the property.

Wood Dale

The Partnership owns a 100% interest in two multi-tenant
industrial warehouse/manufacturing/distribution buildings in Wood
Dale, Illinois, a suburb of Chicago located immediately west of
O'Hare Airport.  The buildings are located within a few blocks of
each other and contain a total of 90,000 square feet.

Although tenants totaling 32,344 square feet signed new and
renewal leases, three tenants whose leases covered a total 39,056
square feet did not renew upon lease expiration. Thus, this
suburban Chicago industrial project experienced a decline in
<PAGE>10

year-end leased status from 89% to 70%.  Despite this frictional
vacancy, occupancy at Wood Dale is expected to rebound during
1997.  

The western O'Hare suburban Chicago industrial submarket in which
the project is located consists of approximately 160 million
square feet of space in all types of industrial projects.  This
submarket is a part of the larger west and northwest Chicago
suburban industrial market which experienced net positive
absorption of approximately 738,000 square feet during the year.
Speculative construction has continued, but primarily in outlying
areas due to the limited supply of available land.  The range of
average net rental rates for comparable space has increased from
approximately $3.50 to $4.75 net per square foot per year last
year to $3.75 to $5.00 per square foot by year-end 1996.

The property is also included in the portfolio of assets being
held for sale, which is discussed above in connection with the
Winnetka property.

Clark Avenue

The Partnership owns a 100% interest in this 40,000 square foot
office/industrial building in King of Prussia, Pennsylvania, a
northwestern suburb of Philadelphia.  During the year the
partnership recorded a provision for value impairment in
connection with the Clark Avenue of $802,000.  The General
Partner determined that this adjustment was a prudent course of
action based upon the uncertainty of the partnership's ability to
recover the net carrying value of Clark Avenue through future
operations over a shorter anticipated holding period and the
ultimate sale of the property.  This determination was based upon
current market conditions and future performance expectations of
both the property and the King of Prussia/Valley Forge market.

There was no leasing activity at the property during 1996. 
However, in February 1997 the one vacancy representing 28% of the
project was leased to a single tenant.  Leases representing 8% of
the property expire in 1997. 

With an inventory of approximately 10.8 million square feet, the
King of Prussia office submarket has a vacancy rate of
approximately 10.5% at the end of the third quarter of 1996; this
represents a decrease from the 12.25% level at year-end 1995. 
Net absorption recorded through the third quarter of 1996 was
approximately 194,000 square feet.  The full impact on office
requirements involving the largest tenant in the market, Lockheed
Martin, is still unknown, but the company has moved some workers
to other submarkets and to Maryland.  At present, rental rates
for comparable Class B space have remained at a range of $8.00 to
<PAGE>11

$12.00 per square foot per year net of insurance, taxes, and
operating expenses.  Fewer concessions are being offered.  There
was no new construction activity in the King of Prussia/Valley
Forge market in 1996 and none is planned for 1997.  Nevertheless,
conditions in the overall Philadelphia industrial market are not
strong, and the King of Prussia market is experiencing tenants
downsizing and departing for other submarkets.

Riverview

The Partnership owns a 100% interest in the Riverview property
which is located in the Riverview Industrial Park directly across
the Mississippi River from the St. Paul, Minnesota Central
Business District.  The project consists of three multi-tenant
industrial warehouse/distribution/light manufacturing buildings
containing a total of 114,000 square feet of space.

Three tenants representing 25,000 square feet or 22% of the space
renewed and/or expanded their leases during 1996.  Additionally,
one new 5,000 square foot tenant was signed.  This positive
activity more than offset the loss of one tenant totaling 10,000
square feet which vacated upon its lease expiration.  Thus, the
property increased its leased status by four percentage points
over 1995 to end the year at 100% leased.  Leases representing
22% of the space in the property expire in 1997. 

The most recent NAIOP survey of the St. Paul, Midway, and
Suburban submarket showed a vacancy rate for office/warehouse
space of approximately 4% on a total inventory of approximately
11.3 million square feet. Net absorption totaled 74,300 square
feet for the four quarters ending June 30, 1996.  Average asking
rates for the office portion were approximately $7.50 NNN per
square foot per year while average asking rates for the warehouse
portion were $3.25 NNN.
 
Riverview is also included in the portfolio of assets being held
for sale, which is discussed above in connection with the
Winnetka industrial property.

Westbrook Commons

The Partnership owns a 50% interest in Penasquitos 34, a joint
venture with RIF IV.  Penasquitos 34 owns a 100% interest in
Westbrook Commons Shopping Center ("Westbrook Commons"), a
neighborhood shopping center in the Village of Westchester,
Illinois, a Chicago suburb.  The property contains 122,000
rentable square feet of space.  

Three new, five renewal, and one expansion lease totaling 19,952
square feet were signed during the year. Despite three tenants
<PAGE>12

that did not renew their leases, including one tenant that was
lost due to credit reasons, the property's year-end occupancy
increased slightly from 96% to 98% by year-end 1996.  Leases
representing only 7% of the property's leaseable area expire in
1997.  Activity from prospective tenants has been good.

The Westchester market in which the project is located continues
to remain a stable and relatively healthy environment for
retailers.  Grocery anchored centers such as Westbrook Commons
have proven to be the most successful for service/convenience
based retailers.  While the submarket and the property have
experienced some interim fluctuations in occupancy due to poor
holiday sales, weakness of some smaller tenants, and lease
expirations, the overall situation is positive.  Industry figures
place the vacancy rate for the competitive centers within a
three-mile radius of Westbrook Commons at approximately 2%.  The
average rental rates in the submarket in 1996 were level to
slightly up for Class A space.

River Run

The Partnership owns a 100% interest in River Run Shopping Center
in Miramar, Florida containing 93,000 square feet of space.  In
July 1995, the Partnership began consensual foreclosure on the
participating mortgage loan secured by the River Run Shopping
Center and ceased the accrual of interest income.  On October 10,
1995, the Partnership purchased the property at the foreclosure
sale and, in connection therewith, reclassified the participating
mortgage loan as an investment in real estate of $7,700,000.

In 1996, this South Florida retail center signed three new leases
totaling 4,275 square feet and one 975 square foot renewal lease. 
Two tenants totaling 2,050 square feet did not renew their
leases.  Occupancy increased from 90% at year-end 1995 to 93% at
year-end 1996.  Leases covering 4% of the project are scheduled
to expire in 1996.

The southwest Broward County non-regional mall submarket contains
approximately 4.5 million square feet of retail space.  The
directly competitive market consists of four centers totaling
650,000 square feet.  The vacancy rate within this smaller
submarket is approximately 4%.

Leasing activity in the area continues to improve.  New housing
construction which is underway in the area should positively
impact the center with in the foreseeable future.  With the
increase in activity, efforts to help reposition the property by
improving credit and tenant mix are underway.  Positioning of the
asset will continue throughout 1997 and may result in declines in
lease status until a stabilized occupancy has been achieved.  
Rental rates for new leases in the submarket have increased in
<PAGE>13

1996 on average $0.00 - $2.00 per square foot per year NNN. 

Employees

The Partnership has no employees and, accordingly, the General
Partner, the Partnership's investment adviser, LaSalle, and their
affiliates and independent contractors perform services on behalf
of the Partnership in connection with administering the affairs
of the Partnership and operating properties for the Partnership. 
The General Partner, LaSalle and their affiliates receive
compensation in connection with such activities, as described
above.  Compensation to the General Partner and its affiliates,
and the terms of transactions between the Partnership and the
General Partner and its affiliates, are set forth in Items 11.
and 13. below, to which reference is made for a description of
those terms and the transactions involved.


Item 2.  Properties

The Partnership owns the properties referred to under Item 1.
above, to which reference is made for the name, location and
description of each property.  All properties were acquired on an
all-cash basis.

Item 3.  Legal Proceedings

The Partnership is not subject to any material pending legal
proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5.  Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters

On March 17, 1997, there were 10,365 Limited Partners.  There is
no active public market for the Units.  However, during the
period commencing in the third quarter of 1996, two bidders,
neither of whom is affiliated with the General Partner or
LaSalle, have made tender offers for the Units, at prices of $60
and $107 per Unit, less the amount per Unit of distributions
declared or paid during a specified period.  As of February 28,
1997, sales of 647 Units to the firm making offers at $60 have
been presented for processing, and the firm making offers at $107
has stated that it has purchased 2,331 Units.  The Partnership is
not obligated to redeem or repurchase Units, but it may do so in
certain defined hardship situations.

In 1987 Congress adopted certain rules concerning "publicly
<PAGE>14

traded partnerships".  The effect of being classified as a
publicly traded partnership would be that income produced by the
Partnership would be classified as portfolio income rather than
passive income.  On November 29, 1995, the Internal Revenue
Service adopted final regulations ("Final Regulations")
describing when interests in partnerships will be considered to
be publicly traded.  The Final Regulations do not take effect
with respect to existing partnerships until the year 2006.  Due
to the nature of the Partnership's income and to the low volume
of transfers of Units, it is not anticipated that the Partnership
will be treated as a publicly traded partnership under currently
applicable rules and interpretations or under the Final
Regulations.  However, in the event the transfer of Units
presented for transfer within a tax year of the Partnership could
cause the partnership to be treated as a "publicly traded
partnership" for federal tax purposes, the General Partner will
accept such transfers only after receiving from the transferor or
the transferee an opinion of reputable counsel satisfactory to
the General Partner that the recognition of such transfers will
not cause the Partnership to be treated as a "publicly traded
partnership" under the Internal Revenue Code of 1986, as amended. 
The General Partner is closely monitoring this situation in light
of the recent tender offers.

Cash distributions declared to the Limited Partners during the
two most recent fiscal years are as follows:

            Distribution for the                 Amount of
                 Quarter Ended            Distributions per Unit

           March 31, 1995                               $1.58
           June 30, 1995                                $1.58
           September 30, 1995                           $1.58
           December 31, 1995                            $6.37
           March 31, 1996                               $2.00
           June 30, 1996                                $2.00
           September 30, 1996                          $23.60
           December 31, 1996                            $2.00

All of the foregoing distributions were paid from net cash flows
from operating activities, with the exception of the distribution
for the quarter ended September 30, 1996, which included $21.60
per Unit from the proceeds of the sale of Fairchild Corporate
Center, and the distribution for the quarter ended December 31,
1995, which included $3.25 per Unit from retained cash balances
generated by operations in prior years and a return of capital of
$.75 per Unit from proceeds of the initial public offering of
Units, which had been retained as cash balances.

There are no material legal restrictions on the Partnership's
present or future ability to make distributions in accordance
<PAGE>15

with the provisions of the Agreement of Limited Partnership,
annexed to the prospectus as Exhibit A thereto.  Reference is
made to Item 7., below for a discussion of the Partnership's
ability to continue to make future distributions.

At the end of 1996, the Partnership conducted its annual formal
unit valuation.  The valuation of the Partnership's properties
was performed by the General Partner, and then reviewed by an
independent professional appraiser to assess the analysis and
assumptions utilized.  The estimated investment value of limited
partnership Units resulting from this process was $147 per Unit.
After distributions in February, 1997 of $2.00 per Unit the
estimated valuation is $145. In general, Units cannot currently
be sold at a price equal to this estimated value, and this
valuation is not necessarily representative of the value of the
Units when the Partnership ultimately liquidates its holdings.






Item 6.  Selected Financial Data

The following sets forth a summary of the selected financial data
for the Partnership:

                                 YEARS ENDED DECEMBER 31,
                      (Dollars in thousands except per-unit amounts)

                  1996      1995     1994        1993      1992        

Total assets     $33,952   $41,733    $41,885   $45,780  $48,843 
 at year-end                       

Total revenues   $6,280     $6,094     $6,357    $6,211   $6,078 
Net income 
 (loss)            $906     $1,783     $579      $(109)  $(1,268)              
Net income 
 (loss)
  per Unit        $3.54      $6.96    $2.26     $(0.43)   $(4.95)        
Cash distributions
 declared per
 Unit            $29.60     $11.11   $17.45    $11.74     $11.53 
                                 

Notes:
<PAGE>16

1.       The above financial data should be read in conjunction with
         the financial statements and the related notes appearing
         elsewhere in this report.

2.  The figures above for Net income (loss) include valuation
    impairments of $2,750 and gain on real estate sold of $1,630
    in 1996, a loan loss provision of $202 and a valuation
    recovery of $109 in 1995, provisions for value impairment of
    $1,467, valuation recoveries of $82, and gain from the sale
    of the Beinoris Building of $80 in 1994, valuation
    allowances of $1,968 in 1993, and a valuation allowance of
    $1,428 and a provision for loan loss of $1,426 in 1992.

3.  The figures above for Net income (loss) per Unit include
    valuation impairments of $10.74 per Unit and gain on real
    estate sold of $6.36 per Unit in 1996, a loan loss provision
    of $.46 per Unit and a valuation recovery of $.43 per Unit
    in 1995, provisions for value impairment of $5.73 per Unit,
    a valuation recovery of $.32 per Unit, and gain from sale of
    Beinoris Building of $.31 per Unit in 1994, valuation
    allowances of $7.68 per Unit in 1993, and $5.57 per Unit in
    1992, and a provision for loan loss of $5.57 per Unit in
    1992.

4.  The above distributions include a return of capital from
    proceeds of the initial public offering of Units, which had
    been retained as cash balances, in the amount per Unit of
    $.75 in 1995, and $.49 in 1992.  The distribution for 1996
    also includes $21.60 per Unit from the proceeds of the sale
    of Fairchild Corporate Center.  The distribution for 1994
    includes $3.92 per Unit from the proceeds of the sale of the
    Beinoris Building.  The remainder of these distributions
    were paid from cash from operating activities.

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

Liquidity and Capital Resources

The Partnership sold 253,641 Units for a total of $63,410,000,
including the contribution of $25,000 from the original Limited
Partner.  The offering was terminated on June 30, 1987 and no
additional units will be sold.  After deduction of organizational
and offering costs of $3,805,000, the Partnership had $59,605,000
available for investment and cash reserves.  Through December 31,
1996 the Partnership had declared distributions constituting
return of capital from the proceeds of this offering of
approximately $1.2 million.

The Partnership originally purchased nine properties or interests
<PAGE>17

therein on an all-cash basis, and made an investment in an
interest in a participating mortgage loan, completing the initial
acquisition phase of its business plan.  Through December 31,
1996 the Partnership had sold two property investments:  a
portion of the Wood Dale property and Fairchild Corporate Center,
in which the Partnership had a 56% interest.

As of December 31, 1996 the Partnership classified the Wood Dale,
Winnetka, Riverview and South Point Plaza properties as held for
sale, at a total carrying value of $11,786,000.  Initial cost of
the Partnership's remaining real estate investments including
subsequent improvements was $28,679,000.   The Partnership has
also recorded provisions for value impairments in connection with
these properties totaling $5,731,000.  In recording the new
carrying basis for these properties in accordance with Statement
of Financial Accounting Standards No. 121, which was adopted in
1996, the Partnership offset these properties' accumulated
depreciation balances totaling $2,954,000 against their
historical cost.  Accumulated depreciation and amortization after
this reclassification equals $1,059,000.  Therefore, investment
in real estate for financial reporting purposes including
properties held for sale, after accumulated depreciation,
amortization and valuation changes, was $30,721,000 as of
December 31, 1996.


The  Partnership  expects  to  incur  capital  expenditures 
during  1997  totaling  approximately $900,000 for tenant
improvements, lease commissions, and other major repairs and
improvements.  The majority of these expenditures are dependent
on the execution of leases with new and renewing tenants,
including a substantial portion for the renovation of the large
vacant space at Tierrasanta.  While the percentage of leases
expiring is substantially lower than in 1996, the Partnership's
business plan now calls for the disposition of all of its real
estate investments by the end of 1998.  In order to strategically
position the properties for sale, the Partnership will place
greater emphasis on entering into longer-term leases with
creditworthy tenants.  This strategy is likely to result in
higher leasing commission and tenant improvement costs, but
should result in higher sales prices for the properties than
would otherwise be the case.

The Partnership maintains cash balances to fund its operating and
investing activities including the costs of tenant improvements
and leasing commissions, costs which must be disbursed prior to
the collection of any resultant revenues.  The General Partner
believes that year-end cash balances and cash generated from
operating activities in 1997 will be adequate to fund the
Partnership's current investing and operating needs. Based on
<PAGE>18

current expectations, cash distributions to partners from
operating income are expected to be lower than those in 1996,
because the Partnership no longer owns the Fairchild Corporate
Center property, which contributed $1,672,000 to 1996 net income,
and because the Partnership expects to dispose of additional
properties during 1997.  As of March 26, 1997, the Partnership
was evaluating offers on the Wood Dale, Riverview, and Winnetka
properties, and the South Point property was under contract to be
sold.  In 1997, management will determine cash distributions from
operations each quarter based on net cash flows for the quarter,
money needed to operate the properties and pay Partnership
expenses, and anticipated capital needed to repair and maintain
the properties and make occupancy related tenant improvements.   

As of December 31, 1996, the Partnership maintained cash and cash
equivalents aggregating $2,468,000, a decrease of $968,000 from
the prior year end.  This decrease resulted primarily from
additional capital improvements during the year.  Net cash
provided by investing activities increased by $5,572,000 due
primarily to the Fairchild Corporate Center sale in 1996.  Net
cash used in financing activities increased by $6,604,000 due
primarily to distribution of the proceeds of the Fairchild
Corporate Center sale.





Operations

1996 v. 1995

The Partnership had a loss of $724,000 from operations in 1996,
before the gain on the Fairchild Corporate Center sale, compared
with net income of $1,783,000 in 1995.  This difference is
primarily due to downward property valuation adjustments at
Scripps Terrace, Tierrasanta, and Clark Avenue totaling
$2,750,000, which were partly offset by an increased contribution
to income of $327,000 from River Run.  This latter property's
contributon increased as a result of the Partnership's
acquisition of the asset through foreclosure late in 1995.  While
conditions in the markets where these properties are located are
generally improving, the shortened anticipated holding period due
to the Partnership's disposition plans caused it to adjust the
carrying values downward.

The sale of Fairchild Corporate Center in 1996 had a negative
effect on operating earnings amounting to $45,000 because of the
loss of the property's income for four months of the year. 
However, the Partnership realized a gain of $1,630,000 on the
<PAGE>19

sale.

Revenues from rental income and interest totaled $6,280,000 for
the year compared with $6,094,000 a year earlier.  This
comparison was negatively affected by the absence of a full
year's rental income from the Fairchild Corporate Center but was
positively affected by an increased contribution to income from
River Run.  Results were helped by a decline of $166,000 in
operating expenses before valuation adjustments during the year.

Leases representing 7% of the portfolio's leasable square footage
are scheduled to expire in 1997.  These leases represent
approximately 11% of the portfolio's rental income for 1996. 
This amount of potential lease turnover is below normal for the
types of properties in the portfolio, which typically lease to
tenants under three to five year leases.  The overall portfolio
occupancy was 89% as of the end of 1996.  Management anticipates
that occupancy levels will generally remain level or increase in
1997.  In most markets, new leases are generally expected to
reflect level to higher market rental rates in comparison to the
rates of expiring leases.  To the extent that the Partnership
sells one or more properties during the year, cash flow from
operations would be expected to decline while cash flows from
sales would increase substantially.

There are no single-tenant properties in the Partnership's
portfolio, and no single tenant accounted for more than 10% of
the Partnership's revenue in 1996.  The Partnership therefore
does not expect any material adverse effect on revenue on account
of the failure of any single tenant in 1997. 

1995 v. 1994

While the Partnership's statements of operations appeared to show
that the Fund's performance improved significantly over 1994,
income was actually down $210,000 when the effect of value
impairments, primarily at Scripps Terrace and Tierrasanta, were
backed out of 1994's numbers.  The change in River Run's status
from a loan to an owned property had the most notable impact on
the year-to-year comparison.

In the fourth quarter of 1995, the Partnership took over
ownership of River Run and began accounting for it as a property
rather than as a loan.  This meant that its rental income and
property level operating expenses, rather than interest, were
included in the Partnership's results.  Inclusion of its fourth
quarter rental income caused that revenue category to be up for
the full year over 1994.  The benefit, however, was more than
offset by the decrease in interest income from the River Run loan
and the increase in expenses related to the property, 
<PAGE>20

particularly the loan loss provisions and uncollectible interest. 

The lower average leased status at Fairchild Corporate Center and
Clark Avenue drove the overall decline in rental income.  The
absence of Beinoris, which was sold in 1994, also had a negative
effect on the revenue comparison. 

The most noteworthy expense item which had a positive effect on
the net income comparison with 1994, other than higher valuation
impairments in 1994, was depreciation.  Higher tenant improvement
charge-offs in 1994 at Wood Dale, Tierrasanta, Scripps Terrace,
Winnetka, Clark Avenue, and Riverview led to the decrease in
depreciation versus 1994. 

Reconciliation of Financial and Tax Results

For 1996, the Partnership's book net income was $906,000, and its
taxable loss was $5,759,000.  The loss for tax purposes on the
Fairchild Corporate Center sale was the primary reason for the
difference.  For 1995, the Partnership's book net income was
$1,783,000, and its taxable income was $85,000.  The provision
for loan loss in connection with River Run was the primary
difference.  For 1994, the Partnership's book net income was
$579,000, and its taxable income was $2,917,000.  The valuation
allowances in connection with Tierrasanta and Scripps Terrace and
the continuation of the accrual of interest on the Brinderson
loan for tax purposes were the primary differences.  For a
complete reconciliation see Note 8 to the Partnership's
consolidated financial statements, which note is hereby
incorporated by reference herein.



Item 8.  Financial Statements and Supplementary Data   

The consolidated financial statements appearing on pages 5
through 12 of the Partnership's 1996 Annual Report to Limited
Partners are incorporated by reference in this Form 10-K Annual
Report.  The report on such financial statements of KPMG Peat
Marwick LLP dated January 30, 1997 is filed as Exhibit 99(c) to
this form 10-K Annual Report and is hereby incorporated by
reference herein.  Financial Statement Schedule III, Consolidated
Real Estate and Accumulated Depreciation, is filed as Exhibit
99(b) to this Form 10-K Annual Report, and is hereby incorporated
by reference herein.  All other schedules are omitted either
because the required information is not applicable or because the
information is shown in the financial statements or notes
thereto.

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

<PAGE>21

None.

PART III

Item 10.  Directors and Executive Officers of the Partnership

The General Partner of the Partnership is T. Rowe Price Realty
Income Fund III Management, Inc. ("Fund III Management"), 100
East Pratt Street, Baltimore, Maryland 21202.  The General
Partner has the primary responsibility for overseeing the
evaluation, structuring, negotiation, management, and liquidation
of the Partnership's investments as well as the cash management
of the Partnership's liquid assets and the administration of
investor services of the Partnership, including general
communications, periodic reports and distributions to Limited
Partners, and filings with the Securities and Exchange
Commission.  Fund III Management is a wholly-owned subsidiary of
T. Rowe Price Real Estate Group, Inc. ("Real Estate Group"),
which is, in turn, a wholly-owned subsidiary of T. Rowe Price
Associates, Inc. ("Associates").  Affiliates of the General
Partner, T. Rowe Price Realty Income Fund I Management, Inc.
("Fund I Management"), T. Rowe Price Realty Income Fund II
Management, Inc. ("Fund II Management"), and T. Rowe Price Realty
Income Fund IV Management, Inc. ("Fund IV Management") are the
General Partners of other real estate limited partnerships
sponsored by Associates.  Real Estate Group is also investment
manager for T. Rowe Price Renaissance Fund, Ltd., A Sales-Commission-
Free Real Estate Investment ("Renaissance Fund"), a
real estate investment trust sponsored by Associates.  Associates
was founded in 1937 and as of December 31, 1996 managed over $99
billion of assets.

The directors and executive officers of Fund III Management are
as follows:   
                              Position with T. Rowe Price        
Name                          Realty Income Fund III Management,
                              Inc.

 James S. Riepe               Chairman of the Board, President,
                              also Principal Executive Officer
                              for the Partnership
 Henry H. Hopkins             Vice President and Director
 Lucy B. Robins               Vice President and Secretary
 Mark B. Ruhe                 Vice President
 Alvin M. Younger, Jr.        Treasurer and Director
 Kenneth J. Rutherford        Vice President
 Joseph P. Croteau            Controller and Director, also
                              Principal Financial Officer for
                              the Partnership
 Mark S. Finn                 Chief Accounting Officer for
                              the Partnership
<PAGE>22

Mr. Riepe was elected President in 1991.  Ms. Robins was first
elected to her current offices in 1987, Mr. Ruhe was first
elected in 1988, and Mr. Croteau was first elected as Controller
in 1988, and as a director in 1996 and was designated as
Principal Financial Officer for the Partnership in 1992.  Mr.
Rutherford was first elected as a Vice President in 1994.  Mr.
Hopkins was first elected a director in 1987.  Mr. Finn was
designated as Chief Accounting Officer in 1996.  In all other
cases these individuals have served in these capacities since the
inception of Fund III Management in 1986.  There is no family
relationship among the foregoing directors or officers.

The background and business experience of the foregoing
individuals is as follows:

    James S. Riepe (Born 1943) is Managing Director and Director, T.
Rowe Price Associates, Inc. ("Associates") and Director of its
Investment Services Division; President and Chairman of Real
Estate Group and each of the general partners of T. Rowe Price
Realty Income Fund I, A No-Load Limited Partnership ("RIF I"),
RIF II, and RIF IV,(the "Realty Income Funds"); Chairman of six
of the 42 mutual funds sponsored by Associates on which he serves
as a director or trustee; Chairman of New Age Media Fund;
Director, Rhone-Poulenc Rorer, Inc., a pharmaceuticals company. 
Mr. Riepe joined Associates in 1982.

    Henry H. Hopkins  (Born 1942) is a Managing Director, Director,
and Legal Counsel of Associates.  In addition, Mr. Hopkins is
Vice President and Director of each of the general partners of
the Realty Income Funds.  He is also a Vice President certain of
the mutual funds managed by Associates.  Mr. Hopkins joined
Associates in 1972.

    Lucy B. Robins  (Born 1952) is Vice President and Associate Legal
Counsel of Associates and Vice President of Real Estate Group and
each of the general partners of the Realty Income Funds.  Ms.
Robins joined Associates in 1986.

    Mark B. Ruhe  (Born 1954) is an Asset Manager for the Investment
Manager, and Vice President of Real Estate Group and each of the
general partners of the Realty Income Funds.  Mr. Ruhe joined
Associates in 1987.

Alvin M. Younger, Jr.  (Born 1949) is Treasurer and Director of
each of the general partners of the Realty Income Funds and a
Managing Director, Secretary and Treasurer of Associates, and
Secretary and Treasurer of Real Estate Group.  Mr. Younger joined
Associates in 1973.

    Kenneth J. Rutherford   (Born 1963) is Marketing Manager for
Associates since 1996 and Vice President of each of the general
<PAGE>23

partners of the Realty Income Funds.  Mr. Rutherford joined
Associates in 1992.  From 1992 to 1996 he was Assistant to the
Director of Associates' Investment Services Division.  From 1990
to 1992 he was a student at the Stanford Graduate School of
Business.

Joseph P. Croteau  (Born 1954) is a Vice President and Controller
of Associates, and Director and Controller of each of the general
partners of the Realty Income Funds.  Mr. Croteau joined
Associates in 1987.

    Mark S. Finn (Born 1963) is Assistant Vice President of
Associates, and Chief Accounting Officer of the Realty Income
Funds and the Renaissance Fund.  Mr. Finn joined Associates in
1990.

No Forms 3, Forms 4, Forms 5, or amendments to any of them, were
furnished to the registrant for its most recent fiscal year.
Based on a review of and written representations pursuant to 
Item 405(b)(2)(I) of Regulation S-K, none of the directors,
officers, or beneficial owners of more than 10% of the Units, if
any, nor the General Partner failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the
most recent fiscal or prior fiscal years.

Item 11.  Executive Compensation

The directors and executive officers of the General Partner
receive no current or proposed remuneration from the Partnership.

The General Partner is entitled to receive a share of cash
distributions and a share of profits or losses as described under
the captions  "Compensation and Fees," and "Income and Losses and
Cash Distributions" of the Prospectus on pages 7-8, and 32-35,
respectively, which pages are incorporated herein by reference.

For a discussion of compensation and fees to which the General
Partner is entitled, see Item 13., which is incorporated herein
by reference.

As discussed in Item 1, above, LaSalle receives reimbursement
from the Partnership for certain expenses incurred in performance
of its responsibilities under the advisory contract.  In
addition, under the contract, LaSalle receives from the General
Partner a portion of the compensation and distributions received
by the General Partner from the Partnership. 

In addition to the foregoing, certain officers and directors of
the General Partner receive compensation from Associates and/or
its affiliates (but not from the Partnership) for services
performed for various affiliated entities, which may include
<PAGE>24

services performed for the Partnership.  Such compensation may be
based, in part, on the performance of the Partnership.  Any
portion of such compensation which may be attributable to such
performance is not material.

Item 12.  Security Ownership of Certain Beneficial Owners and
Management

The Partnership is a limited partnership which issues units of
limited partnership interest.  No limited partner is known by the
Partnership to own beneficially more than 5% of the outstanding
interests of the Partnership.

The percentage of outstanding interests of the Partnership held
by all directors and officers of the General Partner is less than
1%.  Certain officers and/or directors of the General Partner
presently own securities in Associates.  As of February 1, 1997,
the directors and officers of the General Partner, as a group,
beneficially owned 4.77% of the common stock of Associates,
including options to purchase 336,000 shares exercisable within
60 days of February 1, 1997, and shares as to which voting power
is shared with others.  Of this amount, Mr. Riepe owned 2.34% of
such stock (1,380,978 shares, including 106,400 shares which may
be acquired by Mr. Riepe upon the exercise of stock options,
140,000 shares held in trusts for members of Mr. Riepe's family
and 40,000 shares held by a member of Riepe's family, as to which
Mr. Riepe disclaims beneficial ownership, and 82,000 shares held
in a charitable foundation of which Mr. Riepe is a trustee and as
to which Mr. Riepe has shared voting and disposition power). Mr.
Hopkins owned 1.11% (643,768 shares, including 120,800 shares
which may be acquired by Mr. Hopkins upon the exercise of stock
options).  Mr. Younger owned 1% (580,000 shares, including 16,500
shares which may be acquired by Mr. Younger upon the exercise of
stock options, and 25,000 shares owned by a member of Mr.
Younger's family as to which Mr. Younger disclaims beneficial
ownership).  No other director or officer owns 1% or more of the
common stock of Associates.

There exists no arrangement, known to the Partnership, the
operation of which may at any subsequent date result in a change
in control of the Partnership.

Item 13.  Certain Relationships and Related Transactions

The General Partner and its affiliates are permitted to engage in
transactions with the Partnership as described under the captions
"Compensation and Fees," and "Conflicts of Interest" of the
Prospectus on pages 7-12, which pages are hereby incorporated by
reference herein.

As compensation for services rendered in managing the affairs of
the Partnership, the General Partner earned a partnership
management fee of $164,000 in 1996, and received 1% of the cash
<PAGE>25

distributions, totaling $20,000 in 1996.  In addition, certain
operating expenses incurred on behalf of the Partnership are
reimbursable to the General Partner.  In 1996 the General Partner
was reimbursed for expenses incurred by it in the administration
of the Partnership and the operation of the Partnership's
investments, which amounted to $90,000.  An affiliate of the
General Partner has earned a fee of $4,000 from the money market
mutual funds in which the Partnership made its interim cash
investments in 1996.

PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on
Form 8-K

(a) The following documents are filed as part of this report:

  (1) Financial Statements:

Incorporated by reference from the indicated pages of the
Partnership's 1996 Annual Report to Limited Partners:

                                                       Page

 Consolidated Balance Sheets at                          5               
   December 31, 1996 and 1995         
 Consolidated Statements of Operations                  6                
   for each of the three years in the period 
   ended December 31, 1996          
 Consolidated Statements of Partners' Capital           7
   for each of the three years in the period 
   ended December 31, 1996          
 Consolidated Statements of Cash Flows for              8                
   each of the three years in the period 
   ended December 31, 1996          
 Notes to Consolidated Financial Statements             9-12




Independent Auditors' Report - Incorporated by reference from
Exhibit 99(c) hereof.

  (2)  Financial Statement Schedules:

     III - Consolidated Real Estate and Accumulated
     Depreciation, incorporated by reference to Exhibit 99(b)
     hereof.

     All other schedules are omitted because they are not
<PAGE>26

applicable or the required information is presented in the
financial statements and notes hereto.

  (3)  Exhibits

    3, 4.   (a)  Agreement of Limited Partnership of the
                 Partnership dated October 20, 1986, as amended
                 and restated as of January 5, 1987, included as
                 Exhibit A to the Prospectus of the Partnership,
                 dated January 5, 1987, File Number 33-9899, as
                 filed with the Commission pursuant to Rule
                 424(b) ("the Prospectus"), incorporated by
                 reference herein.

            (b)  Certificate of Limited Partnership,
                 incorporated by reference to Exhibit 3,4 to the
                 Partnership's Registration Statement, File No.
                 33-9899, as filed on January 5, 1987.

            (c)  Amendment to the Partnership Agreement dated
                 April l, 1987, incorporated by reference to
                 Exhibit 3,4(b) to Registrant's Report on Form
                 10-K for the year ended December 31, 1987 ("the
                 1987 10-K").

            (d)  Amendment to the Partnership Agreement dated
                 May l, 1987, incorporated by reference to
                 Exhibit 3,4(c) to the 1987 10-K.

            (e)  Amendment to the Partnership Agreement dated
                 June l, 1987, incorporated by reference to
                 Exhibit 3,4(d) to the 1987 10-K.

            (f)  Amendment to the Partnership Agreement dated
                 July l, 1987, incorporated by reference to
                 Exhibit 3,4(e) to the 1987 10-K.

            (g)  Amendment to the Partnership Agreement dated
                 August l, 1987, incorporated by reference to
                 Exhibit 3,4(f) to the 1987 10-K.


            (h)  Amendment to the Partnership Agreement dated
                 September l, 1987, incorporated by reference to
                 Exhibit 3,4(g) to the 1987 10-K.

            (i)  Amendment to the Partnership Agreement dated
                 March 28, 1988, incorporated by reference to
                 Exhibit 3,4(h) to the 1987 10-K.
                 
<PAGE>27

    10.     (a)  Joint Venture Agreement of Fairchild 234, dated
                 as of May 25, 1988, incorporated by reference
                 to Exhibit 10(f) to Registrant's Report on Form
                 10-K for the fiscal year ended December 31,
                 1988 ("the 1988 10-K").

            (b)  First Amendment to Joint Venture Agreement of
                 Fairchild 234, dated as of July 13, 1988,
                 incorporated by reference to Exhibit 10(g) to
                 the 1988 10-K.

            (c)  Forbearance and Loan Modification Agreement
                 relating to River Run Dated November 17, 1993,
                 between Stiles Hunt Properties as Borrower and
                 the Partnership as Lender, incorporated by
                 reference to Exhibit 10(j) to Registrant's
                 Report on Form 10-K for the year ended December
                 31, 1994.

            (d)  Agreement of Purchase and Sale of Mortgage Loan
                 and Joint Escrow Instructions relating to
                 Fairchild Corporate Center dated August 2,
                 1996.

    13.     Annual Report for the year ended December 31, 1996,
            distributed to limited partners on or about March 6,
            1997. 

    27.     Financial Data Schedule

    99.     (a)  Pages 7-12, 18-25 and 32-35 of the Prospectus
                 of the Partnership dated January 5, 1987,
                 incorporated by reference to Exhibit 99(a) of
                 the registrant's report on Form 10-K for the
                 year ended December 31, 1994, File Number  
                 0-16542.

            (b)  Financial Statement Schedule III - Consolidated
                 Real Estate and Accumulated Depreciation.

            (c)  Report of KPMG Peat Marwick LLP dated 
                 January 30, 1997 regarding the financial
                 statements of the Partnership.

  (b)       Reports on Form 8-K

            The following reports on Form 8-K were filed for the
            last quarter of the period covered by this report.

            (1)  Report on Form 8-K dated November 12, 1996
<PAGE>28

                 regarding the valuation of the Partnership's
                 Units.

            (2)  Report on Form 8-K dated January 17, 1997
                 regarding the valuation of the Partnership's
                 Units.










































                                        SIGNATURES


<PAGE>29

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:

Dated:   March 27, 1997      T. ROWE PRICE REALTY INCOME FUND III,
                             AMERICA'S SALES-COMMISSION-FREE REAL
                             ESTATE LIMITED PARTNERSHIP

                       By:   T. Rowe Price Realty Income Fund
                             III Management, Inc., General
                             Partner



                             By:    /s/James S. Riepe            
                                    James S. Riepe, 
                                    President

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities (with respect
to the General Partner) and on the dates indicated:



/s/James S. Riepe                       Date: March 27, 1997             
James S. Riepe, 
Director and Chairman of the 
Board, President
T. Rowe Price Realty Income 
Fund III Management, Inc., 
Principal Executive Officer
for the Partnership


/s/Henry H. Hopkins                     Date: March 27,1997
Henry H. Hopkins,
Director and Vice President,
T. Rowe Price Realty Income Fund III
Management, Inc.









<PAGE>30


/s/Alvin M. Younger, Jr.                Date: March 27, 1997
Alvin M. Younger, Jr.,
Director and Treasurer,
T Rowe Price Realty Income Fund III
Management, Inc.




/s/Joseph P. Croteau                    Date: March 27, 1997
Joseph P. Croteau, Director and
Controller, T. Rowe Price Realty 
Income Fund III Management, Inc., 
Principal Financial Officer for 
the Partnership



/s/Mark S. Finn                         Date: March 27, 1997
Mark S. Finn
Chief Accounting Officer 
for the Partnership<PAGE>