Form 10-QSB


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

                  For the Quarterly period ended June 30, 1998

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT 

For the transition period from _______________ to _______________

                         Commission file number 0-28764

                     (Exact name of small business issuer as
                            specified in its charter)
  Performance Asset Management Fund III, Ltd., A California Limited Partnership

  (State or other jurisdiction                                  (IRS Employer   
of incorporation or organization)                            Identification No.)
           California                                            33-0526128     

                    (Address of principal executive offices)
            4100 Newport Place, Suite 400, Newport Beach, California

                           (Issuer's telephone number)
                                 (714) 261-2400

              (Former name, former address and former fiscal year,
                          if changed since last report)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s),  and (2)
has been subject to such filing  requirements  for the past 90 days.  
Yes _X_ No ___

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by court. Yes___ No ___.

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practicable date: N/A

     Transitional Small Business Disclosure Format (check one): 
                    Yes ___         No _X_

                                       1

<PAGE>


                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                              INDEX TO FORM 10-QSB


                                     PART I

Item 1. Financial Statements

Item 2. Management's Discussion and Analysis of Plan of Operation


                                     PART II

Item 1. Legal Proceedings

Item 2. Exhibits and Reports

               Signatures

                                       2

<PAGE>


PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP

                                     PART I

ITEM 1.  FINANCIAL STATEMENTS

Index to the Financial Statements for the Partnership:

Balance Sheets as of June 30, 1998 and December 31,1997.......................4

Statements of Operations for the Three and Six Months Ended June 30,
1998 and June 30, 1997........................................................5

Statements of Partners' Capital (Deficit) for the Six Months Ended 
June 30, 1998 and Year Ended December 31, 1997................................6

Statements of Cash Flows for the Six Months Ended June 30,
1998 and June 30, 1997........................................................7

Notes to Financial Statements.................................................8

The financial statements have been prepared by Performance Asset Management Fund
III,  Ltd., A California  Limited  Partnership  ("Partnership"),  without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been  condensed  or omitted  pursuant  to such rules and  regulations.  The
Partnership  believes that the  disclosures are adequate to make the information
presented  not  misleading  when  read in  conjunction  with  the  Partnership's
financial  statements  for the year  ended  December  31,  1997.  The  financial
information  presented  reflects  all  adjustments,  consisting  only of  normal
recurring adjustments, which are, in the opinion of management,  necessary for a
fair statement of the results for the interim periods presented.

                                       3

<PAGE>


                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                                 BALANCE SHEETS
                       June 30, 1998 and December 31, 1997
                                   (UNAUDITED)

                                     ASSETS
                                                         1998           1997
                                                     -----------    -----------
Cash and equivalents                                 $   660,395    $ 1,109,587
Cash held in trust                                     2,192,197      2,141,594
Investments in distressed loan portfolios, net         2,374,809      1,663,174
Due from affiliate                                            --         56,221
Other assets                                              64,480         64,480
                                                     ===========    ===========
         Total assets                                $ 5,291,881    $ 5,035,056
                                                     ===========    ===========

                       LIABILITIES AND PARTNERS' CAPITAL

Accounts  payable                                    $     4,500    $     5,219
Due to affiliates, net                                   750,795        464,128
                                                     -----------    -----------
         Total liabilities                               755,295        469,347
                                                     -----------    -----------

Commitments and contingencies

General partner's deficit (no units outstanding)        (398,835)      (395,923)
Limited partners' capital (2,000 units authorized;
1998 units issued and outstanding June 30,1998
and December 31, 1997)                                 4,935,421      4,961,632
                                                     -----------    -----------
         Total partners' capital                       4,536,586      4,565,709
                                                     ===========    ===========
         Total liabilities and partners' capital     $ 5,291,881    $ 5,035,056
                                                     ===========    ===========

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

                                       4

<PAGE>


                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                               For the Three                          For the Six
                                                           Months Ended June 30                  Months Ended June 30
                                                       -----------------------------        ------------------------------
                                                          1998               1997               1998               1997
                                                       ----------        -----------        -----------        -----------
<S>                                                    <C>               <C>                <C>                <C>         
Portfolio collections                                  $  250,221        $   317,249        $   487,265        $   532,617
Less: portfolio basis recovery                            250,221            317,249            487,265            532,617
                                                       ----------        -----------        -----------        -----------
        Net investment income                                  --                 --                 --                 --
                                                       ----------        -----------        -----------        -----------
Cost of operations:
  Collection expense                                        6,451             29,065             33,789             29,275
  Management fee expense                                   14,588             13,626             30,488             28,901
  Professional fees                                         9,410             37,353             27,745             71,758
  Amortization                                                 --                289                 --                633
  General and administrative expense                        1,041              5,548              1,198              6,488
                                                       ----------        -----------        -----------        -----------
        Total operating expenses                           31,490             85,881             93,220            137,055
                                                       ----------        -----------        -----------        -----------
Income (loss) from operations                             (31,490)           (85,881)           (93,220)          (137,055)
Other income:
  Interest                                                 29,744             65,887             64,097             75,604
  Other income                                                 --                 --                 --                 84
                                                       ==========        ===========        ===========        ===========
Net income (loss)                                         ($1,746)          ($19,994)          ($29,123)          ($61,367)
                                                       ==========        ===========        ===========        ===========

Net income (loss) allocable to general partner           ($174.60)        ($1,999.40)        ($2,912.30)        ($6,136.70)
                                                       ==========        ===========        ===========        ===========
Net income (loss) allocable to limited partners        ($1,571.40)       ($17,994.60)       ($26,210.70)       ($55,230.30)
                                                       ==========        ===========        ===========        ===========
Net income (loss) per limited partnership unit             ($0.79)            ($9.01)           ($13.12)           ($27.64)
                                                       ==========        ===========        ===========        ===========
</TABLE>

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

                                        5

<PAGE>


                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                    STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
     For the Six Months Ended June 30, 1998 and Year Ended December 31,1997
                                  (UNAUDITED)

                                      General        Limited
                                      Partner        Partners          Total
                                    -----------     -----------     -----------
Balance, December 31, 1996             (289,959)      5,916,522       5,626,563
  Distributions                         (88,800)       (800,400)       (889,200)
  Net income                            (17,164)       (154,490)       (171,654)
                                    -----------     -----------     -----------
Balance, December 31, 1997            ($395,923)     $4,961,632      $4,565,709
                                    -----------     -----------     -----------
  Net income                             (2,912)        (26,211)        (29,123)
                                    ===========     ===========     ===========
Balance, June 30, 1998                ($398,835)     $4,935,421      $4,536,586
                                    ===========     ===========     ===========

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

                                        6

<PAGE>


                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS
                 For the Six Months Ended June 30, 1998 and 1997
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                               1998          1997
                                                           -----------    -----------
<S>                                                        <C>            <C>     
Cash flows from operating activities:
  Net income (loss)                                           ($29,123)      ($61,367)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Amortization                                                  --            633
      Decrease (increase) in assets:
        Other assets                                                --             (3)
        Due from affiliates                                     56,221       (157,313)
      Increase (decrease) in liabilities:
        Accounts payable                                          (719)         7,754
        Due to affiliates                                      286,667       (166,308)
                                                           -----------    -----------
      Net cash provided by (used in)
        operating activities                                   313,046       (376,604)
                                                           -----------    -----------
Cash flows provided by (used in) investing activities:
  Recovery of portfolio basis                                  487,265        532,617
  Purchase of investments in distressed loan portfolios     (1,198,900)            --
  Cash held in trust                                           (50,603)       564,778
                                                           -----------    -----------
        Net cash provided by investing activities             (762,238)     1,097,395
                                                           -----------    -----------
Cash flows provided by (used in) financing activities:
  Distributions to partners                                         --       (667,200)
                                                           -----------    -----------
        Net cash used in financing activities                       --       (667,200)
                                                           -----------    -----------
Net (decrease) increase in cash                               (449,192)        53,591
Cash at beginning of period                                  1,109,587        775,755
                                                           ===========    ===========
Cash at end of period                                         $660,395       $829,346
                                                           ===========    ===========
</TABLE>

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

                                        7

<PAGE>


                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          Notes to Financial Statements


Organization and Description of Business

Performance  Asset Management Fund III, Ltd., A California  Limited  Partnership
("Partnership"),  was formed in  September  1992,  for the purpose of  acquiring
investments in or direct  ownership of distressed loan portfolios from financial
institutions  and other  sources.  Interests in the  Partnership  were sold in a
private  placement   offering  pursuant  to  Regulation  D  promulgated  by  the
Securities  and Exchange  Commission on a "best  efforts"  basis;  however,  the
Partnership did not begin its primary operations until October 1992. The general
partner of the  Partnership  is  Performance  Development,  Inc.,  a  California
corporation ("PDI") ("General Partner").

The  Partnership  terminates at December 31, 2005. At that time, the Partnership
will  distribute  any remaining  cash after payment of  Partnership  obligations
following the sale or collection of all assets.

Profits,  losses,  and  cash  distributions  are  allocated  90% to the  limited
partners and 10% to the General Partner until such time as the limited  partners
have  received  cash equal to 100% of their  contributions  to the  Partnership.
Thereafter, Partnership profits, losses and cash distributions will be allocated
70% to the limited partners and 30% to the General Partner.

Cash and Equivalents

The Partnership  defines cash equivalents as all highly liquid  investments with
an original maturity of three months or less. The Partnership maintains its cash
balances at one bank in accounts,  which at times, may exceed federally  insured
limits. The Partnership uses a cash management system whereby idle cash balances
are  transferred  daily into a master  account  and  invested  in high  quality,
short-term  securities  that do not enjoy the benefit of the federal  insurance.
The General  Partner  believes  that these cash  balances are not subject to any
significant  credit risk, due to the nature of the  investments and the strength
of the bank and has not  experienced  any past losses  with cash and  equivalent
investments.

The Partnership  received  interest income from these investments of $64,097 and
$75,604 for the six months ended June 30, 1998 and June 30, 1997, respectively.

                                       8

<PAGE>


Cash Held in Trust

The General Partner  anticipates  that the  Partnership  and  Performance  Asset
Management  Fund,  Ltd., A California  Limited  Partnership;  Performance  Asset
Management Fund II, Ltd., A California  Limited  Partnership;  Performance Asset
Management Fund IV, Ltd., A California  Limited  Partnership;  Performance Asset
Management Fund V, Ltd., A California Limited Partnership, all affiliates of the
Partnership  ("PAM Funds") may, in the future,  be  reorganized  and merged into
Performance  Asset  Management   Company,  a  Delaware   Corporation   ("PAMCO")
("Rollup").  In an effort to  accomplish  the Rollup,  the General  Partner,  on
behalf of the  Partnership  and the PAM  Funds,  entered  into an  agreement  on
December 12,  1995,  with the State of  California  Department  of  Corporations
("Department"),  pursuant  to the  provisions  of which  the  Performance  Asset
Management  Fund Trust  ("Trust") was created.  Certain funds of the Partnership
are held by the Trust and these  funds held in trust are subject to the terms of
the Trust  agreement.  The Trust was the recipient of those funds resulting from
the settlement of certain then pending  litigation  between the  Partnership and
its affiliates and West Capital Financial Services Corp. and its affiliates. The
funds  held by the  Trust,  until  Trust  termination,  must  not be  less  than
$5,000,000,  which is comprised of funds from the Partnership and the PAM Funds.
The Trust agreement specifies that the Trust will terminate and the trustee will
distribute all of the remaining funds held by the trustee on August 16, 1998, if
the Rollup is not completed by such date.  The  Department has indicated that it
will oppose the  termination of the Trust on August 16, 1998. The Partnership is
attempting to reach an agreement with the Department  regarding the  termination
of the Trust and the disposition of the  Partnership's  funds held by the Trust.
The  Partnership's  share of the Trust's funds at June 30, 1998 and December 31,
1997 was $2,192,197 and $2,141,594, respectively.

Investments in Distressed Loan Portfolios and Revenue Recognition

Investments  in distressed  loan  portfolios are carried at the lower of cost or
estimated net realizable value.  Amounts collected are treated as a reduction to
the carrying basis of the related  investment on an individual  portfolio  basis
and are reported in the Statement of Operations as portfolio collections.  Under
the cost recovery method of revenue  recognition  used by the  Partnership,  net
investment income is not recognized until 100% recovery of the carrying value of
the  investment  in  each  portfolio  occurs.  Estimated  net  realizable  value
represents management's estimates, based on its present plans and intentions, of
the present value of future  collections.  Due to the distressed nature of these
investments,  no interest  is earned on  outstanding  balances,  and there is no
assurance  that the unpaid  balances of these  investments  will  ultimately  be
collected.  Any  adjustments  reducing  the  carrying  value  of the  individual
portfolios   are  recorded  in  the  results  of   operations   as  general  and
administrative 

                                       9

<PAGE>


expenses.

Organization Costs, Net

Organization costs include legal and other professional fees incurred related to
the initial  organization  of the  Partnership.  These costs are capitalized and
amortized using the  straight-line  method over five years.  Organization  costs
were fully amortized at December 31, 1997.

Professional Fees

Professional  fees are  incurred  in relation  to ongoing  accounting  and legal
assistance.

Income Taxes

No provision for income taxes has been provided for in the financial statements,
except for the Partnership's  minimum state franchise tax liability of $800. All
partners report individually on their share of Partnership operating results.

Estimates

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

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

Disclosure Regarding Forward Looking Statements.

The information  contained in this report on Form 10-QSB,  other than historical
facts, contains  "forward-looking  statements" (as such term is defined with the
meaning of the  Private  Securities  Litigation  Reform Act of 1995)  including,
without limitation, statements as to the Partnership's objective to grow through
future  portfolio  acquisitions,  portfolio  account  sales,  the  Partnership's
ability  to  realize   operating   efficiencies   in  the   integration  of  its
acquisitions,  trends in the  Partnership's  future operating  performance,  and
statements as to the  Partnership's  or management's  beliefs,  expectations and
opinions.  Forward  looking  statements  may be identified by the use of forward
looking terminology, such as "may", "will", "expect", "estimate",  "anticipate",
"probable",  "possible",  "should",  "continue", or similar terms, variations of
those  terms or the  negative of those  

                                       10

<PAGE>


terms. Forward-looking statements are subject to risks and uncertainties and may
be  affected  by  various  factors  which may  cause  actual  results  to differ
materially  from those in the  forward-looking  statements.  In  addition to the
factors  discussed  in this  Report,  certain  risks,  uncertainties  and  other
factors,  including,  without limitation, the risk that the Partnership will not
be  able  to  realize   operating   efficiencies   in  the  integration  of  its
acquisitions, risks associated with growth and future acquisitions, fluctuations
in quarterly  operating results,  and the other risks detailed from time to time
in the  Partnership's  filings  with the  Securities  and  Exchange  Commission,
including the  Partnership's  Annual  Report on Form 10-KSB,  filed on March 31,
1998, can cause actual results and developments to be materially  different from
those expressed or implied by such forward-looking statements.

Results of Operations.

Portfolio  collections  for  the  six  months  ended  June  30,  1998  decreased
approximately  9% to $487,265,  from  $532,617 for the  comparable  period ended
1997.  All  collections  received  for the six months  ended June 30,  1998 were
reflected as portfolio  recoveries and,  accordingly,  no investment  income was
recorded for this period.  The decrease in portfolio  collections was due to the
lack of  portfolio  sales for the six months  ended June 30,  1998,  compared to
$52,002 for the same period of 1997.

Portfolio  collections of $487,265 were received on six portfolios in 1998. Four
of these six portfolios  comprised 91% of the total book value in investments in
distressed  loan  portfolios,  and  accounted  for  98% of the  total  portfolio
collections,  for the six months ended June 30, 1998. Collections for the months
ended  April 30, May 31, and June 30 totaled  $106,735,  $73,987,  and  $69,499,
respectively.

The Partnership acquired two new portfolios totaling $1,198,900 during the first
six months of 1998. These acquisitions contributed to a 43% increase in the book
value of total investments in distressed loan portfolio.  Portfolio  collections
from these two portfolios  represents 20% of total portfolio collections for the
six months ended June 30, 1998.

The Partnership did not receive proceeds from portfolio sales for the six months
ended June 30, 1998.  For the  comparable  period ended June 30, 1997,  proceeds
from  portfolio  sales of $52,002 were  received and recorded as  recoveries  of
investment   basis.  The  General  Partner  believes  that  proceeds  from  both
collection and portfolio account sales will continue in subsequent periods.

Total operating  expenses decreased 32% to $93,220 for the six months ended June
30, 1998,  from  $137,055 for the  comparable  period in 1997.  The  Partnership
realized  a  reduction  in  professional  fees of 61% to $27,745  from  $71,758,

                                       11

<PAGE>


primarily  related  to a  reduction  in  accounting  fees  associated  with  the
Partnership's  audit and a reduction in legal fees.  General and  administrative
expenses  decreased  approximately 82% from $6,488 to $1,198.  This is primarily
attributed  to  printing  expenses  related  to  the  annual  audit,  which  the
Partnership  has yet to incur this year.  Operating  expenses as a percentage of
portfolio  collections  totaled  approximately 19% for the six months ended June
30, 1998, as compared to 26% for the  comparable  period in 1997.  This decrease
relates primarily to a reduction in professional fees.

Total  operating  expenses  decreased  63% to $31,490 for the three months ended
June 30,  1998,  compared to $85,881 for the three  months  ended June 30, 1997.
This  is  primarily   attributed  to  a  decrease  in  collection  expenses  and
professional  fees.  Collection  expense  decreased  78% to $6,451 for the three
months ended June 30, 1998 from $29,065 for the comparable period ended June 30,
1997, due to a decrease in skip tracing used in that period.  Professional  fees
decreased  74% in the  second  quarter of 1998 to  $9,410,  from  $37,353 in the
similar  period ended 1997, due primarily to a reduction in accounting and legal
expenses.  General and  administrative  expenses decreased 81% to $1,041 for the
three months ended June 30, 1998 from $5,548 for the comparable period 1997, due
to printing expenses related to the annual audit that the Partnership has yet to
incur for 1998. Management fees decreased 9% for the three months ended June 30,
1998 to $14,588 from  $13,626 for the three  months ended June 30, 1997,  due to
the reduction of net assets under management. Operating expenses as a percentage
of portfolio  collections  decreased  14% to 13% for the three months ended June
30,  1998,  from 27% for the  three  months  ended  June 30,  1997,  because  of
decreased collection expenses.

Financial Condition, Liquidity and Capital Resources.

The  Partnership's  total assets increased  approximately 5% to $5,291,881 as of
June 30, 1998,  from $5,035,056 at December 31, 1997. The increase was primarily
attributed  to the purchase of two new  portfolios  totaling  $1,198,900,  which
offset the decrease in investments in distressed loan portfolios.

The  increase in due to  affiliates  of  $286,667  was due  primarily  to unpaid
management fees and the  reimbursement  of legal expenses to the General Partner
recorded but not yet paid.

The Partnership  acquired two new distressed loan portfolio  assets in the first
half of 1998 from third party financial institutions, which specialize in credit
card  organizations.  The General Partner  anticipates that the Partnership will
acquire  additional  portfolios  in the near future.  Future  acquisitions  will
depend on the asset market,  which continues to grow in size and diversity.  The
General  Partner   believes  that  the  Partnership  will  continue  to  acquire
low-end-priced distressed portfolios; however, the General Partner will continue
to evaluate assets with 

                                       12

<PAGE>


different  pricing and debtor  account  structure in order to determine  whether
such portfolios can generate strong immediate cash flows and provide  additional
liquidity to the Partnership.

The Partnership has made no future  commitments with credit card originators and
other financial  institutions to acquire portfolio  assets.  The General Partner
and  Performance  Capital  Management,  Inc.,  a California  corporation  and an
affiliate of the General Partner ("PCM"), plan to use their present contacts and
relationships to identify and acquire  additional assets at optimal prices,  and
believe that they will have no difficulty  in  identifying  and  acquiring  such
assets. The General Partner suspended distributions in the third quarter of 1997
in order to improve the financial  condition of the Partnership and position the
Partnership for future portfolio acquisitions. The General Partner also believes
current  cash  reserves  and  future  portfolio   collection  proceeds  will  be
sufficient to acquire portfolio assets in the next twelve months.

Impact of Additional Partnership Acquisitions and Resources on Operations.

The General Partner  anticipates that additional  future portfolio  acquisitions
and continued expansion will improve the Partnership's liquidity,  profitability
and financial  condition,  as a result of increased  portfolio  collections  and
sales.  The General  Partner  believes  that PCM must  continue to increase  the
amount  of its  collection  representatives  and  human  resources  in  order to
supplement such growth.  PCM is seeking to lease office space in which PCM plans
to move and expand its  facility.  The General  Partner  believes that this move
provides the adequate  operating  facilities for the future growth of PCM, which
will subsequently increase portfolio collections for the Partnership.

A proposal is currently under consideration by the General Partner,  pursuant to
which the PAM Funds and the  Partnership  would merge with and into  PAMCO.  The
result of the proposed merger would be that a series of interrelated  changes to
the current  organizational  form of PAMCO would be  implemented,  including (a)
merging the  Partnership  and the PAM Funds with and into PAMCO,  as a result of
which PAMCO would be the sole surviving  entity;  (b)  terminating the PAM Funds
and the  Partnership  and (c) converting the Limited  Partners  interests in the
Partnership into shares of common stock to be issued by PAMCO.

                                       13

<PAGE>


Year 2000 Compliance.

The General Partner  recognizes that the arrival of the Year 2000 poses a unique
challenge to the ability of the computer systems of PCM used to service,  manage
and  collect  the  portfolios  in which  the  Partnership  has an  interest,  to
recognize  properly and process date sensitive  information  related to the date
change from  December  31, 1999 to January 1, 2000.  As the century  date change
occurs,  date-sensitive  systems may  recognize the Year 2000 as 1900, or not at
all. This inability to recognize or treat properly the Year 2000 may cause PCM's
computer systems to process financial and operational  information  incorrectly,
which  could  have a material  adverse  effect on the  Partnership's  results of
operations.  PCM has assessed and begun remedial work relating to PCM's computer
software  programs  and  business  processes  to  provide  for PCM's  ability to
continue to function effectively.

In 1997,  PCM began the  process of  identifying,  evaluating  and  implementing
changes to PCM's computer programs necessary to address the Year 2000 issue. The
General  Partner is currently  addressing the  Partnership's  internal Year 2000
issue by coordinating with PCM in connection with PCM's modification of existing
programs  and  conversions  to new  programs.  The  General  Partner  is also in
communication with financial  institutions and other entities with which PCM and
the Partnership conduct business to help them identify and resolve the Year 2000
issue as it relates to the Partnership's  business operations.  An assessment of
the  readiness of those third party  institutions  and  entities  with which the
Partnership  does  business  is ongoing.  While PCM and the General  Partner are
confident that PCM will complete  assessment  and  remediation of PCM's computer
software,  there  can be no  assurance  that  the  necessary  modifications  and
conversions  by those third party  institutions  and entities with which PCM and
the  Partnership  conduct  business will be completed in a timely manner,  which
could have a material adverse effect on the Partnership's results of operations.
The total cost to the Partnership associated with the required modifications and
conversions  is not  expected  to be material  to the  Partnership's  results of
operations and financial position and is being expensed as incurred.

                                       14

<PAGE>


                                     PART II

Item 1. Legal Proceedings.

No  additional  proceedings  have occurred  since May 10, 1998,  the date of the
latest report  provided.  In addition,  no material  developments are noted with
respect to those  matters  described  in the latest  report  dated May 10, 1998.
Reference is made to the registrant's Form 10-KSB dated March 31,1998,  in which
such legal proceedings were reported in Part I, Item 3. Legal  Proceedings.  The
registrant, by this reference, makes that disclosure a part of this Form 10-QSB.

Item 2. Exhibits and Reports.

(a)  Exhibits

Exhibit Number      Exhibit
--------------      -------

     1              Certificate  of  Limited   Partnership  Form  LP-1  (Charter
                    Document)*

     2              Agreement of Limited  Partnership  (Instrument  defining the
                    rights of Security Holders)**

* Reference is made to the Partnership's  Form 10-KSB,  dated March 31, 1997, in
which that  Certificate of Limited  Partnership was included as an exhibit.  The
Partnership,  by this reference, makes that Certificate of Limited Partnership a
part of this Form 10-QSB.

** Reference is made to the Partnership's Form 10-KSB,  dated March 31, 1997, in
which that  Agreement of Limited  Partnership  was  included as an exhibit.  The
Partnership,  by this reference,  makes that Agreement of Limited  Partnership a
part of this Form 10-QSB.

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                                   SIGNATURES


In  accordance  with  Section 13 or 15(d) of the Exchange  Act, the  Partnership
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


Dated: August 12, 1998         Performance Asset Management Fund III, Ltd.,
                                     A California Limited Partnership      
                                               (Registrant)                



                                        By:
                                            -----------------------------------
                                            Vincent E. Galewick
                                            President of the General Partner,
                                            Performance Development, Inc.

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