<PAGE>   1
                                   FORM 10-QSB

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

      For the Quarterly period ended September 30, 1997

[ ]   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]


<PAGE>   2
                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                              INDEX TO FORM 10-QSB


                                     PART I

Item 1. Financial Statements                                           3

Item 2. Management's Discussion and Analysis or Plan of Operation     10


                                     PART II

Item 1. Legal Proceedings                                             14

Item 2. Exhibits and Reports                                          15


        Signatures                                                    15


                                       2
<PAGE>   3
                  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, September 30, 1997 and December 31, 1996.......................4

Statements of Operations, For the Three and Nine Months Ended September 30,
1997 and September 30, 1996....................................................5

Statements of Partnership Capital, For the Nine Months Ended
September 30, 1997 and Year Ended December 31, 1996............................6

Statements of Cash Flows, For the Nine Months Ended September 30,
1997 and September 30, 1996....................................................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, 1996. 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>   4
                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                                 BALANCE SHEETS
                    SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
                                   (UNAUDITED)
                                ----------------
                                     ASSETS


<TABLE>
<CAPTION>
                                                                    1997              1996
                                                                 ----------        ----------
<S>                                                              <C>               <C>       
Cash and equivalents                                             $  919,419        $  775,755
Cash held in trust                                                2,115,824         2,656,338
Investments in distressed loan portfolios, net                    1,865,361         2,566,546
Due from affiliate                                                   13,463            56,039
Other assets                                                         64,480            64,477
Organization costs, net                                                   0               923
                                                                 ----------        ----------
         Total assets                                            $4,978,547        $6,120,078
                                                                 ==========        ==========

                        LIABILITIES AND PARTNERS' CAPITAL

Accounts  payable                                                $    4,500        $      715
Due to affiliates, net                                              290,344           492,800
                                                                 ----------        ----------
         Total liabilities                                          294,844           493,515
                                                                 ----------        ----------

Commitments and contingencies

Partners' capital                                                 4,683,703         5,626,563
                                                                 ----------        ----------
         Total liabilities and partners' capital                 $4,978,547        $6,120,078
                                                                 ==========        ==========
</TABLE>


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


                                       4
<PAGE>   5
                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                           FOR THE THREE                          FOR THE NINE
                                                        MONTHS ENDED SEPT 30                  MONTHS ENDED SEPT 30
                                                   -----------------------------         -----------------------------
                                                      1997               1996               1997               1996
                                                   ----------         ----------         ----------         ----------
<S>                                                <C>                <C>                <C>                <C>       
Portfolio collections                              $  194,043         $   33,651         $  726,660         $4,493,483
Less: portfolio basis recovery                        194,043             33,651            726,660          3,572,565
                                                   ----------         ----------         ----------         ----------
                Net investment income                      --                 --                 --            920,918
                                                   ----------         ----------         ----------         ----------
Cost of operations:
         Collection expense                             8,615             15,039             37,890             51,810
         Management fee expense                        11,974              6,541             40,875             38,794
         Professional fees                              6,801             64,774             78,559            137,671
         Amortization                                     290                289                923                867
         General and administrative expense               667              1,930              7,155              5,363
                                                   ----------         ----------         ----------         ----------
                Total operating expenses               28,347             88,573            165,402            234,505
                                                   ----------         ----------         ----------         ----------
Income (loss) from operations                         (28,347)           (88,573)          (165,402)           686,413
Other income:
         Interest                                      36,054             42,159            111,658             79,728
         Other income                                      --                 --                 84                 --
                                                   ----------         ----------         ----------         ----------
Net income (loss)                                  $    7,707         ($  46,414)        ($  53,660)        $  766,141
                                                   ==========         ==========         ==========         ==========
</TABLE>


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


                                       5
<PAGE>   6
                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

             STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) FOR THE NINE
         MONTHS ENDED SEPTEMBER 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
                                   (UNAUDITED)
                                ----------------


<TABLE>
<CAPTION>
                                     General             Limited
                                     Partner             Partners             Total
                                   -----------         -----------         -----------
<S>                                <C>                 <C>                 <C>        
Balance, December 31, 1995         ($  322,499)        $ 5,597,599         $ 5,275,100
      Distributions                    (35,775)           (295,925)           (331,700)
      Net income                        68,315             614,848             683,163
                                   -----------         -----------         -----------
Balance, December 31, 1996            (289,959)          5,916,522           5,626,563
      Distributions                    (88,800)           (800,400)           (889,200)
      Net income                        (5,366)            (48,294)            (53,660)
                                   ===========         ===========         ===========
Balance, September 30, 1997        ($  384,125)        $ 5,067,828         $ 4,683,703
                                   ===========         ===========         ===========
</TABLE>


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


                                       6
<PAGE>   7
                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                   (UNAUDITED)
                                 --------------


<TABLE>
<CAPTION>
                                                                           1997                1996
                                                                       -----------         -----------
<S>                                                                    <C>                 <C>        
Cash flows from operating activities:
         Net income (loss)                                             ($   53,660)        $   766,141
         Adjustments to reconcile net income (loss) to net cash
         provided by operating activities:
                Amortization                                                   923                 867
                Decrease (increase) in assets:
                       Other assets                                             (3)            165,815
                       Due from affiliates                                  42,576                  --
                Increase (decrease) in liabilities:
                       Accounts payable                                      3,785              (2,523)
                       Due to affiliates                                  (202,456)             57,898
                                                                       -----------         -----------
                Net cash provided by (used in)
                operating activities                                      (208,835)            988,198
                                                                       -----------         -----------
Cash flows provided by (used in) investing activities:
         Recovery of portfolio basis                                       726,660           3,572,565
         Receivable from West Capital                                           --             927,540
         Cash held in trust                                                540,514          (1,951,561)
         Purchase of investments in distressed loan portfolios             (25,475)         (1,438,295)
                                                                       -----------         -----------
                Net cash provided by investing activities                1,241,699           1,110,249
                                                                       -----------         -----------
Cash flows provided by (used in) financing activities:
         Distributions to partners                                        (889,200)                 --
                                                                       -----------         -----------
                Net cash used in financing activities                     (889,200)                  0
                                                                       -----------         -----------
Net (decrease) increase in cash                                            143,664           2,098,447
Cash at beginning of period                                                775,755             210,140
                                                                       -----------         -----------
Cash at end of period                                                  $   919,419         $ 2,308,587
                                                                       ===========         ===========
</TABLE>


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


                                       7
<PAGE>   8
                  PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


1.      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 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 ("General Partner").

        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 been returned 100% of their initial capital contributions
        to the Partnership. Thereafter, Partnership profits, losses and cash
        distributions are 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 a maturity of three months or less when purchased. 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 swept daily into a
        master account and invested in high quality, short-term securities. 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
        fact that the Partnership has not experienced any past losses with cash
        and equivalent investments.


                                       8
<PAGE>   9
        Cash Held in Trust

        The General Partner anticipates that the Partnership and the other
        similar California limited Partnerships for which the General Partner
        serves as general partner ("PAM Funds") may, in the future, be
        reorganized and merged with and into one corporation. In an effort to
        accomplish that reorganization and merger on terms and conditions
        consistent with the intent of the General Partner, on December 12, 1995,
        the General Partner, on behalf of the Partnership and the PAM Funds, and
        the State of California Department of Corporations entered into an
        agreement pursuant to the provisions of which the Performance Asset
        Management Fund Trust ("Trust") was created. These funds are subject to
        the terms of the Trust's agreement. The Trust was the recipient of a
        portion of the funds resulting from a settlement of certain litigation
        between the Partnership and its affiliates and West Capital Financial
        Services Corp. ("WCFSC") and its affiliates.

        Investments in Distressed Loan Portfolios and Revenue Recognition

        Investments in distressed loan portfolios are carried at the lower of
        cost, market, 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. Accordingly, income is not recognized
        until 100% recovery of the original cost 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 principal balances will ultimately be
        collected. Any adjustments to the carrying value of the individual
        portfolios are recorded in the results of operations.

        Organization Costs, Net

        Organization costs include legal and other professional fees incurred
        which are related to the organization of the Partnership. These costs
        are capitalized and amortized using the straight-line method over five
        years. Accumulated amortization at September 30, 1997 and December 31,
        1996 totaled $5,786 and $4,863, respectively.

        Income Taxes

        No provision for income taxes has been made in the financial statements,
        except for the Partnership's minimum state franchise tax liability of
        $800. All partners are taxed individually on their share of the
        Partnership's earnings and losses.


                                       9
<PAGE>   10
        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
        estimate.

        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 within 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
        and 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 the General Partner's, 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", "could", "continue", or
        similar terms, variations of those terms or the negative of those 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, dated on March 31, 1997, can cause actual
        results and developments to be materially different from those expressed
        or implied by such forward-looking statements


                                       10
<PAGE>   11
        RESULTS OF OPERATIONS.

        The Partnership did not record net investment revenue for the nine
        months ended September 30, 1997, compared to $920,918 for the similar
        period in 1996. The decrease resulted from an 84% reduction in portfolio
        collections for the nine months ended September 30, 1997 to $726,660,
        from $4,493,483 for the comparable period ended 1996. This decrease in
        collections was due primarily to the receipt of proceeds resulting from
        a settlement agreement with WCFSC in 1996. The settlement agreement
        terminated all servicing relations with WCFSC and assigned and
        transferred certain distressed loan portfolios to WCFSC in exchange for
        the payment of certain funds owed the Partnership and affiliated
        entities. As a result of the settlement agreement, the Partnership
        recorded revenue of $920,918 from twelve portfolios, most of which
        recovered 100% of its investment bases during the first half of 1996.
        All collections received for the nine months ended 1997 were reflected
        as portfolio recoveries and, accordingly, no investment revenue was
        recorded for this period. In comparison, approximately 21% of portfolio
        collections received for the similar period in 1996 were reflected as
        revenue.

        The Partnership acquired one portfolio during the third quarter of 1997,
        which offset the reduction of net assets as a result of portfolio
        collections recognized as portfolio bases reduction. Portfolio
        collections proceeds on the newly acquired portfolio and the existing
        four portfolios were $726,660 for the nine months ended September 1997,
        reducing the book value of total investments in distressed loan
        portfolios 27% to $1,865,361, as of September 30, 1997, from $2,566,546
        at December 31, 1996. Collections for the months ended July 31, August
        31, and September 30 totaled $73,745, $66,617, and $53,681,
        respectively.

        The Partnership received proceeds from portfolio sales of $2,709, which
        were recorded as recoveries of investment bases and reflected in
        portfolio collections for the three months ended September 30 1997. No
        such proceeds were received for the comparable period ended September
        30, 1996. The Partnership's management continues to believe that
        proceeds from both collection proceeds and portfolio account sales will
        increase in subsequent periods and estimates that proceeds from
        portfolio sales accounts should exceed those amounts recorded in the
        fiscal year ended 1996.

        Total operating expenses decreased 29% to $165,402 for the nine months
        ended September 30, 1997, from $234,505 for the comparable period in
        1996. Collection expenses decreased 27% to $37,890 from $51,810 due to a
        reduction in purchases of new portfolio acquisitions which directly
        impacts the costs associated with the identification of Partnership
        debtors for the nine months ended September 30, 1997, compared to the
        same period ended 1996. The Partnership also realized a reduction in
        professional fees by 43% to $78,559 for the nine months ended September
        30, 1997, attributed to the reduction in legal fees associated with the
        settlement agreement with WCFSC for the comparable period ended
        September 30, 1996. Operating expenses as a percentage of portfolio
        collections totaled approximately 23% as compared to 5% for the
        comparable period in 1996. The increase is due primarily from the
        proceeds received from the settlement agreement with WCFSC in 1996.


                                       11
<PAGE>   12
        Total operating expenses decreased 68% to $28,347 for the third quarter
        of 1997, compared to $88,573 for the comparable period in 1996. The
        decrease is primarily attributed to a reduction of 91% in professional
        fees, caused by a decrease in legal fees associated with the settlement
        agreement with WCFSC. Collection expenses decreased 43% to $8,615 for
        the three months ended September 30, 1997, compared to $15,039 for the
        three months ended September 30, 1996. This decrease is attributed to
        the reduction of new portfolio purchases for the three months ended
        September 30, 1997. Management fees increased 83% for the quarter ended
        September 30, 1997 to $11,974 from $6,541 for the comparable period in
        1996. This was attributed to the addition in net assets under management
        caused by the purchase of new investments in distressed loan portfolios.
        The decrease in professional fees of 90% during the third quarter of
        1997 to $6,801, from $64,774 for the comparable quarter of 1996 was
        primarily due to the reduction of legal fees also associated with the
        settlement agreement in 1996.

        Total operating expenses as a percentage of portfolio collections
        increased 18% to 23% for the nine months ended September 30, 1997, from
        5% in the comparable period in 1996. This increase is attributed to
        collection proceeds received from the settlement agreement during the
        second quarter of 1996. Comparatively, operating expenses as a
        percentage of portfolio collections decreased 248%, to 15% for the three
        months ended September 30, 1997, compared to 263% for the same period
        ended September 30, 1996. This decrease is due to the increase in
        portfolio collections for the third quarter of 1997 as compared to the
        same period in 1996 and the reduction of professional fees related to
        the settlement agreement with WCFSC for 1996.

        FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES.

        The Partnership's total assets decreased approximately 19% to $4,978,547
        as of September 30, 1997, from $6,120,078 at December 31, 1996. The
        decrease was primarily attributed to portfolio proceeds of $726,660 of
        which 100% were recorded as reduction of investment portfolio assets.
        The decrease in due from affiliates of 76% to $13,463 from $56,039 was
        primarily the result of the receipt of prior period portfolio
        collections and portfolio sales.

        The decrease in due to affiliates during the third quarter of 1997 was
        due primarily to the payment of collection expenses, management fees,
        and declared distributions to the General Partner.

        The Partnership acquired one new distressed portfolio asset during the
        three months ended September 30, 1997 from a third party financial
        institution specializing in credit card origination. 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 Partnership continues
        to believe it will acquire low-end-priced distressed portfolios;
        however, the General Partner will continue to evaluate assets with
        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.


                                       12
<PAGE>   13
        The Partnership has made no future commitments with credit card
        originators and other financial institutions to acquire portfolio
        assets. The General Partner plans to use its present contacts and
        relationships to identify and acquire additional assets at optimal
        prices, and believes that it will have no difficulties in identifying
        and acquiring such assets. The General Partner suspended distributions
        in the third quarter of 1997 in anticipation of the reorganization of
        the Partnership with other affiliated partnerships and Performance
        Capital Management, Inc., a California corporation and an affiliate of
        the General Partner ("PCM"). Management also believes current cash
        reserves and future portfolio collection proceeds will be sufficient to
        acquire anticipated 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, which will result from
        increased portfolio collections and sales. The General Partner continues
        to believe that PCM, which serves as the servicer of the Partnership's
        portfolios of indebtedness, must continue to increase the amount of its
        collection representatives and human resources in order to supplement
        such growth to the Partnership. The General Partner, in conjunction with
        PCM and other affiliated companies and partnerships is seeking office
        space in which PCM and the Partnership plan to move their facilities.
        The General Partner believes that this move provides the Partnership
        with the adequate operating facilities for the future growth of the
        Partnership.

        The General Partner, on behalf of the Partnership, has filed the
        necessary documents, dated November 4, 1997, with the Securities and
        Exchange Commission to merge the Partnership, other affiliated
        Partnerships ("Affiliated Partnerships"), and PCM with Performance Asset
        Management Company, a Delaware corporation ("Company"), whereby the
        Company shall acquire, by merger, all of the assets of PCM, the assets
        of the Partnership and the assets of the Affiliated Partnerships. The
        proposed merger transaction contemplates that the Partnership and the
        Affiliated Partnerships shall receive shares of common stock of the
        Company in exchange for the assets. The Partnership shall cease to exist
        by operation of law upon completion of their winding up and dissolution.
        On the winding up and dissolution of the partnership and the Affiliated
        Partnerships, these shares of that common stock shall be distributed to
        the non dissenting limited partners in exchange for their units.
        Additionally, the shares of common stock of the Company that are
        received shall be registered for trading or other resale transactions.


                                       13
<PAGE>   14
                           PART II - OTHER INFORMATION

        ITEM 1. LEGAL PROCEEDINGS.

        Reference is made to the Partnership's Form 10-KSB dated March 31, 1997,
        in which such legal proceedings were reported in Part I, Item 3, "Legal
        Proceedings". The Partnership, by this reference, makes that disclosure
        a part of this Form 10-QSB.

        On or about October 31, 1997, SunAmerica, Inc., a Maryland corporation;
        SunAmerica Life Insurance Company, an Arizona corporation; WCFSC; and
        WCFSC Special Purpose Corporation, a California corporation, as
        Plaintiffs, filed a Complaint in United States District Court for the
        Central District of California alleging (i) violations of Section 10(b)
        of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
        pursuant thereto; (ii) fraud and deceit, and (iii) gross negligence.
        Specified in that Complaint as Defendants are Vincent E. Galewick,
        President of the General Partner; the Partnership; the Affiliated
        Partnerships; and the General Partner ("Performance Defendants"). That
        Complaint, in essence, alleges that Michael A. Joplin, the then
        President of WCFSC, engaged in wrongful, deceptive and fraudulent
        conduct in connection with the purchase and sale of certain securities.
        Additionally, that Complaint alleges that the Performance Defendants
        participated in that conduct.

        None of the Performance Defendants participated, either directly or
        indirectly, in any wrongful, deceptive and fraudulent conduct in
        connection with the purchase and sale of those securities.

        As part of their settlement of various disputes with WCFSC, the
        Performance Defendants entered into a thorough and comprehensive Mutual
        General Release ("Release"). Pursuant to the provisions of the Release,
        WCFSC, for itself and its shareholders, officers, directors, affiliates,
        agents, successors, and assigns, forever and unequivocally released,
        acquitted and discharged the Performance Defendants and their officers,
        directors, employees, shareholders, partnerships, affiliates, agents,
        successors, and assigns. Therefore, it is the opinion of counsel for the
        Performance Defendants that the Performance Defendants have been
        completely and unconditionally released from any liability resulting
        from their relationships and transactions with WCFSC.

        The Performance Defendants deny each and every allegation in that
        litigation matter and shall defend that litigation matter vigorously. It
        is the opinion of counsel for the Performance Defendants that any
        resolution of that litigation matter should be resolved favorably for
        the Performance Defendants and, therefore, the resolution of that
        litigation matter should not (i) affect the ability of the General
        Partner to function as the General Partner and manage operations of the
        Partnership or (ii) materially and adversely affect the General Partner,
        the Partnership or the Affiliated Partnerships.


                                       14
<PAGE>   15
        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) **

                27      Financial Data Schedule

        *       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.



                                   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: November 13, 1997   Performance Asset Management Fund III, Ltd., 
                                   A California Limited Partnership
                                                  (Registrant)


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


                                       15
<PAGE>   16
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>                  <C> 
   27                Financial Data Schedule
</TABLE>