Form 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

             |X| Quarterly Report Pursuant to Section 13 or 15(d) of
                 the Securities Exchange Act of 1934.
                 For the quarterly period ended September 30, 1996

             |_| Transition Report Pursuant to Section 13 or 15(d) of
                 the Securities Exchange Act of 1934.
                 For the transition period from _______ to _______

                        Commission File Number 000-19160

                      ATEL Cash Distribution Fund III, L.P.
             (Exact name of registrant as specified in its charter)

     California                                                   94-3100855
(State or other jurisdiction of                              (I. R. S. Employer
incorporation or organization)                              Identification No.)

           235 Pine Street, 6th Floor, San Francisco, California 94104
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (415) 989-8800



Indicate  by a check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.
                                     Yes |X|
                                     No  |_|

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

                                  Page 1 of 15
<PAGE>

                          Part I. FINANCIAL INFORMATION

                         Item 1. Financial Statements.












                                     Page 2
<PAGE>

                      ATEL CASH DISTRIBUTION FUND III, L.P.

                                 BALANCE SHEETS

                    SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
                                   (Unaudited)


                                     ASSETS



                                                   1996              1995
                                                   ----              ----
Cash and cash equivalents                         $1,904,339        $1,874,774

Accounts receivable                                  724,487           873,451

Notes receivable                                      11,215            44,861

Investment in leases                              29,718,814        39,107,792
                                             ----------------  ----------------
                                                 $32,358,855       $41,900,878
                                             ================  ================



                        LIABILITIES AND PARTNERS' CAPITAL



Non-recourse debt                                 $7,119,061       $11,451,641
Accrued interest                                      94,405           125,026
Accounts payable:
     General Partners                                116,516           109,779
     Other                                           221,997           290,428
Deposits due to lessees                                    -            75,340
Unearned operating lease income                      314,895           396,749
                                             ----------------  ----------------
Total liabilities                                  7,866,874        12,448,963

Partners' capital:
     General Partners                                118,236            97,750
     Limited Partners                             24,373,745        29,354,165
                                             ----------------  ----------------
Total partners' capital                           24,491,981        29,451,915
                                             ----------------  ----------------
                                                 $32,358,855       $41,900,878
                                             ================  ================

                             See accompanying notes

                                     Page 3
<PAGE>

                      ATEL CASH DISTRIBUTION FUND III, L.P.

                                INCOME STATEMENTS

                       NINE AND THREE MONTH PERIODS ENDED
                           SEPTEMBER 30, 1996 AND 1995
                                   (Unaudited)
<TABLE>
<CAPTION>


                                             Nine Months Ended                   Three Months Ended
                                               September 30,                        September 30,
                                               -------------                        -------------
                                          1996              1995               1996              1995
                                          ----              ----               ----              ----
<S>                                     <C>               <C>                 <C>               <C>       
Revenues:
Lease income:

   Operating                            $7,580,444        $10,053,626         $2,472,318        $3,174,319
   Direct financing                        339,307            426,288            104,253           142,849
   Leveraged                                63,773             55,299             21,258           20,206
   Gain on sales of assets                 902,477            658,290            720,598           578,322
Other                                          993              1,952              1,185               453
Interest income                             41,678             27,335             15,864            14,124
                                    ---------------   ----------------   ----------------  ----------------
                                         8,928,672         11,222,790          3,335,476         3,930,273
                                    ---------------   ----------------   ----------------  ----------------
Expenses:
Depreciation                             5,507,064          6,917,890          1,705,699         2,257,693
Interest expense                           516,778            823,717            126,999           264,769
Management fees                            537,724            790,705            164,227           299,836
Administrative cost reimbursements         181,917            205,296             72,993            69,794
Professional fees                           35,266             52,591             13,662             9,833
Provision for losses                        90,212            112,195             34,330            39,303
Taxes                                       47,579             14,685               (399)             (110)
Other                                       61,163             65,310             22,462            15,056
                                    ---------------   ----------------   ----------------  ----------------
                                         6,977,703          8,982,389          2,139,973         2,956,174
                                    ---------------   ----------------   ----------------  ----------------
Income before extraordinary item         1,950,969          2,240,401          1,195,503           974,099
Extraordinary gain on early 
   extinguishment of debt                   97,608                  -             97,608                 -
                                    ---------------   ----------------   ----------------  ----------------
Net income                              $2,048,577         $2,240,401         $1,293,111          $974,099
                                    ===============   ================   ================  ================
Net income:
     General Partners                      $20,486            $22,404            $12,931            $9,741
     Limited Partners                    2,028,091          2,217,997          1,280,180           964,358
                                    ---------------   ----------------   ----------------  ----------------
                                        $2,048,577         $2,240,401         $1,293,111          $974,099
                                    ===============   ================   ================  ================
Income before extraordinary item 
   per limited partnership unit              $0.26              $0.30              $0.16             $0.13
Extraordinary gain on early 
   extinguishment of  debt per 
   limited partnership unit                   0.01                  -               0.01                 -
                                    ---------------   ----------------   ----------------  ----------------
Net income per limited partnership 
   unit                                      $0.27              $0.30              $0.17             $0.13
                                    ===============   ================   ================  ================
Weighted average number of units
   outstanding                           7,377,151          7,381,134          7,376,284         7,381,134
                                    ===============   ================   ================  ================
</TABLE>



                                     Page 4
<PAGE>


                             See accompanying notes
                      ATEL CASH DISTRIBUTION FUND III, L.P.

                    STATEMENT OF CHANGES IN PARTNERS' CAPITAL

                             NINE MONTH PERIOD ENDED
                               SEPTEMBER 30, 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                   Limited Partners               General
                                              Units             Amount            Partners            Total

<S>                                              <C>                <C>                                  <C>    
Balance December 31, 1995                      7,378,884       $29,354,165            $97,750       $29,451,915
Repurchase of limited partnership units          (2,600)            (8,608)                              (8,608)
Distributions to limited partners                               (6,999,903)                          (6,999,903)
Net income                                                       2,028,091             20,486         2,048,577
                                         ---------------   ----------------   ----------------  ----------------
Balance September 30, 1996                    7,376,284        $24,373,745           $118,236       $24,491,981
                                         ===============   ================   ================  ================
</TABLE>










                             See accompanying notes




                                     Page 5
<PAGE>


                      ATEL CASH DISTRIBUTION FUND III, L.P.

                            STATEMENTS OF CASH FLOWS

                       NINE AND THREE MONTH PERIODS ENDED
                           SEPTEMBER 30, 1996 AND 1995

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                       Nine Months Ended                   Three Months Ended
                                                         September 30,                        September 30,
                                                         -------------                        -------------
                                                    1996              1995               1996              1995
                                                    ----              ----               ----              ----
<S>                                                <C>                <C>                <C>                <C>     
Operating activities:
Net income                                         $2,048,577         $2,240,401         $1,293,111          $974,099

Adjustments to reconcile net income to net 
   cash provided by operations:
     Depreciation                                   5,507,064          6,917,890          1,705,699         2,257,693
     Leveraged lease income                           (50,106)           (40,931)           (17,214)          (15,395)
     Gain on sales of assets                         (902,477)          (658,290)          (720,598)         (578,322)
     Provision for losses                              90,212            112,195             34,330            39,303
     Extraordinary gain on early extinguishment
        of non-recourse debt                          (97,608)                 -            (97,608)                -
Changes in operating assets and liabilities:
   Accounts receivable                                148,964           (277,009)          (120,258)         (113,503)
   Accounts payable, General Partner                    6,737            154,868             (4,479)           20,038
   Accounts payable, other                            (68,431)          (409,373)            24,483          (423,099)
   Accrued interest                                   (30,621)           (38,597)             7,812            36,860
   Deposits due to lessees                            (75,340)                 -            (75,340)                -
   Unearned operating lease income                    (81,854)           (66,541)          (177,352)         (256,324)
                                               ---------------   ----------------   ----------------  ----------------
Net cash provided by operations                     6,495,117          7,934,613          1,852,586         1,941,350
                                               ---------------   ----------------   ----------------  ----------------

Investing activities:
Proceeds from sales of equipment                    3,670,704          1,732,899          2,644,955         1,292,586
Reduction in net investment in direct 
   financing leases                                 1,193,581          1,142,545            325,976           380,096
Purchases of equipment on direct finance
   leases                                            (120,000)          (139,600)                 -          (139,600)
Purchase of equipment on operating leases                   -           (117,744)                 -           (37,244)
Principal payments received on notes
   receivable                                          33,646             33,645             11,215            11,215
                                               ---------------   ----------------   ----------------  ----------------
Net cash provided by investing 
   activities                                       4,777,931          2,651,745          2,982,146         1,507,053
                                               ---------------   ----------------   ----------------  ----------------
</TABLE>



                  Page 6 
<PAGE>

                     ATEL CASH DISTRIBUTION FUND III, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

                       NINE AND THREE MONTH PERIODS ENDED
                           SEPTEMBER 30, 1996 AND 1995

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                       Nine Months Ended                   Three Months Ended
                                                         September 30,                        September 30,
                                                         -------------                        -------------
                                                    1996              1995               1996              1995
                                                    ----              ----               ----              ----
<S>                                               <C>                <C>                 <C>               <C>     
Financing activities:
Repayments of non-recourse debt                    (4,234,972)        (2,995,160)        (1,840,698)       (1,204,556)
Repurchases of units                                   (8,608)                 -                  -                 -
Distributions to limited partners                  (6,999,903)        (7,754,621)        (2,212,106)       (2,582,817)
                                               ---------------   ----------------   ----------------  ----------------

Net cash used in financing activities             (11,243,483)       (10,749,781)        (4,052,804)       (3,787,373)
                                               ---------------   ----------------   ----------------  ----------------
Net increase (decrease) in cash and cash
   equivalents                                         29,565           (163,423)           781,928          (338,970)
Cash and cash equivalents at beginning
   of period                                        1,874,774          1,566,318          1,122,411         1,741,865
                                               ---------------   ----------------   ----------------  ----------------

Cash and cash equivalents at end of period         $1,904,339         $1,402,895         $1,904,339        $1,402,895
                                               ===============   ================   ================  ================

Supplemental disclosures of cash flow 
   information:

Cash paid for interest                               $516,778           $823,717           $126,999          $264,769
                                               ===============   ================   ================  ================

Supplemental schedule of non-cash transactions:

Gain on extinguishment of non-recourse debt           $97,608                               $97,608
                                               ===============                      ================
</TABLE>

                                                     See accompanying notes


                                     Page 7
<PAGE>

                      ATEL CASH DISTRIBUTION FUND III, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                   (Unaudited)


1.  Interim financial statements:

The unaudited interim financial statements reflect all adjustments which are, in
the opinion of the General Partners,  necessary to a fair statement of financial
position and results of operations for the interim periods  presented.  All such
adjustments are of a normal recurring nature.  These unaudited interim financial
statements  should be read in  conjunction  with the most recent  report on Form
10K.


2. Investment in leases:

The Partnership's investment in leases consists of the following:

<TABLE>
<CAPTION>
                                                                              Depreciation
                                                                              Expense or          Reclass-
                                       December 31,                          Amortization       ifications &      September 30,
                                           1995             Additions          of Leases        Dispositions          1996
                                           ----             ---------          ---------       --------------         ----
<S>                                        <C>                  <C>             <C>                <C>               <C>        
Net investment in operating
   leases                                  $32,622,297                          ($5,455,574)       ($2,009,732)      $25,156,991
Net investment in direct
   financing leases                          5,254,109          $120,000         (1,193,581)           (82,031)        4,098,497
Net investment in leveraged
   leases                                    1,623,406                 -             50,106           (814,108)          859,404
Equipment held for sale or lease               432,348                 -            (51,490)          (295,454)           85,404
Reserve for losses                            (824,368)          (90,212)                 -            433,098          (481,482)
                                     ------------------   ---------------   ----------------   ----------------  ----------------
                                           $39,107,792           $29,788        ($6,650,539)       ($2,768,227)      $29,718,814
                                     ==================   ===============   ================   ================  ================
</TABLE>

The following  schedule provides an analysis of the Partnership's  investment in
property on operating leases by major  classifications  as of December 31, 1995,
acquisitions  and  dispositions  during the quarters ended March 31, June 30 and
September 30, 1996 and as of September 30, 1996.

<TABLE>
<CAPTION>
                                       December 31,           --------------- Dispositions ---------------        September 30,
                                           1995            1st Quarter        2nd Quarter        3rd Quarter          1996
                                           ----            -----------        -----------        -----------          ----
<S>                                        <C>               <C>                <C>                <C>               <C>        
Mining                                     $18,592,029                            ($114,492)                         $18,477,537
Manufacturing                               12,773,604                                    -                           12,773,604
Transportation                               7,777,179                                    -                            7,777,179
Aircraft                                     5,275,000                                    -                            5,275,000
Utilities                                    3,946,886                             (225,066)                           3,721,820
Printing                                     3,454,353                                    -                            3,454,353
Materials handling                           3,987,085         ($347,028)                 -       ($1,183,278)         2,456,779
Food processing                              2,438,524                 -                  -                 -          2,438,524
Other                                          345,815                 -                  -                 -            345,815
Medical                                      2,155,489        (1,887,374)                 -                 -            268,115
Communications                                 290,175                 -                  -           (280,119)           10,056
Furniture and fixtures                       2,041,222                 -                  -         (2,041,222)                -
                                     ------------------   ---------------   ----------------   ----------------  ----------------
                                            63,077,361        (2,234,402)          (339,558)        (3,504,619)       56,998,782
Less accumulated
   depreciation                            (30,455,064)         (114,018)        (1,573,396)           300,687       (31,841,791)
                                     ------------------   ---------------   ----------------   ----------------  ----------------

                                           $32,622,297       ($2,348,420)       ($1,912,954)       ($3,203,932)      $25,156,991
                                     ==================   ===============   ================   ================  ================

</TABLE>

                                     Page 8
<PAGE>


                      ATEL CASH DISTRIBUTION FUND III, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                   (Unaudited)


2. Investment in leases (continued):

At September 30, 1996,  the aggregate  amounts of future  minimum lease payments
are as follows:

<TABLE>
<CAPTION>
                                                                          Direct
                                                    Operating            Financing            Total
                                                    ---------            ---------            -----
<S>                                                <C>                 <C>               <C>        
       Three months ending December 31, 1996        $2,374,356           $512,260         $2,886,616
               Year ending December 31, 1997         7,178,050          1,333,179          8,511,229
                                        1998         4,324,264          1,099,859          5,424,123
                                        1999           816,880            546,039          1,362,919
                                        2000                 -            144,416            144,416
                                  Thereafter                 -             41,714             41,714
                                                ---------------   ----------------   ----------------
                                                   $14,693,550         $3,677,467        $18,371,017
                                                ===============   ================   ================
</TABLE>


3. Non-recourse debt:

Notes payable to financial  institutions are due in varying  monthly,  quarterly
and semi-annual installments of principal and interest. The notes are secured by
assignments  of lease payments and pledges of the assets which were purchased or
financed with the proceeds of the particular notes.  Interest rates on the notes
vary from 8% to 13.3%.

Future minimum principal  payments of non-recourse debt as of September 30, 1996
are as follows:

<TABLE>
<CAPTION>
                                                   Principal          Interest             Total
                                                   ---------          --------             -----
<S>                                                 <C>                  <C>              <C>       
      Three months ending December 31, 1996         $1,059,012           $151,836         $1,210,848
              Year ending December 31, 1997          3,426,683            370,908          3,797,591
                                       1998          2,219,659            136,631          2,356,290
                                       1999            356,416             22,120            378,536
                                       2000             57,291              2,374             59,665
                                                ---------------   ----------------   ----------------
                                                    $7,119,061           $683,869         $7,802,930
                                                ===============   ================   ================
</TABLE>


4.  Commitments, management and report of fees:

The terms of the  Agreement  of Limited  Partnership  provide  that the  General
Partners  and/or  Affiliates are entitled to receive  certain fees for equipment
acquisition, management and resale and management of the Partnership.

The  General  Partners  and/or  Affiliates  earned   partnership  and  equipment
management  fees of  $790,705  in 1995 and  $537,724  in 1996,  pursuant  to the
Agreement of Limited Partnership.

The amounts  above are gross  amounts  incurred by the General  Partners  and/or
Affiliates, including commissions to broker dealers for the sales of Partnership
Units.


5.  Line of credit:

The  Partnership  participates  with the  General  Partner  and  certain  of its
affiliates  in  a  $70,000,000   revolving  line  of  credit  with  a  financial
institution. The line of credit expires on July 18, 1997.

The facility, when used by the Partnership,  is collateralized by (i) leases and
equipment  owned by the Partnership and financed by the lines and (ii) all other
assets owned by the Partnership  except  equipment,  lease receipts and residual
values specifically pledged to other equipment funding sources.


                                     Page 9
<PAGE>

                      ATEL CASH DISTRIBUTION FUND III, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1996
                                   (Unaudited)


6.  Extraordinary gain on extinguishment of debt:

In January 1996,  Barney's,  Inc.,  one of the  Partnership's  lessees filed for
reorganization  under  Chapter  11 of the United  States  Bankruptcy  Code.  The
Partnership  determined  that  the  assets  under  an  operating  lease  to this
particular  lessee were  impaired  as of  December  31,  1995.  The  Partnership
estimated  that only a portion of the  contractual  cash flows would be received
under the lease.  Under Financial  Accounting  Standards Board Statement No. 121
(FAS 121), the estimated cash flows were discounted at the effective rate of the
non-recourse  debt  related to the lease and the assets were written down to the
present value of those cash flows.

Assets and liabilities  related to the lease  transaction  were as follows as of
December 31, 1995:

Assets at cost                                                       $2,041,222
Accumulated depreciation                                               (780,765)
                                                                ----------------
Book value of lease assets                                            1,260,457
Deposits from lessee                                                    (75,340)
Non-recourse debt                                                    (1,051,398)
                                                                ----------------

Net assets included in the Partnership's balance sheet as of
   December 31, 1995 before provision for impairment                    133,719

Reserve for impairment                                                 (471,906)
                                                                ----------------
Excess of non-recourse debt over net assets                           ($338,187)
                                                                ================

On July 19,  1996,  the assets  subject to the lease were  purchased  by a third
party.  As  part  of the  purchase  and  transaction  restructure,  the  related
non-recourse debt was extinguished by the lender and the Partnership  received a
small amount of cash  proceeds.  The sale  resulted in a gain on the sale of the
assets and a gain on the  extinguishment of the related  non-recourse  debt. The
following summarizes this transaction:

Assets at cost                                                       $2,041,222
Accumulated depreciation at June 30, 1996                              (954,271)
                                                                ----------------
Book value of lease assets at June 30, 1996                           1,086,951
Reserve for impairment                                                 (471,906)
                                                                ----------------
Carrying value at June 30, 1996                                         615,045
Deposits from lessee retained by Partnership                            (75,340)
                                                                ----------------
Excess of carrying value over deposits from lessee                      539,705
Gross sales proceeds                                                    957,680
                                                                ----------------
Gain on sale of assets                                                 $417,975
                                                                ================

Non-recourse debt                                                    $1,051,398
Gross sales proceeds used to extinguish non-recourse debt              (953,790)
                                                                ----------------
Extraordinary gain on extinguishment of debt                            $97,608
                                                                ================

Gross sales proceeds                                                   $957,680
Gross sales proceeds used to extinguish non-recourse debt              (953,790)
                                                                ----------------
Net cash proceeds to Partnership                                         $3,890
                                                                ================


                                    Page 10
<PAGE>

Item 2.                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                            FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Capital Resources and Liquidity

During the third quarter of 1996, the Partnership's  primary source of liquidity
was operating  lease rents.  The liquidity of the  Partnership  will vary in the
future,  increasing  to the extent cash flows from leases exceed  expenses,  and
decreasing  as lease  assets  are  acquired,  as  distributions  are made to the
Limited Partners and to the extent expenses exceed cash flows from leases.

In the  event  the  Partnership's  reserves  were  found to be  inadequate,  the
Partnership  would  likely  be in a  position  to  borrow  against  its  current
portfolio  to meet such  requirements.  The  General  Partners  envision no such
requirements for operating purposes.

As  of  September  30,  1996,  the   Partnership   had  borrowed   approximately
$32,425,000.  The remaining  unpaid balance of such  borrowings at September 30,
1996 was  approximately  $7,119,000.  The  borrowings  are  non-recourse  to the
Partnership,  that is, the only recourse of the lender for a lessee default will
be to the equipment or corresponding lease acquired with the loan proceeds.  The
General  Partners  expect  that  aggregate  borrowings  in the  future  will  be
approximately  40% of aggregate  equipment cost. In any event,  the Agreement of
Limited  Partnership  limits  such  borrowings  to  40%  of the  total  cost  of
equipment, in aggregate.

The  Partnership  participates  with the  General  Partner  and  certain  of its
affiliates  in  a  $70,000,000   revolving  line  of  credit  with  a  financial
institution. The line of credit expires on July 18, 1997.

The facility, when used by the Partnership,  is collateralized by (i) leases and
equipment  owned by the Partnership and financed by the lines and (ii) all other
assets owned by the Partnership  except  equipment,  lease receipts and residual
values specifically pledged to other equipment funding sources.

No  commitments  of capital  have been or are expected to be made other than for
the acquisition of additional equipment. As of September 30, 1996, there were no
such commitments.

The Partnership made distributions of cash from 1996 first quarter operations in
February,  March and April 1996. The Partnership made distributions of cash from
1996 second quarter  operations in May, June and July 1996. The Partnership made
distributions  of cash from 1996 third quarter  operations in August,  September
and October 1996.

Distributions were made to the limited partners as follows:

<TABLE>
<CAPTION>
                                                                                                                   Annualized
                               Month in which distribution                    Amount of distribution per           distribution
                                         was made                             Limited Partnership Unit                rate

<S>                                      <C>                                             <C>                         <C>   
Monthly distributions:                   February                                        $0.11667                    14.00%
                                           March                                         $0.11667                    14.00%
                                           April                                         $0.08333                    10.00%
                                            May                                          $0.10000                    12.00%
                                           June                                          $0.10000                    12.00%
                                           July                                          $0.10000                    12.00%
                                          August                                         $0.10000                    12.00%
                                         September                                       $0.10000                    12.00%
                                          October                                        $0.10000                    12.00%

Quarterly distributions:                   April                                         $0.31667                    12.67%
                                           July                                          $0.30000                    12.00%
                                          October                                        $0.30000                    12.00%
</TABLE>

If interest rates increase or decrease  significantly,  the lease rates that the
Partnership can obtain on future leases will be expected to increase or decrease
in parallel,  as the cost of capital is a  significant  factor in the pricing of
lease  financing.  Leases  already  in place,  for the most  part,  would not be
affected by changes in interest rates.

                                    Page 11
<PAGE>

If  inflation  in the general  economy  becomes  significant,  it may affect the
Partnership  inasmuch as the residual  (resale) values and rates on re-leases of
the  Partnership's  leased  assets may  increase as the costs of similar  assets
increase.  However,  the  Partnership's  revenues from existing leases would not
increase,  as such rates are generally fixed for the terms of the leases without
adjustment for inflation.

1996 vs. 1995 - nine months

During the nine month period ended September 30, 1995, the Partnership's primary
source of cash was lease rents.

Sources  of  cash  from  investing  activities  consisted  primarily  of  direct
financing  lease rents  accounted  for as  reductions  of the net  investment in
direct  financing  leases and the proceeds from sales of lease assets.  Proceeds
from sales of assets increased by $1,937,805  compared to 1995. Asset sales have
increased as more leases matured and the related assets were subsequently  sold.
Asset sales are not expected to be consistent from one period to another.

In 1996 and 1995, there were no financing sources of cash.


1996 vs. 1995 - three months

During the third  quarter,  the  Partnership's  primary source of cash was lease
rents.

Sources  of  cash  from  investing  activities  consisted  primarily  of  direct
financing  lease rents  accounted  for as  reductions  of the net  investment in
direct  financing  leases and the  proceeds  from sales of lease assets as noted
above for the nine month period.

In 1996 and 1995, there were no financing sources of cash.


Results of Operations

Operations  in the third  quarter of 1996  resulted in net income of  $1,393,111
compared to  $974,099 in 1995.  Net income for the first nine months of 1996 was
$2,048,577 compared to $2,240,401 in 1995.

1996 vs. 1995

Nine months:

Operating  lease  revenues   decreased  by  $2,473,182   compared  to  1995  and
depreciation expense decreased by $1,310,826. Both of these decreases are due to
the terminations of operating leases over the last year and the subsequent sales
of the related assets.

Effective  January 1, 1996, the Partnership  suspended the recognition of income
under its lease  with  Barney's,  Inc.  The  non-recourse  debt  related to this
transaction was also put in a non-accrual  status, that is, interest expense was
no longer accrued. In July 1996, the underlying assets were sold to an unrelated
third party and the related debt was  extinguished as a part of the transaction.
The Partnership recorded a gain on the sale of the assets of $417,925.  The sale
resulted  in the debt  being  extinguished  for less than its  carrying  amount,
resulting in an extraordinary gain of $97,608.

The  non-accrual  of lease  revenues on the  Barney's  lease  contributed  about
$321,000 to the decline in operating lease revenues over the nine month period.

Interest  expense has  decreased  due to both the  scheduled  and  non-scheduled
(Barney's, Inc.) reductions of debt balances in the nine month period.


                                    Page 12
<PAGE>

Management fees are based on the Partnership's revenues and its distributions to
its Limited Partners.  Both lease revenues and distributions to Limited Partners
decreased compared to 1995. These decreases resulted in a decrease in management
fees of approximately $253,000.

Three months:

Operating  lease  revenues  decreased  by  $702,001  compared  to  1995.  Direct
financing lease revenues  decreased  $38,596  compared to 1995.  These decreases
resulted  from the same  factors  discussed  above  relating  to the none  month
period. Gains or losses on equipment sales have fluctuated significantly for the
reasons noted above.

Depreciation expense decreased by $551,994 from 1995 to 1996 for the three month
periods. This decrease resulted from the factors discussed above as they related
to the nine month  period.  Management  fees also  decreased  due to the factors
noted above relating to the nine month period.





                                    Page 13
<PAGE>

                            PART II OTHER INFORMATION

Item 1.                     LEGAL PROCEEDINGS.

                              Inapplicable.

Item 2.                     CHANGES IN SECURITIES.

                              Inapplicable.

Item 3.                     DEFAULTS UPON SENIOR SECURITIES.

                              Inapplicable.

Item 4.                     SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                            HOLDERS.
                              Inapplicable.

Item 5.                     OTHER INFORMATION.

                              Inapplicable.

Item 6.                     EXHIBITS AND REPORTS ON FORM 8-K.

                        (a) Documents filed as a part of this report
                          1.  Financial Statements
                              Included in Part I of this report:

                              Balance  Sheets,  September  30, 1996 and December
31, 1995.

                              Income  statements  for the nine and  three  month
                              periods ended September 30, 1996 and 1995.

                              Statement of changes in partners'  capital for the
                              nine month period ended September 30, 1996.

                              Statements  of cash  flows  for the nine and three
                              month periods ended September 30, 1996 and 1995.

                              Notes to the Financial Statements

                          2.  Financial Statement Schedules
                              All other schedules for which provision is made in
                              the  applicable  accounting   regulations  of  the
                              Securities   and  Exchange   Commission   are  not
                              required  under the  related  instructions  or are
                              inapplicable, and therefore have been omitted.

                        (b)   Report on Form 8-K
                              None


                                    Page 14
<PAGE>

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date:
     November 11, 1996

                      ATEL CASH DISTRIBUTION FUND III, L.P.
                                  (Registrant)





                                 By:  /s/   A. J. BATT
                                     ------------------------------------------
                                     A. J. Batt
                                     General Partner of registrant



                                 By:  /s/  DEAN L. CASH
                                     ------------------------------------------
                                     Dean L. Cash
                                     General Partner of registrant



                                 By:   /s/ F. RANDALL BIGONY
                                     ------------------------------------------
                                     F. RANDALL BIGONY
                                     Principal financial officer
                                     of registrant



                                 By:   /s/ DONALD E.  CARPENTER
                                     -------------------------------------------
                                     Donald E.  Carpenter,
                                     Principal accounting
                                     officer of registrant



                                    Page 15