TEXTAINER FINANCIAL SERVICES CORPORATION
                        650 California Street, 16th Floor
                             San Francisco, CA 94108


March 26, 1998


Securities and Exchange Commission
Washington, DC  20549

Gentlemen:

Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  we are
submitting herewith for filing on behalf of Textainer Equipment Income Fund III,
L.P. (the  "Partnership")  the Partnership's  Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.

The financial  statements  included in the enclosed Annual Report on Form 10K do
not reflect a change from the  preceding  year in any  accounting  principles or
practices, or in the method of applying any such principles or practices.

This filing is being effected by direct  transmission to the Commission's  EDGAR
System.

Sincerely,

Nadine Forsman
Controller
<PAGE>





                       SECURITIES AND EXCHANGE COMMISSION
                               Washington DC 20549

                                    FORM 10K

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

                   For the fiscal year ended December 31, 1997

                         Commission file number 0-20140

                    TEXTAINER EQUIPMENT INCOME FUND III, L.P.
             (Exact name of Registrant as specified in its charter)

         California                                              94-3121277
 (State or other jurisdiction                                  (IRS Employer
of incorporation or organization)                            Identification No.)

650 California Street, 16th Floor, San Francisco, CA                94108
Address of Principal Executive Offices)                           (ZIP Code)

                                 (415) 434-0551
               Registrant's telephone number, including area code:

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

                                      NONE

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

               LIMITED PARTNERSHIP DEPOSITARY UNITS (THE "UNITS")
                                (TITLE OF CLASS)

              LIMITED PARTNERSHIP INTERESTS (UNDERLYING THE UNITS)
                                (TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. [ X ]

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

State the aggregate  market value of the voting stock held by  nonaffiliates  of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold,  or the  average  bid and ask  prices of such
stock, as of a specified date within 60 days prior to the date of the filing.

Not Applicable.

Documents Incorporated by Reference

The Registrant's Prospectus as contained in Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement dated and filed with the Commission December
21, 1990 as supplemented by  Post-Effective  Amendment No. 1, 2 and 3 filed with
the  Commission  under Section 8 (c) of the  Securities  Act of 1933 on March 1,
1991, January 13, 1992 and February 4, 1992, respectively.


<PAGE>


                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS

For more detailed information about the Registrant's  business, see "Business of
the Partnership" in the Registrant's Prospectus as supplemented.

(a)      General Development of Business

         The Registrant is a California  Limited  Partnership  formed as of July
         26, 1990 to purchase,  own,  operate,  lease,  and sell  equipment (the
         Equipment)  used in the  containerized  cargo  shipping  industry.  The
         Registrant  commenced offering units representing  limited  partnership
         interests  (Units) to the public on January 16, 1991 in accordance with
         its Registration Statement, and ceased to offer such Units as of May 4,
         1992 when the  Registrant had raised a total of  $125,000,000  from the
         offering.

         See  Item 10  herein  for a  description  of the  Registrant's  General
         Partners.  See item 7 herein for a  description  of the current  market
         conditions affecting the Registrant's business.

(b)      Financial Information About Industry Segments

         Inapplicable.

(c)      Narrative Description of Business

(c)(1)(i)         A  container leasing company  generally,  and  the  Registrant
                  specifically, is an operating business  comparable to a rental
                  car business.  A customer can lease a car from a bank  leasing
                  department for a monthly charge which  represents  the cost of
                  the car, plus interest, amortized  over the term of the lease;
                  or the  customer  can rent the same  car  from  a  rental  car
                  company at a much  higher  daily  lease rate.  The customer is
                  willing to pay the higher  daily rate for the convenience and 
                  value-added features provided by the rental car company,   the
                  most important  of which is the  ability  to pick up  the  car
                  where it is most  convenient,  use it for the  desired  period
                  of time,  and then drop it off at  a  location  convenient  to
                  the  customer. Rental car companies compete  with one  another
                  on the basis of lease  rates,  availability  of cars,  and the
                  provision of additional services.   They generate  revenues by
                  maintaining   the   highest   lease   rates  and  the  highest
                  utilization  factors that market  conditions will  allow,  and
                  by   augmenting  this  income  with  proceeds  from  sales  of
                  insurance,  drop-off  fees,  and   other  special  charges.  A
                  large  percentage  of lease  revenues  earned  by  car  rental
                  companies  are   generated  under  corporate  rate  agreements
                  wherein,   for  a  stated  period  of  time,  employees  of  a
                  participating  corporation can rent cars  at  specific  terms,
                  conditions and rental rates.  Buying the cars at fleet  prices
                  and selling them in the secondary market are also key elements
                  to the successful operation of a rental car business.

                  Container  leasing  companies and the Registrant  operate in a
                  similar manner by owning and leasing a worldwide  fleet of new
                  and used transportation  containers to international  shipping
                  companies  hauling various types of goods among numerous trade
                  routes. In addition to paying a daily rental rate, all lessees
                  must either provide physical damage and liability insurance or
                  purchase a damage  waiver from the  Registrant,  in which case
                  the  Registrant  agrees  to pay  the  cost  of  repairing  any
                  physical  damage  to  containers  caused by  lessees,  special
                  handling fees and/or  drop-off  charges may also be charged in
                  certain markets.  Container leasing companies compete with one
                  another on the basis of lease rates, availability of equipment
                  and services  provided.  Revenues and profits are generated by
                  maintaining the highest lease rates and the highest  equipment
                  utilization  factors  allowed  by  market  conditions.  Rental
                  revenues from the  Registrant's  containers  result  primarily
                  under master leases which are comparable to the corporate rate
                  agreements  used by rental car  companies.  The master  leases
                  provide  that  container  leasing  customers,  for a specified
                  period  of  time,  may  rent  containers  at  specific  terms,
                  conditions and rental rates.  Although the terms of the master
                  lease  governing  each  container  do not vary,  the number of
                  containers  in use can vary from time to time  within the term
                  of the master  lease.  The terms and  conditions of the master
                  lease provide that the lessee pays a daily rental rate for the
                  entire time the container is in his possession (whether or not
                  he is actively using it), is responsible  for any damage,  and
                  must  insure the  container  against  liabilities.  For a more
                  detailed   discussion  of  the  leases  for  the  Registrant's
                  Equipment,   see  "Leasing  Policy"  under  "Business  of  the
                  Partnership" in the  Registrant's  Prospectus as supplemented.
                  Rental car companies usually purchase only new cars, but since
                  containers  are completely  standardized,  a used container in
                  serviceable condition usually rents for the same rate as a new
                  one although the purchase price is lower. For this reason, the
                  Registrant  occasionally buys used containers.  The Registrant
                  also  sells  containers  in  the  course  of its  business  if
                  opportunities  arise or at the end of the  container's  useful
                  life.  See  "Business  of  the  Partnership"  in  Registrant's
                  Prospectus, as supplemented.

(c)(1)(ii)        Inapplicable.

(c)(1)(iii)       Inapplicable.

(c)(1)(iv)        Inapplicable.

(c)(1)(v)         Inapplicable.

(c)(1)(vi)        Inapplicable.

(c)(1)(vii)       No single  lessee  had  total  revenues  for  the  year  ended
                  December 31, 1997 which was 10% or more of  the  total  rental
                  revenues of the Registrant.

(c)(1)(viii)      Inapplicable.

(c)(1)(ix)        Inapplicable.

(c)(1)(x)         There  are   approximately 80 container leasing  companies  of
                  which  the  top  ten  control approximately  92%  of the total
                  equipment held by all container leasing companies. The top two
                  container  leasing  companies  combined control  approximately
                  47% of the total  equipment  held  by  all  container  leasing
                  companies.    Textainer  Equipment   Management   Limited,  an
                  Associate General Partner of the  Registrant  and the  manager
                  of its  marine  container  equipment,  is  the  third  largest
                  container  leasing  company and manages  approximately  8% of 
                  the equipment  held by all container  leasing  companies.  The
                  Registrant  alone  is   not  a  material  participant  in  the
                  worldwide   container   leasing    market.     The   principal
                  methods  of  competition  are  price,   availability  and  the
                  provision of worldwide service to the  international  shipping
                  community.  Alliances  and  other  operational  consolidations
                  among  shipping  lines have  recently  allowed shipping  lines
                  to  operate  with  fewer  containers  thereby  decreasing  the
                  demand for leased containers.  This decrease in demand,  along
                  with the entry of new  leasing  company  competitors  offering
                  low container  rental rates to shipping lines,  has  increased
                  competition  among lessors such as the Registrant.

(c)(1)(xi)        Inapplicable.

(c)(1)(xii)       Inapplicable.

(c)(1)(xiii)      The Registrant has no employees.  Textainer Financial Services
                  Corporation   (TFS),  the  managing  General  Partner  of  the
                  Registrant,  is responsible for the overall  management of the
                  business  of the  Registrant  and has 7  employees.  Textainer
                  Equipment  Management  Limited  (TEM),  an  Associate  General
                  Partner,  is  responsible  for the  management  of the leasing
                  operations of the Registrant and has a total of 149 employees.

(d)      Financial Information about Foreign and Domestic Operations and Export 
         Sales.

         The  Registrant  is involved in the leasing of shipping  containers  to
         international   shipping   companies   for  use  in  world   trade  and
         approximately  16.67%,  17.10%, and 14.44%, of the Registrant's  rental
         revenue  during  the years  ended  December  31,  1997,  1996 and 1995,
         respectively,   was  derived  from  operations  sourced  or  terminated
         domestically.  These  percentages  do not reflect the proportion of the
         Partnership's  income from operations  generated in domestic waterways.
         Substantially  all of  the  Partnership's  income  from  operations  is
         derived from assets  employed in foreign  operations.  See "Business of
         the  Partnership",  and  for a  discussion  of  the  risks  of  leasing
         containers for use in world trade,  "Risk Factors" in the  Registrant's
         Prospectus, as supplemented.

ITEM 2 - PROPERTIES

As of December 31, 1997, the Registrant owned the following types and quantities
of equipment:

         20-foot standard dry freight containers                          11,154
         40-foot standard dry freight containers                          13,738
         40-foot high cube dry freight containers                          6,450
                                                                         -------
                                                                          31,342
                                                                         =======

During  December 1997,  approximately  82% of these shipping  containers were on
lease to  international  shipping  companies and the balance was being stored at
shipping container manufacturers' locations and a large number of storage depots
located worldwide.

For  information  about  the  Registrant's   property,   see  "Business  of  the
Partnership" in the Registrant's Prospectus, as supplemented.

ITEM 3 - LEGAL PROCEEDINGS

The Registrant is not subject to any legal proceedings.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

Inapplicable.

                                     PART II

ITEM 5 - MARKET FOR THE  REGISTRANT'S  COMMON  EQUITY  AND  RELATED  STOCKHOLDER
         MATTERS

ITEM 201:

(a)      Market Information.

(a)(1)(i)         The units of limited  partnership  in the  Registrant  are not
                  publicly traded and there is no established trading market for
                  such  Units.  The  Registrant  has a program  whereby  Limited
                  Partners  may redeem Units for a specified  redemption  price.
                  The process  operates only when the Managing  General  Partner
                  determines, among other matters, that payment for the redeemed
                  units  will  not  impair  the  capital  or  operations  of the
                  Registrant.

(a)(1)(ii)        Inapplicable.

(a)(1)(iii)       Inapplicable.

(a)(1)(iv)        Inapplicable.

(a)(1)(v)         Inapplicable.

(a)(2)            Inapplicable.

(b)      Holders.

(b)(1)            As of January 1, 1998 there were  8,064  holders of record  of
                  limited  partnership  interests  in the Registrant.

(b)(2)            Inapplicable.

(c)      Dividends.

                  Inapplicable.

For details of the distributions which are made monthly by the Registrant to its
limited partners, see Item 6 "Selected Financial Data".

ITEM 701 - Inapplicable.

ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

            (Dollar amounts in thousands except for per unit amounts)

                                                                   Year Ended December 31,
                                        -------------------------------------------------------------------------------
                                             1997            1996             1995             1994           1993
                                             ----            ----             ----             ----           ----

<S>                                         <C>             <C>              <C>            <C>            <C>       
Rental income                            $ 19,361       $  21,349         $ 23,724       $   23,007      $  22,601

Net earnings                             $  5,173       $   7,795         $ 10,319       $    8,217      $   4,234

Net earnings per unit of
    limited partnership interest         $   0.82       $    1.24         $   1.64       $     1.30      $    0.66

Distributions per unit of
    limited partnership interests        $   1.85       $    1.85         $   1.82       $     1.66      $    1.89

Distributions per unit of
   limited partnership interest
   representing a return of capital      $   1.03       $    0.61         $   0.18       $     0.36      $    1.23

Total assets                             $ 82,248       $  88,765         $ 92,981       $   96,128      $ 100,947

Outstanding balance on
   revolving credit line                 $      -       $       -         $      -       $        -      $   3,450

</TABLE>

<PAGE>


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

           (Amounts in thousands except for unit and per unit amounts)

The Financial Statements contain information which will assist in evaluating the
financial  condition of the  Partnership  for the years ended December 31, 1997,
1996 and 1995.  Please refer to the  Financial  Statements  and Notes thereto in
connection with the following discussion.

Liquidity and Capital Resources

From  January  16,  1991  until May 4, 1992,  the  Partnership  offered  limited
partnership  interests  to the  public.  The  Partnership  received  its minimum
subscription  amount of $1,000 on February  11,  1991,  and on May 4, 1992,  the
Partnership's offering of limited partnership interests was closed at $125,000.

From time to time,  the  Partnership  redeems units from limited  partners for a
specified  redemption  value.  The redemption price is set by formula and varies
depending  on  length  of  time  the  units  are  outstanding.  Up to 2% of  the
Partnership's outstanding units may be redeemed each year, although the 2% limit
may be exceeded at the managing general  partner's  discretion.  All redemptions
are subject to the managing  general  partner's  good faith  determination  that
payment for the redeemed units will not (i) cause the Partnership to be taxed as
a  corporation,  (ii) impair the capital or  operations of the  Partnership,  or
(iii) impair the ability of the Partnership to pay  distributions  in accordance
with its  distribution  policy.  During the year ended  December 31,  1997,  the
Partnership  redeemed 375 units for a total dollar amount of $4, representing an
average  redemption  price of $10.43.  The  Partnership  has used cash flow from
operations to pay for the redeemed units.

The Partnership  invests working capital and cash flow from operations  prior to
its  distribution  to  the  partners  in  short-term,  liquid  investments.  The
Partnership's  cash is  affected  by  cash  provided  by or  used in  operating,
investing and financing  activities.  These  activities  are discussed in detail
below.

During  the  year  ended  December  31,  1997,  the  Partnership  declared  cash
distributions  to limited  partners  pertaining to the period from December 1996
through November 1997 in the amount of $11,412. These distributions  represent a
return of 9.25% on original  capital  (measured on an annualized  basis) on each
unit. Of these  distributions,  on a GAAP basis,  $6,359 was a return of capital
and  the  balance  was  from  net  earnings.  On a  cash  basis,  all  of  these
distributions were from operations.

For the years ended  December 31, 1997 and 1996,  the  Partnership  had net cash
provided by  operating  activities  of $12,358 and $15,353,  respectively.  This
decrease was primarily  attributable to a decrease in net earnings of $2,622, or
34%, for the year ending 1997 as compared to 1996. Net earnings decreased due to
a 9% decrease in rental income and a 18% increase in direct container  expenses.
The decrease in rental income was primarily due to a decline in utilization  and
rental rates, and the increase in direct container expenses was primarily due to
an increase in storage  expense due to the decline in utilization  and increased
repositioning  costs.  The decrease in rental income is discussed  more fully in
"Results of Operations".

Net cash used in investing  activities  (the purchase and sale of Equipment) for
the year ended  December  31, 1997 was  $2,883,  compared to $1,994 for the year
ended  December 31, 1996.  This  difference  is due to the fact that,  on a cash
basis,  the Partnership  purchased more Equipment in the year ended December 31,
1997 than in the equivalent  period in 1996. The General  Partners  believe that
these differences  reflect normal fluctuations in Equipment sales and purchases.
The Partnership  sells  Equipment as it reaches the end of its estimated  useful
life.  Consistent  with its  investment  objectives,  and the General  Partners'
determination  that  the  Equipment  can  be  profitably  sold  or  bought,  the
Partnership  intends to reinvest all or a  significant  amount of proceeds  from
future  Equipment  sales  in  additional  Equipment.  Such  additional  units of
Equipment purchased may not, however, equal the number of units sold.

At December 31, 1997, the Partnership had no commitments to purchase Equipment.

Results of Operations

The  Partnership's  income from operations,  which consists  primarily of rental
income, container depreciation,  direct container expenses, management fees, and
reimbursement of administrative expenses was directly related to the size of the
container fleet ("inventory")  during each of the three years ended December 31,
1997,  1996 and 1995.  The  following  is a summary of the  container  fleet (in
units) available for lease during those periods:

                                              1997           1996          1995
                                              ----           ----          ----
Opening inventory.......................     30,605         30,236        28,426
Closing inventory.......................     31,342         30,605        30,236
Average.................................     30,974         30,421        29,331

Average  inventory  increased  2% from the year ended  December  31, 1996 to the
equivalent  period in 1997 and 4% from the year ended  December  31, 1995 to the
same period in 1996.  Average  inventory  increased between 1996 and 1997 due to
purchases of additional Equipment using proceeds from sales of the Partnership's
existing Equipment and cash provided by operations remaining after distributions
and  redemptions.  Average  inventory  increased  between  1995  and 1996 due to
purchases of new Equipment  using  proceeds  from the sale of the  Partnership's
storage fleet.

Rental  income and direct  container  expenses  are also  affected  by the lease
utilization  percentages  for the  Equipment,  which were 80%,  84%,  and 93% on
average during the years ended December 31, 1997,  1996 and 1995,  respectively.
In addition, rental income is affected by daily rental rates.

The  following is a comparative  analysis of the results of  operations  for the
years ended December 31, 1997, 1996 and 1995.

The  Partnership's  income from operations for the years ended December 31, 1997
and 1996 was $5,224 and $7,569,  respectively,  on rental  income of $19,361 and
$21,349,  respectively.  The decrease in rental income of $1,988 or 9%, from the
year ended December 31, 1996 to 1997, was primarily  attributable to income from
container  rentals,  the major  component of total revenue,  which  decreased by
$2,062, or 10% from 1996 to 1997. As noted above,  income from container rentals
is largely dependent upon three factors:  Equipment available for lease (average
inventory),  average on-hire (utilization) percentage,  and average daily rental
rates.  Average inventory  increased 2%, average  utilization  decreased 5%, and
average daily rental rates decreased 7% from the year ended December 31, 1996 to
the equivalent period in 1997.

The  Partnership's  income from operations for the years ended December 31, 1996
and 1995 was $7,569 and $10,003,  respectively,  on rental income of $21,349 and
$23,724,  respectively. The decrease in rental income of $2,375 or 10%, from the
year ended December 31, 1995 to 1996, was primarily  attributable to income from
container  rentals,  the major  component of total revenue,  which  decreased by
$2,111,  or 10%, from 1996 to 1997.  Average  inventory  increased  4%,  average
utilization  decreased 10%, and average daily rental rates decreased 4% from the
year ended December 31, 1995 to the year ended December 31, 1996.

The declines in container utilization during 1996 and part of 1997 and in rental
rates during 1996 and 1997 were  primarily  due to  decreased  demand for leased
containers  and  increased  competition.  The  decrease  in  demand  for  leased
containers  resulted  from  changes in the business of shipping  line  customers
consisting  primarily  of (i)  over-capacity  resulting  from  the 1995 and 1996
additions of new, larger ships to the existing container ship fleet at a rate in
excess of the growth rate in  containerized  cargo  trade;  (ii)  shipping  line
alliances and other operational  consolidations that have allowed shipping lines
to operate with fewer containers;  and (iii) shipping lines reducing their ratio
of leased versus owned containers by purchasing more containers.  This decreased
demand,  along with the entry of new leasing  company  competitors  offering low
container  rental  rates to shipping  lines,  resulted  in downward  pressure on
rental  rates  and  also  caused  leasing  companies  to  offer  higher  leasing
incentives and other discounts to shipping lines.

Utilization  increased  during the second and third  quarters  of 1997 and began
declining  again  during the fourth  quarter of 1997 and into the  beginning  of
1998. Rental rates continued to decline into the beginning of 1998. For the near
term,  the General  Partners  do not  foresee  any  changes in  existing  market
conditions and caution that both  utilization  and lease rates could continue to
decline, adversely affecting the Partnership's operating results.

Substantially  all of the  Partnership's  rental income was  generated  from the
leasing of the Partnership's Equipment under short-term operating leases.

The balance of rental income consists of other  lease-related  items,  primarily
income  from  charges  to the  lessees  for  pick-up  of  containers  from prime
locations  less  credits  granted to lessees  for leasing  containers  from less
desirable  locations  (location  income),  income  for  handling  and  returning
containers and income from charges to the lessees for a Damage  Protection  Plan
(DPP).  For the year ended  December 31,  1997,  the total of these other rental
income items was $1,760,  an increase of $74 from the equivalent period in 1996.
The  primary  components  of this net  increase  were an increase in handling of
$203, offset by a decrease in location income of $149. Handling income increased
due to an increase in  container  movement  offset by a slightly  lower  average
handling price charged per container.  The decline in location  income is mainly
due to lower demand, which resulted in an increase in credits granted to lessees
for picking up containers from less desirable locations.  This was offset by the
effect of an  increase  in the  average  drop off  charge  per  container  which
increased drop-off charges to lessees.

For the year ended  December  31, 1996,  the total of these other rental  income
items was $1,686,  a decrease of $264 from the equivalent  period in 1995.  This
decrease was primarily due to a decrease in location  income of $324,  offset by
an  increase in DPP income of $53.  The  decline in  location  income was due to
lower demand,  which  resulted in an increase in credits  granted to lessees for
picking up units from less desirable  locations.  DPP income  increased due to a
higher average price charged per container.

Direct container expenses,  increased $607, or 18%, from the year ended December
31, 1996,  compared to the same period in 1997. The increase in direct container
expenses was due to increases in costs incurred for storage,  repositioning  and
maintenance and repair expenses of $274, $225, and $168,  respectively.  Storage
costs  increased  as a result of lower  utilization  rates during the year ended
December 31, 1997 when compared to 1996.  Repositioning expense increased due to
a greater  number of  containers  being  transported  from surplus  locations to
demand  locations  during the year ended  December  31,  1997  compared to 1996.
Maintenance  and repair  costs were higher in the year ended  December 31, 1997,
due a higher number of units  requiring  repair and a higher average repair cost
per container.

Direct container expenses,  increased $809, or 32%, from the year ended December
31, 1995, to the same period in 1996. The increase in direct  container  expense
was due to increases in costs incurred for storage,  DPP, maintenance and repair
and for the  repositioning  of containers.  Storage costs increased due to lower
utilization.  DPP and maintenance and repair costs were higher in the year ended
December  31,  1996,  due to higher per unit repair  costs  compared to the same
period  in  1995.  Repositioning  cost  increased  due to a  greater  number  of
containers being  transported from surplus  locations to demand locations during
the year ended December 31, 1996 when compared to 1995.

Bad debt  expense  decreased  by $88, or 35%,  from the year ended  December 31,
1996,  to the same  period of 1997.  The  decrease  was  primarily  due to lower
reserve  requirements for two specific lessees.  Bad debt expense decreased $300
from the year ended  December 31, 1995, to the same period in 1996 primarily due
to lower reserve requirements for three specific lessees.

Depreciation  and amortization  expenses  increased by $35, or 1%, from the year
ended  December 31, 1996 to 1997,  and $90, or 1%, from the year ended  December
31,  1995,  to 1996.  These  increases  were  primarily  due to increases in the
average fleet size.

Management  fees to affiliates  decreased  $148, or 8%, and $112, or 5%, between
the years ended December 31, 1997 and 1996 and years ended December 31, 1996 and
1995,  respectively,  due to a decrease in Equipment  management fees. Equipment
management  fees,  which are based  primarily on gross  revenue,  decreased as a
result of the decreases in rental  income,  and were  approximately  7% of gross
revenue for both  periods.  Incentive  management  fees,  which are based on the
Partnership's limited and general partner distribution  percentage and partners'
capital,  were  comparable at $480,  $481 and $477 for the years ending December
31, 1997, 1996 and 1995, respectively.

General and administrative  costs to affiliates remained fairly constant between
the  years  ending  December  31,  1997 and 1996 and  were  $1,153  and  $1,161,
respectively.  General and administrative  costs to affiliates decreased 25%, or
$391, in the year ended  December 31, 1996,  compared to the same period in 1995
due to a decrease in overhead costs allocated from TEM.

Other  income  consisted  of a loss on sale of  Equipment  of $128 and  interest
income of $77 for the year ended  December 31, 1997,  compared to a gain on sale
of Equipment of $140 and interest  income of $86 for the year ended December 31,
1996.

Other  income  consisted  of a gain on sale of  Equipment  of $140 and  interest
income of $86 for the year ended  December 31, 1996,  compared to a gain on sale
of Equipment of $262 and interest  income of $54 for the year ended December 31,
1995.

Net earnings per limited partnership unit decreased from $1.24 to $0.82 from the
year ended  December 31, 1996, to the year ended  December 31, 1997,  reflecting
the  decrease in limited  partner net earnings  from  $7,675,  to $5,053 for the
respective  periods.  Net earnings per limited  partnership  unit decreased from
$1.64 to $1.24 from the year ended December 31, 1995, to the year ended December
31, 1996,  reflecting the decrease in limited  partner net earnings from $10,184
for the year ended December 31, 1995, to $7,675 for the year ending December 31,
1996.

Many computer systems may experience difficulty processing dates beyond the year
1999 and, as such, some computer  hardware and software will need to be modified
prior to the year 2000 to  remain  functional.  The  Partnership's  and  General
Partner's  certain core internal systems that have recently been implemented are
year 2000  compliant.  The remaining  core internal  systems are scheduled to be
revised  to be year  2000  compliant  by the end of 1998.  Based on its  initial
evaluation,  the  Partnership  and the General  Partners do not believe that the
cost of remedial  actions relating to these systems will have a material adverse
effect on the  Partnership's  results of  operations  and  financial  condition.
Additionally,  the  Partnership  and the General  Partners are also completing a
preliminary  assessment  of year 2000  issues not  related to its core  systems,
including issues surrounding systems that interface with external third parties.

Although  substantially  all of the  Partnership's  income  from  operations  is
derived from assets employed in foreign operations, virtually all of this income
is  denominated  in United  States  dollars.  The  Partnership's  customers  are
international  shipping  lines  which  transport  goods on  international  trade
routes.  The  domicile  of the lessee is not  indicative  of where the lessee is
transporting  the  Equipment.  The  Partnership's  business  risk in its foreign
operations lies with the  creditworthiness of the lessees, and the Partnership's
ability to keep the Equipment under lease,  rather than the geographic  location
of the  Equipment  or the domicile of the  lessees.  The  Equipment is generally
operated on the international high seas rather than on domestic  waterways.  The
Equipment is subject to the risk of war or other  political,  economic or social
occurrence  where  the  Equipment  is  used,  which  may  result  in the loss of
Equipment,  which,  in turn,  may have a  material  impact on the  Partnership's
results of operations  and  financial  condition.  The General  Partners are not
aware of any  conditions  as of December  31, 1997 which would  result in such a
risk materializing.

Other risks of the Partnership's  leasing  operations include  competition,  the
cost of  repositioning  Equipment  after  it  comes  off-lease,  the  risk of an
uninsured  loss,  increases in maintenance  expenses or other costs of operating
the  Equipment,  and the effect of world trade,  industry  trends and/or general
business and economic cycles on the Partnership's operations. See "Risk Factors"
in the Partnership's Prospectus, as supplemented,  for additional information on
risks of the Partnership's business.

ITEM 7A -QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Inapplicable

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Attached pages 11 to 22.


<PAGE>


                          Independent Auditors' Report


The Partners
Textainer Equipment Income Fund III, L.P.:

We have audited the  accompanying  balance sheets of Textainer  Equipment Income
Fund III, L.P. (a California  limited  partnership)  as of December 31, 1997 and
1996, and the related  statements of earnings,  partners' capital and cash flows
for each of the years in the three-year  period ended  December 31, 1997.  These
financial statements are the responsibility of the Partnership's management. Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Textainer Equipment Income Fund
III, L.P. as of December 31, 1997 and 1996,  and the results of its  operations,
its partners' capital and its cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.


                              KPMG Peat Marwick LLP



San Francisco, California
February 18, 1998


<PAGE>


                    TEXTAINER EQUIPMENT INCOME FUND III, L.P.
                       (a California Limited Partnership)

                                 Balance Sheets

                           December 31, 1997 and 1996
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                                              1997                 1996
                                                                    ----------------     ----------------

<S>                                                                <C>                   <C>
Assets
Container rental equipment, net of accumulated
   depreciation of  $36,728 (1996:  $30,943)                          $      76,802      $        81,075
Cash                                                                            370                2,426
Accounts receivable, net of allowance
   for doubtful accounts of $1,534 (1996: $1,616)                             4,713                5,219
Due from affiliates, net (note 2)                                               191                    -
Prepaid expenses                                                                172                   45
                                                                    ----------------     ----------------

                                                                      $      82,248      $        88,765
                                                                    ================     ================

Liabilities and Partners' Capital
Liabilities:
   Accounts payable                                                   $         488      $           456
   Accrued liabilities                                                          138                    -
   Accrued recovery costs (note 1(k))                                           119                   71
   Accrued damage protection plan costs (note 1(l))                             351                  422
   Warranty claims (note 1(m))                                                  228                  267
   Due to affiliates, net (note 2)                                                -                   52
   Deferred quarterly distribution (note 1(g))                                  121                  116
   Equipment purchases payable                                                  365                  580
                                                                    ----------------     ----------------

      Total liabilities                                                       1,810                1,964
                                                                    ----------------     ----------------

Partners' capital:
   General partners                                                               -                    -
   Limited partners                                                          80,438               86,801
                                                                    ----------------     ----------------

      Total partners' capital                                                80,438               86,801
                                                                    ----------------     ----------------


                                                                      $      82,248      $        88,765
                                                                    ================     ================

See accompanying notes to financial statements
</TABLE>


<PAGE>


                    TEXTAINER EQUIPMENT INCOME FUND III, L.P.
                       (a California Limited Partnership)

                             Statements of Earnings

                  Years ended December 31, 1997, 1996 and 1995
               (Amounts in thousands except for unit and per unit
                                    amounts)

<TABLE>
<CAPTION>



                                                             1997              1996              1995
                                                       -----------------  ----------------  ----------------
<S>                                                     <C>               <C>               <C>            
Rental Income                                           $        19,361   $        21,349   $        23,724
                                                       -----------------  ----------------  ----------------

Costs and expenses:
      Direct container expenses                                   3,930             3,323             2,514
      Bad debt expense                                              166               254               554
      Depreciation and amortization                               6,817             6,782             6,692
      Professional fees                                              37                34                47
      Management fees to affiliates (note 2)                      1,818             1,966             2,078
      General and administrative costs
        to affiliates (note 2)                                    1,153             1,161             1,552
      Other general and administrative costs                        216               260               284
                                                       -----------------  ----------------  ----------------

                                                                 14,137            13,780            13,721
                                                       -----------------  ----------------  ----------------

      Income from operations                                      5,224             7,569            10,003
                                                       -----------------  ----------------  ----------------

Other (expense) income:
      Interest income                                                77                86                54
      (Loss) gain on sale of equipment (note 5)                    (128)              140               262
                                                       -----------------  ----------------  ----------------

                                                                    (51)              226               316
                                                       -----------------  ----------------  ----------------

      Net earnings                                      $         5,173   $         7,795   $        10,319
                                                       =================  ================  ================

Allocation of net earnings (note 1(g)):
      General partners                                  $           120   $           120   $           135
      Limited partners                                            5,053             7,675            10,184
                                                       -----------------  ----------------  ----------------

                                                        $         5,173   $         7,795   $        10,319
                                                       =================  ================  ================
Limited partners' per unit share
      of net earnings                                   $          0.82   $          1.24   $          1.64
                                                       =================  ================  ================

Limited partners' per unit share
      of distributions                                  $          1.85   $          1.85   $          1.82
                                                       =================  ================  ================

Weighted average number of limited
      partnership units outstanding (note 1(n))               6,168,527         6,185,397         6,205,740
                                                       =================  ================  ================


See accompanying  notes to financial statements
</TABLE>


<PAGE>


                    TEXTAINER EQUIPMENT INCOME FUND III, L.P.
                       (a California Limited Partnership)

                         Statements of Partners' Capital

                  Years ended December 31, 1997, 1996 and 1995
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                               Partners' Capital
                                          ----------------------------------------------------------
                                          ---------------       ---------------       --------------
                                             General               Limited                Total
                                          ---------------       ---------------       --------------


<S>                                       <C>                  <C>                   <C>          
Balances at December 31, 1994              $           -        $       92,257        $      92,257

Distributions                                       (135)              (11,297)             (11,432)

Redemptions (note 1(o))                                -                  (257)                (257)

Net earnings                                         135                10,184               10,319
                                          ---------------       ---------------       --------------

Balances at December 31, 1995                          -                90,887               90,887
                                          ---------------       ---------------       --------------


Distributions                                       (120)              (11,438)             (11,558)

Redemptions (note 1(o))                                -                  (323)                (323)

Net earnings                                         120                 7,675                7,795
                                          ---------------       ---------------       --------------

Balances at December 31, 1996                          -                86,801               86,801
                                          ---------------       ---------------       --------------


Distributions                                       (120)              (11,412)             (11,532)

Redemptions (note 1(o))                                -                    (4)                  (4)

Net earnings                                         120                 5,053                5,173
                                          ---------------       ---------------       --------------

Balances at December 31, 1997              $           -        $       80,438        $      80,438
                                          ===============       ===============       ==============


See accompanying notes to financial statements

</TABLE>

<PAGE>


                    TEXTAINER EQUIPMENT INCOME FUND III, L.P.
                       (a California Limited Partnership)

                            Statements of Cash Flows
                  Years ended December 31, 1997, 1996 and 1995
                             (Amounts in thousands)
<TABLE>
<CAPTION>


                                                                                          1997               1996               1995
                                                                                ---------------    ---------------    --------------
<S>                                                                                 <C>                <C>                <C> 
Cash flows from operating activities:
   Net earnings                                                                  $       5,173     $        7,795     $      10,319
   Adjustments to reconcile net earnings to
      net cash provided by operating activities:
         Depreciation                                                                    6,817              6,782             6,654
         (Decrease) increase in allowance for doubtful accounts                            (82)               100                50
         Loss (gain) on sale of equipment                                                  128               (140)             (262)
         Amortization of organization costs                                                  -                  -                38
         Changes in assets and liabilities:
            Decrease (increase) in accounts receivable                                     608                629               (62)
            (Increase) decrease in due from to affiliates, net                            (267)               166               381
            (Increase) decrease in prepaid expenses                                       (127)                 2                (2)
            Increase (decrease) in accounts payable
              and accrued liabilities                                                      170                (56)               78
            Increase in accrued recovery costs                                              48                 65                 2
            (Decrease) increase in accrued damage protection plan costs                    (71)                49                 4
            (Decrease) increase in warranty claims                                         (39)               (39)              296
                                                                                ---------------    ---------------    --------------

            Net cash provided by operating activities                                   12,358             15,353            17,496
                                                                                ---------------    ---------------    --------------

Cash flows from investing activities:
     Proceeds from sale of equipment                                                     1,601              1,355             2,178
     Equipment purchases                                                                (4,484)            (3,349)          (10,186)
                                                                                ---------------    ---------------    --------------

            Net cash used in investing activities                                       (2,883)            (1,994)           (8,008)
                                                                                ---------------    ---------------    --------------

Cash flows from financing activities:
    Redemptions                                                                             (4)              (323)             (257)
    Distributions to partners                                                          (11,527)           (11,596)          (11,401)
                                                                                ---------------    ---------------    --------------
            Net cash used in financing activities                                      (11,531)           (11,919)          (11,658)
                                                                                ---------------    ---------------    --------------

Net (decrease) increase in cash                                                         (2,056)             1,440            (2,170)
Cash at beginning of period                                                              2,426                986             3,156
                                                                                ---------------    ---------------    --------------

Cash at end of period                                                            $         370     $        2,426     $         986
                                                                                ===============    ===============    ==============



See accompanying notes to financial statements

</TABLE>


<PAGE>


                    TEXTAINER EQUIPMENT INCOME FUND III, L.P.
                       (A California Limited Partnership)

                       Statements of Cash Flows--Continued
                  Years Ended December 31, 1997, 1996 and 1995
                             (Amounts in thousands)


Supplemental Disclosures:

Supplemental schedule of non-cash investing and financing activities:

The following table summarizes the amounts of Equipment purchases, distributions
to  partners,  and proceeds  from sale of  Equipment  which had not been paid or
received  by the  Partnership  as of  December  31,  1997,  1996  ,1995 and 1994
resulting in  differences  in amounts  recorded and amounts of cash disbursed or
received by the Partnership, as shown in the Statements of Cash Flows.
<TABLE>
<CAPTION>

                                                                 1997            1996            1995           1994
                                                                 ----            ----            ----           ----
<S>                                                           <C>             <C>             <C>          <C>
Equipment purchases included in:
     Due to affiliates.........................................$   42         $     -         $    86      $    185
     Equipment purchases payable................................  365             580             738         2,929

Distributions to partners included in:
     Due to affiliates..........................................   10              10              42             7
     Deferred quarterly distribution payable....................  121             116             122           126

Proceeds from sale of Equipment included in:
     Due from affiliates........................................  399             381             348           330
     Accounts receivable........................................    -               -              19           587

The following  summarizes the amounts of Equipment  purchases,  distributions to
partners and proceeds from sale of Equipment recorded by the Partnership and the
amounts paid or received as shown in the  Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995.

                                                                                 1997           1996            1995
                                                                                 ----           ----            ----

Equipment purchases recorded...........................................      $  4,311       $  3,105        $  7,896
Equipment purchases paid...............................................         4,484          3,349          10,186

Distributions to partners declared.....................................        11,532         11,558          11,432
Distributions to partners paid.........................................        11,527         11,596          11,401

Proceeds from sale of Equipment recorded...............................         1,619          1,369           1,628
Proceeds from sale of Equipment received...............................         1,601          1,355           2,178


See accompanying notes to financial statements

</TABLE>

<PAGE>

                    TEXTAINER EQUIPMENT INCOME FUND III, L.P.
                       (A California Limited Partnership)

                          Notes to Financial Statements
                  Years ended December 31, 1997, 1996, and 1995
           (Amounts in thousands except for unit and per unit amounts)

Note 1.  Summary of Significant Accounting Policies


      (a)  Nature of Operations

      Textainer Equipment Income Fund III, L.P. (TEIF III or the Partnership), a
      California  limited  partnership,  with a maximum  life of 20  years,  was
      formed  on July 26,  1990.  The  Partnership  was  formed to engage in the
      business  of  owning,  leasing  and  selling  both new and used  equipment
      related  to  the  international  containerized  cargo  shipping  industry,
      including,  but not limited to, containers,  marine vessels,  trailers and
      other  container-related  equipment (the Equipment).  On January 16, 1991,
      TEIF III began offering units representing  limited partnership  interests
      (Units) to the public.  On May 4, 1992, the  Partnership  had admitted the
      maximum  number  of units  allowed  into the  Partnership.  On that  date,
      admittance  into the Partnership  was closed with 6,250,000  units,  for a
      total of $125,000.

      Textainer  Financial  Services  Corporation  (TFS) is the managing general
      partner of the Partnership  and is a wholly-owned  subsidiary of Textainer
      Capital Corporation (TCC).  Textainer  Equipment  Management Limited (TEM)
      and  Textainer   Limited  (TL)  are  associate  general  partners  of  the
      Partnership.  The  managing  general  partner  and the  associate  general
      partners  are  collectively  referred to as the General  Partners  and are
      commonly  owned by Textainer  Group Holdings  Limited  (TGH).  The General
      Partners  also  act in  this  capacity  for  other  limited  partnerships.
      Textainer  Acquisition  Services  Limited  (TAS)  is an  affiliate  of the
      General  Partners which performs  services  related to the  acquisition of
      Equipment  outside  the United  States on behalf of the  Partnership.  TCC
      Securities  Corporation  (TSC), a licensed broker and dealer in securities
      and an affiliate of the General Partners, was the managing sales agent for
      the offering of Units for sale.  The General  Partners  manage and control
      the affairs of the Partnership.

      (b)  Basis of Accounting

      The Partnership  utilizes the accrual  method  of a ccounting.  Revenue is
      recorded  when  earned  according  to  the  terms  of the Equipment rental
      contracts.  These contracts are classified as operating leases,  or direct
      financing  leases  if  they  so  qualify   under  Statement  of  Financial
      Accounting  Standards No. 13:  "Accounting for Leases".  Substantially all
      of the  Partnership's  rental income was generated from the leasing of the
      Partnership's  Equipment under short-term operating leases.


      (c)  Use of Estimates

      Certain   estimates  and  assumptions  were  made  by  the   Partnership's
      management that affect the reported  amounts of assets and liabilities and
      disclosures  of  contingent  assets  and  liabilities  at the  date of the
      financial  statements  and the  reported  amounts of revenue and  expenses
      during the  reporting  period.  Actual  results  could  differ  from those
      estimates.

      (d)  Fair Value of Financial Instruments

      In accordance  with Statement of Financial  Accounting  Standards No. 107,
      "Disclosures  about Fair Value of Financial  Instruments," the Partnership
      calculates  the fair value of  financial  instruments  and  includes  this
      additional  information in the notes to the financial  statements when the
      fair  value  is  different   than  the  book  value  of  those   financial
      instruments.  At  December  31,  1997  and  1996,  the  fair  value of the
      Partnership's  financial instruments approximate the related book value of
      such instruments.

      (e)  Equipment

      The  Equipment  is  recorded  at the cost of the assets  purchased,  which
      includes acquisition fees, less depreciation charged.  Depreciation of new
      Equipment is computed  using the  straight-line  method over the estimated
      useful  life  of 12  years  to a 28%  salvage  value.  Used  Equipment  is
      depreciated based upon its estimated  remaining useful life at the date of
      acquisition  (from 2 to 11 years).  When assets are  retired or  otherwise
      disposed  of, the cost and related  accumulated  depreciation  are removed
      from the accounts and any  resulting  gain or loss is recognized as income
      for the period.

      In accordance  with Statement of Financial  Accounting  Standards No. 121,
      "Accounting for the Impairment of Long-Lived  Assets and Long-Lived Assets
      to be Disposed  of", the  Partnership  periodically  compares the carrying
      value of the  Equipment  to expected  future cash flows for the purpose of
      assessing  the  recoverability  of the recorded  amounts.  If the carrying
      value exceeds  expected future cash flows,  the assets are written down to
      fair  value.  There  were  no  reductions  to the  carrying  value  of the
      Equipment made during 1997, 1996 or 1995.

      (f)  Nature of Income from Operations

      Although  substantially all of the Partnership's income from operations is
      derived from assets employed in foreign operations,  virtually all of this
      income  is  denominated  in  United  States  dollars.   The  Partnership's
      customers  are  international  shipping  lines  that  transport  goods  on
      international  trade routes.  The domicile of the lessee is not indicative
      of where the  lessee is  transporting  the  Equipment.  The  Partnership's
      business risk in its foreign operations lies with the  creditworthiness of
      the lessees  rather than the  geographic  location of the Equipment or the
      domicile of the lessees.  No single lessee  accounted for more than 10% of
      the Partnership's revenues for the years ended December 31, 1997, 1996 and
      1995.

      (g)  Allocation of Net Earnings and Partnership Distributions

      In accordance with the Partnership  Agreement,  net earnings or losses and
      partnership distributions are allocated 1% to the General Partners and 99%
      to the limited partners with the exception of gross income,  as defined in
      the  Partnership  Agreement.  Gross  income is  allocated  to the  General
      Partners to the extent that their  capital  accounts'  deficit  exceed the
      portion  of  syndication   and  offering  costs   allocated  to  them.  On
      termination  of the  Partnership  the General  Partners shall be allocated
      gross income equal to their allocations of syndication and offering costs.

      Actual  cash  distributions  to  the  limited  partners  differ  from  the
      allocated net earnings as presented in these financial  statements because
      cash  distributions  are based on cash  available for  distribution.  Cash
      distributions  are paid to the general  and limited  partners on a monthly
      basis in accordance with the provisions of the Partnership Agreement. Some
      limited partners have elected to have their  distributions paid quarterly.
      The  Partnership has recorded these  distributions  of $121 and $116 as an
      accrued liability at December 31, 1997 and 1996, respectively.

      (h)  Income Taxes

      The Partnership is not subject to income taxes. Accordingly,  no provision
      for income taxes has been made.  The  Partnership  files federal and state
      information  returns  only.  Taxable  income or loss is  reportable by the
      individual partners.

      (i)  Organization Costs

      Organizational   expenses   which  resulted  from  the  formation  of  the
      Partnership,  were capitalized and amortized on a straight-line basis over
      five years. These costs were fully amortized during 1995.

      (j)  Acquisition Fees

      In accordance with the Partnership Agreement, acquisition fees equal to 5%
      of Equipment  purchase  price are paid to TAS (see note 2). These fees are
      capitalized as part of the cost of the Equipment.

      (k)  Recovery Costs

      The  Partnership  accrues an estimate  for  recovery  costs as a result of
      defaults under its leases that it expects to incur, which are in excess of
      estimated insurance  proceeds.  At December 31, 1997 and 1996, the amounts
      accrued were $119 and $71, respectively.

      (l)  Damage Protection Plan

      The  Partnership  offers a Damage  Protection Plan (DPP) to lessees of its
      Equipment.  Under  the  terms of DPP,  the  Partnership  earns  additional
      revenues  on a daily  basis  and,  in return,  has agreed to bear  certain
      repair costs. It is the  Partnership's  policy to recognize these revenues
      when earned and provide a reserve  sufficient  to cover the  Partnership's
      obligation for estimated future repair costs. DPP expenses are included in
      direct  container  expenses in the  Statements of Earnings and the related
      reserve at December 31, 1997 and 1996, was $351 and $422, respectively.

      (m)   Warranty Claims

      During 1992 and 1995, the Partnership  settled  warranty claims against an
      equipment  manufacturer.  The  Partnership  is amortizing  the  settlement
      amounts over the remaining useful life of the equipment (between seven and
      eight  years),  reducing  maintenance  and repair costs over that time. At
      December  31, 1997 and 1996,  the  unamortized  portion of the  settlement
      amounts was equal to $228 and $267, respectively.

      (n)  Limited Partners' Per Unit Share of Net Earnings and Distributions

      Limited  partners'  per unit share of both net earnings and  distributions
      were  computed  using the  weighted  average  number of units  outstanding
      during  each year of the  Partnership's  operations  which was  6,168,527,
      6,185,397,  and 6,205,740,  during the years ended December 31, 1997, 1996
      and 1995, respectively.

      (o) Redemptions

      The following  redemption  offerings were  consummated by the  Partnership
      during the years ended 1997, 1996 and 1995:
<TABLE>
<CAPTION>
                                                                                 Average
                                                         Units Redeemed      Redemption Price      Amount Paid


<S>                                                      <C>               <C>                     <C>    
            Balance Forward Dec. 31, 1994:                   38,031            $16.08                  $   611
                                                             ======                                    =======


            Year ended December 31, 1995:
                  1st quarter.................                3,570            $14.63                 $     52
                  3rd quarter................                 8,106            $14.12                      114
                  4th quarter.................                6,200            $14.61                       91
                                                            -------                                    -------
                                                             17,876            $14.39                  $   257
                                                             ======                                    =======

            Year ended December 31, 1996:
                  1st quarter.................                4,350            $13.94                $      61
                  3rd quarter.................               14,265            $12.88                      184
                  4th quarter.................                6,576            $11.86                       78
                                                            -------                                   --------
                                                             25,191            $12.80                 $    323
                                                             ======                                   ========

            Year ended December 31, 1997:
                  1st quarter.................                  375            $10.43               $        4
                                                           --------                                    =======

            Partnership to Date:                             81,473            $14.67                  $ 1,195
                                                             ======                                    =======

          The redemption price is fixed by formula,  and varies depending on the
          length of time the units have been outstanding.
</TABLE>

      (p)  Reclassifications

      Certain  reclassifications,  not affecting net earnings, have been made to
      prior years' amounts in order to conform with the 1997 financial statement
      presentation.

Note 2.   Transactions with Affiliates

      As part of the operation of the Partnership,  the Partnership is to pay to
      the General  Partners or TAS an incentive  management  fee, an acquisition
      fee, an equipment  management fee and an equipment  liquidation fee. These
      fees  are  for  various   services   provided  in   connection   with  the
      administration and management of the Partnership. The Partnership incurred
      $480,  $481, and $477 of incentive  management fees during the years ended
      December  31,  1997,  1996  and  1995,  respectively,   and  incurred  and
      capitalized $216, $156, and $480,  respectively,  of equipment acquisition
      fees as part of the Equipment costs during the same periods.  No equipment
      liquidation fees were incurred in 1997, 1996 or 1995.

      The  Equipment  of the  Partnership  is  managed  by TEM.  In its  role as
      manager,  TEM has  authority to acquire,  hold,  manage,  lease,  sell and
      dispose of the Partnership's Equipment.  Additionally,  TEM holds, for the
      payment  of direct  operating  expenses,  a reserve  of cash that has been
      collected from container leasing operations;  such cash is included in due
      from  affiliates,  net  at  December  31,  1997  and  1996.  Prior  to the
      Partnership's  sale of its storage fleet during 1995, TEM had entered into
      an agreement with its 100%-owned  subsidiary  Textainer  Storage  Services
      (TSS) to manage these storage containers.

      Subject to certain reductions, TEM receives a monthly equipment management
      fee equal to 7% of gross lease revenues  attributable to operating  leases
      and 2% of gross  lease  revenues  attributable  to full payout net leases.
      Such fee is either  retained  by TEM or,  prior to the sale of its storage
      fleet,  the fee  allocable to TSS, if any,  was passed  through by TEM for
      services  rendered.  During the years ended  December 31,  1997,  1996 and
      1995, the Partnership paid $1,338,  $1,485, and $1,601,  respectively,  in
      equipment  management fees to TEM and TSS. The Partnership's  Equipment is
      leased by TEM and was leased by TSS to third  party  lessees on  operating
      master leases,  spot leases,  full payout net leases and term leases.  The
      majority are operating leases with limited terms and no purchase option.

      Certain  indirect  general  and  administrative  costs  such as  salaries,
      employee  benefits,   taxes  and  insurance  are  incurred  in  performing
      administrative  services  necessary to the  operation of the  Partnership.
      These costs are incurred and paid by TFS, TEM,  and,  prior to the sale of
      the   Partnership's   storage  fleet  in  1995,  TSS.  Total  general  and
      administrative costs allocated to the Partnership were $1,153,  $1,161 and
      $1,552 for the years ended December 31, 1997, 1996 and 1995, respectively,
      of which $628, $610, and $773 were for salaries.

      TEM and TSS allocate these general and  administrative  costs based on the
      ratio of the Partnership's  interest in the managed Equipment to the total
      Equipment  managed by TEM and TSS during the period.  TFS allocates  these
      costs  based on the  ratio of the  Partnership's  Equipment  to the  total
      Equipment  of  all  limited  partnerships  managed  by  TFS.  General  and
      administrative  costs  allocated  to the  Partnership  by TEM and TSS were
      $1,020, $1,011, and $1,326 for the years ended December 31, 1997, 1996 and
      1995,  respectively.  TFS allocated  $133,  $150,  and $226 of general and
      administrative costs to the Partnership during the same periods.

      The General  Partners or TAS may acquire  Equipment  in their own name and
      hold  title on a  temporary  basis for the  purpose  of  facilitating  the
      acquisition of such Equipment for the Partnership.  The Equipment may then
      be resold to the  Partnership on an all-cash basis at a price equal to the
      actual cost, as defined in the  Partnership  Agreement.  In addition,  the
      General  Partners  or TAS  are  entitled  to an  acquisition  fee  for any
      Equipment resold to the Partnership.

      At December  31, 1997 and 1996,  due from and due to  affiliates,  net are
      comprised of:

                                                            1997            1996
                                                            ----            ----
      Due from affiliates:
        Due from TEM....................................  $  297        $    27
                                                            ----            ----

      Due to affiliates:
        Due to TAS......................................      42              -
        Due to TFS......................................      48             52
        Due to TL.......................................       1              1
        Due to TCC......................................      15             26
                                                           -----            ----
                                                             106             79
                                                             ---            ----

      Due from (to) affiliates, net                       $  191        $   (52)
                                                            ====           =====

      These amounts  receivable  from and payable to affiliates were incurred in
      the ordinary course of business between the Partnership and its affiliates
      and represent  timing  differences  in the accrual and payment of expenses
      and fees  described  above or in the accrual and  remittance of net rental
      revenues from TEM and TSS.

      It is the policy of the  Partnership  and the  General  Partners to charge
      interest on intercompany  balances outstanding for more than one month, to
      the extent such balances relate to loans for Equipment purchases. Interest
      is charged at a rate not greater than the General Partners' or affiliates'
      own cost of funds.  There was no interest expense incurred on intercompany
      balances for the years ended December 31, 1997, 1996 and 1995.

Note 3.   Rentals under Operating Leases

      The following are the future  minimum rent  receivables  under  cancelable
      long-term  operating leases at December 31, 1997.  Although the leases are
      generally  cancelable  at  the  end of  each  twelve-month  period  with a
      penalty,  the  following  schedule  assumes  that the  leases  will not be
      terminated.

        Year ending December 31,

        1998....................................................         $ 1,175
        1999....................................................             332
        2000....................................................              91
                                                                         -------
        Total minimum future rentals receivable.................         $ 1,598
                                                                           =====

Note 4.   Income Taxes

      As of December 31, 1997, 1996, and 1995, there were temporary  differences
      of $56,009,  $46,961,  and  $36,316  respectively,  between the  financial
      statement carrying value of certain assets and liabilities and the federal
      income tax basis of such assets and liabilities. The reconciliation of net
      income for financial statement purposes to net loss for federal income tax
      purposes  for the  years  ended  December  31,  1997,  1996 and 1995 is as
      follows:

<TABLE>
<CAPTION>
                                                                              1997              1996            1995
                                                                              ----              ----            ----

<S>                                                                        <C>              <C>              <C>     
       Net income per financial statements...........................      $ 5,173          $  7,795         $ 10,319

       (Decrease) increase in provision for bad debt.................          (82)              100               50
       Depreciation for income tax purposes in excess of
         depreciation for financial statement purposes...............      (10,389)          (11,757)         (11,289)
       Gain on sale of fixed assets for federal income tax
         purposes in excess of gain recognized for financial
         statement purposes..........................................        1,534               703              491
       (Decrease) increase in damage protection plan reserve.........          (71)               49                4
       Decrease in reserve for
         trailer maintenance and repairs.............................            _                 _               (2)
       Warranty  Reserve  income  for tax  purposes  in excess of
       financial statement purposes..................................          (40)              260               (3)
       Other.........................................................            _                 _               36
                                                                         ----------        ----------        ---------

       Net loss for federal income tax purposes......................     $ (3,875)         $ (2,850)       $    (394)
                                                                            =======          ========         ========

</TABLE>

Note 5.  Sale of Storage Fleet

      In August 1995, the Partnership sold its storage container fleet,  managed
      by TSS, to a third party  investor.  The proceeds  from the sale were $345
      compared  to the  Partnership's  cost  basis  in the  equipment  of  $333,
      resulting in a gain of $12. The Partnership has invested the proceeds from
      this sale into marine container rental equipment.


<PAGE>


ITEM 9 -  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

There have been none.

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Registrant has no officers or directors.

As described in the Prospectus, the Registrant's three original general partners
were TCC, TEM and TI which comprised the Textainer Group.  Effective  October 1,
1993, the Textainer Group  streamlined its organization by forming a new holding
company,  Textainer Group Holdings  Limited (TGH),  and the  shareholders of the
underlying  companies which include the General Partners  accepted shares in TGH
in exchange for their shares in the individual  companies.  Textainer  Financial
Services  Corporation  (TFS) is the Managing  General Partner of the Partnership
(prior to its name change on April 4, 1994,  TFS was known as Textainer  Capital
Corporation).  TFS is a wholly-owned subsidiary of Textainer Capital Corporation
(TCC)  (prior to its name  change on April  4,1994,  TCC was known as  Textainer
(Delaware) Inc.).  Textainer Equipment  Management Limited (TEM) is an Associate
General Partner of the Partnership. Textainer Inc. (TI) was an Associate General
Partner of the  Partnership  through  September 30, 1993 when it was replaced in
that capacity by Textainer Limited (TL), pursuant to a corporate  reorganization
effective October 1, 1993, which caused TFS, TEM and TL to fall under the common
ownership of TGH. (The Managing  General Partner and Associate  General Partners
are  collectively  referred  to as  the  General  Partners).  Pursuant  to  this
restructuring,  TI has transferred substantially all of its assets including all
of its rights and duties as associate  general  partner to TL. This transfer was
effective  from  October  1, 1993.  The end result was that TFS,  TEM and TL now
serve  as  General   Partners  for  the  Registrant  and  are   wholly-owned  or
substantially-owned  subsidiaries of TGH. The General  Partners also act in this
capacity for other limited partnerships.  Textainer Acquisition Services Limited
(TAS) is an affiliate of the General Partners,  which performs services relative
to the  acquisition  of  Equipment  outside  the United  States on behalf of the
Partnership.  TCC Securities  Corporation (TSC), a licensed broker and dealer in
securities  and an affiliate  of the General  Partners,  was the managing  sales
agent for the offering of Units for sale.

TFS,  as  the  Managing  General  Partner,   is  responsible  for  managing  the
administration  and operation of the  Registrant,  and for the  formulation  and
administration of investment policies.

TEM, an Associate  General Partner,  manages all aspects of the operation of the
Registrant's Equipment.

TL, an Associate  General  Partner,  owns a fleet of container  rental Equipment
which is  managed  by TEM.  TL  provides  advice  to the  Partnership  regarding
negotiations  with financial  institutions,  manufacturers and Equipment owners,
and regarding the terms upon which particular items of Equipment are acquired.

Section 16(a) Beneficial Ownership Reporting Compliance.

      Section  16(a)  of the  Securities  Exchange  Act  of  1934  requires  the
      Partnership's  General Partners,  policy-making  officials and persons who
      beneficially  own more than ten  percent  of the Units to file  reports of
      ownership  and  changes in  ownership  with the  Securities  and  Exchange
      Commission.  Copies  of  these  reports  must  also  be  furnished  to the
      Partnership.

      Based  solely on a review of the  copies of such  forms  furnished  to the
      Partnership or on written  representations  that no forms were required to
      be filed,  the  Partnership  believes that with respect to its most recent
      fiscal year ended December 31, 1997, all Section 16(a) filing requirements
      were  complied  with (except that Robert D.  Pedersen,  a newly  appointed
      director of TEM,  filed his initial  statement of  beneficial  interest on
      Form 3 late, which Form was filed on Form 5). No member of management,  or
      beneficial  owner  owned  more  than 10  percent  of any  interest  in the
      Partnership.  None of the individuals subject to section 16(a),  including
      Mr. Pedersen,  failed to file or filed late any reports of transactions in
      the Units.

The directors and executive officers of the General Partners are as follows:
<TABLE>
<CAPTION>

Name                             Age    Position

<S>                               <C>   <C>                                                  
Neil I. Jowell                    64    Director and Chairman of TGH, TEM, TL, TCC and TFS
James E. Hoelter                  58    President and CEO of TGH and TL, Director of TGH, TEM, TL, TCC, TFS and TSC
John A. Maccarone                 53    President  and CEO of TEM and TSC, Vice  President of TGH,  Director of TGH,
                                        TEM, TL, TCC, TFS and TSC
John R. Rhodes                    48    Executive  Vice  President,  CFO, and Secretary of TGH, TEM, TL, TCC and TFS
                                        and Director of  TEM, TCC and TFS
Alex M. Brown                     59    Director of TGH, TEM, TL, TCC, TFS and TSC
Harold J. Samson                  76    Director of TGH, TL and TSC
Philip K. Brewer                  41    President of TCC and TFS,  Senior Vice  President - Capital  Markets
                                        for TGH and TL
Robert D. Pedersen                39    Senior Vice President - Marketing for TEM, Director of TEM
Anthony C. Sowry                  45    Vice President - Operations and Acquisitions for TEM
Jens W. Palludan                  47    Regional Vice President - Americas/Africa/Australia for TEM
Wolfgang Geyer                    44    Regional Vice President - Europe/Middle East/Persian Gulf for TEM
Mak Wing Sing                     40    Regional Vice President - South Asia for TEM
Masanori Sagara                   42    Regional Vice President - North Asia for TEM
Stefan Mackula                    45    Vice President - Equipment Resale for TEM
Ernest J. Furtado                 42    Vice  President,  Finance and  Assistant  Secretary of TGH, TL, TEM, TCC and
                                        TFS, Director of TCC and TFS
Richard G. Murphy                 45    Vice President - Risk Management for TEM
Janet S. Ruggero                  49    Vice President - Administration and Marketing Services for TEM
Adnan Z. Abou Ayyash              53    Director of TGH and TL
Isam K. Kabbani                   63    Director of TGH and TL
S. Arthur Morris                  64    Director of TGH, TEM and TL
Dudley R. Cottingham              46    Assistant Secretary, Vice President and Director of TGH, TEM and TL
Cara D. Smith                     35    Member of Investment Advisory Committee
Nadine Forsman                    30    Controller of TCC, TFS and TSC
</TABLE>

          Neil I. Jowell is Director and  Chairman of TGH,  TEM, TL, TCC and TFS
and a member of the Investment  Advisory Committee (see "Committees"  below). He
has served on the Board of Trencor Ltd.  since 1966 and as Chairman  since 1973.
He is also a director of Mobile Industries, Ltd. (1969 to present), an Affiliate
of Trencor,  and a non-executive  director of Forward  Corporation Ltd. (1993 to
present).  Trencor is a publicly traded  diversified  industrial group listed on
the Johannesburg Stock Exchange. Its business is the leasing,  owning,  managing
and  financing of marine cargo  containers  worldwide  and the  manufacture  and
export of containers for international  markets.  In South Africa, it is engaged
in manufacturing, transport, trading and exports of general commodities. Trencor
also has an interest in Forward  Corporation  Ltd.,  a publicly  traded  holding
company  listed  on  the  Johannesburg  Stock  Exchange.  It  has  interests  in
industrial  and consumer  businesses  operating in South Africa and abroad.  Mr.
Jowell  became  affiliated  with the General  Partners and its  affiliates  when
Trencor became,  through its beneficial ownership in two controlled companies, a
major  shareholder of the Textainer Group in 1992. Mr. Jowell has over 36 years'
experience  in the  transportation  industry.  He holds an  M.B.A.  degree  from
Columbia University and a B.Com.L.L.B. from the University of Cape Town.

          James E. Hoelter is President and Chief  Executive  Officer of TGH and
TL, and a director of TGH,  TEM, TL, TCC,  TFS and TSC. As  President  and Chief
Executive  Officer  of TGH,  Mr.  Hoelter  is  responsible  for  overseeing  the
management  of, and  coordinating  the  activities  of, TEM, TL, TCC and TFS. In
addition,  Mr.  Hoelter is  Chairman  of the Credit  Committee,  the  Investment
Advisory  Committee and the Equipment  Investment  Committee (see  "Committees",
below).  Prior to joining the Textainer Group in 1987, Mr. Hoelter was president
of Intermodal  Equipment  Associates ("IEA"), a marine container leasing company
based in San  Francisco.  Mr.  Hoelter  co-founded IEA in 1978 and was president
from inception until 1987. From 1976 to 1978, Mr. Hoelter was vice president for
Trans Ocean Ltd., San Francisco,  a marine container  leasing company,  where he
was  responsible  for  North  America.  From 1971 to 1976,  he  worked  for Itel
Corporation,  San Francisco,  where he was director of financial leasing for the
container  division.  Mr.  Hoelter  received  his  B.B.A.  in  finance  from the
University of Wisconsin,  where he currently  serves as a member of its Business
School's Dean's Advisory Board, and his M.B.A.
from the Harvard Graduate School of Business Administration.

          John A.  Maccarone is President and CEO of TEM and TSC, Vice President
of TGH and a director of TGH,  TEM, TL, TCC, TFS and TSC. In this capacity he is
responsible  for the  performance  of  TEM's  worldwide  fleet of  marine  cargo
containers.  Additionally, he is a member of the Equipment Investment Committee,
the Credit Committee and the Investment  Advisory  Committee (see  "Committees",
below).  Mr.  Maccarone was instrumental in co-founding IEA with Mr. Hoelter and
held a variety of  executive  positions  with IEA from 1979 until 1987,  when he
joined the Textainer Group. Mr. Maccarone was previously a Director of Marketing
for Trans Ocean Leasing  Corporation  in Hong Kong with  responsibility  for all
leasing  activities in Southeast  Asia.  From 1969 to 1977, Mr.  Maccarone was a
marketing  representative  for  IBM  Corporation.  He  holds  a B.S.  degree  in
Engineering  Management  from  Boston  University  and  an  M.B.A.  from  Loyola
University of Chicago.

          John R. Rhodes is Executive Vice President,  Chief  Financial  Officer
and  Secretary of TGH,  TEM, TL, TCC and TFS and a director of TEM, TCC and TFS.
In this capacity he is responsible for all accounting, financial management, and
reporting  functions for the Textainer  Group. He is also a member of the Credit
Committee,  the Equipment Investment Committee and Investment Advisory Committee
(see  "Committees",  below).  Prior to joining  Textainer in November  1987, Mr.
Rhodes was Vice President of Finance for Greenbrier  Capital  Corporation in San
Francisco,  a trailer  leasing and management  company,  from 1986 to 1987; from
1981 to 1985, he was employed by Gelco Rail Services, an intermodal refrigerated
trailer  company in San  Francisco,  first in the capacity of Vice President and
Controller  and then as Senior Vice President and General  Manager.  Mr. Rhodes'
earlier  business  affiliations  include  serving as Vice  President and General
Manager  of Itel  Capital  Corporation  and as  senior  accountant  with  Arthur
Andersen & Co., both in San Francisco.  He is a Certified Public  Accountant and
holds a B.A. in economics from Stanford  University and an M.B.A.  in accounting
from Golden Gate University.

          Alex M. Brown is a director  of  TGH,  TEM,  TL,  TCC,  TFS  and  TSC.
Additionally,  he is a member  of the  Equipment  Investment  Committee  and the
Investment  Advisory  Committee (see  "Committees",  below). Mr. Brown is also a
director of Trencor  Ltd.  (1996 to present)  and Forward  Corporation  (1997 to
present).  Both companies are publicly traded and are listed on the Johannesburg
Stock  Exchange.  Mr. Brown became  affiliated with the Textainer Group in April
1986.  From 1987 until 1993,  he was President  and Chief  Executive  Officer of
Textainer,  Inc.  and the  Chairman of the  Textainer  Group.  Mr. Brown was the
managing  director  of Cross  County  Leasing in England  from 1984 until it was
acquired by Textainer in 1986.  From 1993 to 1997, Mr. Brown was Chief Executive
Officer  of AAF, a company  affiliated  with  Trencor  Ltd.  Mr.  Brown was also
Chairman of WACO International Corporation, based in Cleveland, Ohio until 1997.

          Harold J.  Samson is a director of TGH,  TL and TSC and is a member of
the Investment  Advisory Committee (see "Committees",  below). Mr. Samson served
as a consultant  to various  securities  firms since 1981 to 1989.  From 1974 to
1981 he was  Executive  Vice  President  of Foster & Marshall,  Inc., a New York
Stock  Exchange  member firm based in Seattle.  Mr. Samson was a director of IEA
from 1979 to 1981.  From 1957 to 1984 he served as Chief  Financial  Officer  in
several  New York Stock  Exchange  member  firms.  Mr.  Samson  holds a B.S.  in
Business  Administration  from the University of  California,  Berkeley and is a
California Certified Public Accountant.

          Philip K. Brewer is President of TCC and TFS,  Senior Vice  President 
- Capital Markets for TGH and TL. As President of TCC, Mr. Brewer is responsible
for overseeing the  management of, and  coordinating  the activities of, TCC and
TFS. As Senior Vice  President,  he is  responsible  for  optimizing the capital
structure of and identifying new sources of finance for Textainer. Mr. Brewer is
a member of the Credit  Committee,  the  Investment  Advisory  Committee and the
Equipment  Investment  Committee  (see  "Committees"  below).  Prior to  joining
Textainer  in 1996,  Mr.  Brewer  worked  at  Bankers  Trust  from 1990 to 1996,
starting  as a Vice  President  in  Corporate  Finance  and  ending as  Managing
Director  and Country  Manager  for  Indonesia;  from 1989 to 1990,  he was Vice
President in Corporate  Finance at Jarding  Fleming;  from 1987 to 1989,  he was
Capital  Markets   Advisor  to  the  United  States  Agency  for   International
Development;  and from  1984 to 1987 he was an  Associate  with  Drexel  Burnham
Lambert in New York.  Mr.  Brewer  holds an M.B.A.  in Finance from the Graduate
School of Business at Columbia University, and a B.A. in Economics and Political
Science from Colgate University.

          Robert D. Pedersen is Senior Vice  President - Marketing for TEM and a
Director  of  TEM,   responsible  for  worldwide  sales  and  marketing  related
activities.  Mr. Pedersen is a member of the Equipment  Investment Committee and
the Credit Committee (see "Committees" below). He joined TEM in 1991 as Regional
Vice President for the Americas Region. Mr. Pedersen has extensive experience in
the industry  having held a variety of  positions  with Maersk Line, a container
shipping line (from 1978 to 1984),  XTRA, a container  lessor (1985 to 1988) and
Klinge Cool, a manufacturer  of  refrigerated  container  cooling units (1989 to
1991),  where he was worldwide sales and marketing  director.  Mr. Pedersen is a
graduate of the A.P.  Moller  shipping and  transportation  program and Merkonom
Business School in Copenhagen, majoring in Company Organization.

          Anthony C. Sowry is Vice President - Operations and  Acquisitions  for
TEM. He is also a member of the Credit  Committee and the  Equipment  Investment
Committee (see  "Committees",  below).  Mr. Sowry  supervises all  international
container  operations  and  maintenance  and technical  functions for the fleets
under management.  In addition, he is responsible for the acquisition of all new
and used containers for the Textainer  Group. He began his affiliation  with TEM
in 1988 and  previously  served as Fleet Quality  Control  Manager for Textainer
Inc. from 1982 through March 1988. From 1980 to 1982, he was operations  manager
for  Trans  Container  Services  in  London;  and from  1978 to  1982,  he was a
technical  representative  for Trans Ocean Leasing,  also in London. He received
his B.A. degree in business  management from the London School of Business.  Mr.
Sowry is a member of the Technical  Committee of the International  Institute of
Container Lessors and a certified container inspector.

          Jens W.  Palludan is based in  Hackensack,  New Jersey and is Regional
Vice President - Americas/Africa/Australia for TEM, responsible for coordinating
all leasing  activities  in North and South  America,  Africa and  Australia/New
Zealand.  Mr.  Palludan spent his career from 1969 through 1992 with Maersk Line
of Copenhagen,  Denmark in a variety of key management positions in both Denmark
and  overseas.  Prior to joining TEM in 1993 Mr.  Palludan was General  Manager,
Equipment and Terminals,  where he was  responsible  for a fleet of over 200,000
TEUs.  Mr.  Palludan  holds an  M.B.A.  from  the  Centre  European  D'Education
Permanente, Fontainebleau, France.

         Wolfgang  Geyer is based  in  Hamburg,  Germany  and is  Regional  Vice
President  -  Europe/  Middle  East/  Persian  Gulf  for  TEM,  responsible  for
coordinating  all leasing  activities  in these areas of  operation.  Mr.  Geyer
joined Textainer in 1993 and was the Marketing  Director in Hamburg through July
1997. Mr. Geyer most recently was the Senior Vice President,  for Clou Container
Leasing,  responsible for Clou's leasing  activities on a worldwide  basis.  Mr.
Geyer work for Clou from 1991 to 1993.  Mr.  Geyer  spent the  remainder  of his
leasing career,  1975 through 1991,  with Itel  Container,  during which time he
held numerous positions in both operations and marketing within the company.

         Mak Wing Sing   is  based  in  Singapore  and  is  the  Regional   Vice
President - South Asia for TEM,  responsible for container leasing activities in
North/Central  People's  Republic of China, Hong Kong and South China (PRC), and
Southeast Asia. Mr. Mak most recently was the Regional Manager,  Southeast Asia,
for Trans Ocean Leasing, working there from 1994 to 1996. From 1987 to 1994, Mr.
Mak worked with Tiphook as their Regional  General  Manager,  and with OOCL from
1976 to 1987 in a  variety  of  positions,  most  recently  as  their  Logistics
Operations Manager.

          Masanori  Sagara is based in Yokohama,  Japan and is the Regional Vice
President - North Asia for TEM, responsible for Textainer's marketing activities
in Japan,  Korea,  and Taiwan.  Mr. Sagara joined  Textainer in 1990 and was the
company's  Marketing  Director in Japan through 1996.  From 1987 to 1990, he was
the Marketing  Manager with IEA. Mr. Sagara's other  experience in the container
leasing business includes marketing  management at Genstar from 1984 to 1987 and
various  container  operations  positions  with  Thoresen & Company from 1979 to
1984.  Mr.  Sagara holds a Bachelor of Science  degree in Economics  from Aoyama
Bakuin University.

          Stefan Mackula is Vice President - Equipment  Resale for TEM, in which
capacity he coordinates the worldwide sale of Equipment into secondary  markets.
Mr. Mackula also served as Vice  President  Marketing for TEM, in which capacity
he was responsible for  coordinating all leasing  activities in Europe,  Africa,
and the Middle  East.  He joined TEM in 1983 as Leasing  Manager  for the United
Kingdom. Prior to joining TEM, Mr. Mackula held, beginning in 1972, a variety of
positions in the international container shipping industry.

          Ernest J. Furtado is Vice President,  Finance and Assistant  Secretary
of TGH, TL, TEM, TCC and TFS and a Director of TCC and TFS, in which capacity he
is responsible for all accounting, financial management, and reporting functions
for TGH, TL, TEM,  TCC and TFS.  Additionally,  he is a member of the  Equipment
Investment  Committee and the Investment  Advisory  Committee (see "Committees",
below).  Prior to joining  Textainer in May 1991, Mr. Furtado was Controller for
Itel Instant Space and manager of accounting for Itel  Containers  International
Corporation,  both in San Francisco,  from 1984 to 1991. Mr.  Furtado's  earlier
business  affiliations include serving as audit manager for Wells Fargo Bank and
as senior  accountant with John F. Forbes & Co., both in San Francisco.  He is a
Certified Public Accountant and holds a B.S. in business administration from the
University of California at Berkeley and an M.B.A.  in information  systems from
Golden Gate University.

          Richard G. Murphy is Vice  President,  Risk  Management  for TEM.  Mr.
Murphy is responsible for all credit and risk  management  functions for TEM and
supervises the administrative aspects of Equipment acquisitions.  He is a member
of and acts as secretary to the Credit and Equipment Investment  Committees (see
"Committees",  below). He previously served as TEM's Director of Credit and Risk
Management from 1989 to 1991 and as Controller  from 1988 to 1989.  Prior to the
takeover of the management of the Interocean  Leasing Ltd. fleet by TEM in 1988,
Mr. Murphy held various  positions in the  accounting  and financial  areas with
that company  from 1980,  acting as Chief  Financial  Officer from 1984 to 1988.
Prior to 1980, he held various positions with firms of public accountants in the
U.K. Mr.  Murphy is an Associate of the  Institute of Chartered  Accountants  in
England  and Wales and holds a Bachelor of  Commerce  degree  from the  National
University of Ireland.

          Janet S.  Ruggero  is Vice  President,  Administration  and  Marketing
Services for TEM.  Ms.  Ruggero is  responsible  for the tracking and billing of
fleets under TEM management,  including direct  responsibility for ensuring that
all data is input in an accurate and timely  fashion.  She assists the marketing
and  operations  departments by providing  statistical  reports and analyses and
serves on the  Credit  Committee  (see  "Committees",  below).  Prior to joining
Textainer in 1986,  Ms.  Ruggero held various  positions with Gelco CTI over the
course of 15 years, the last one as Director of Marketing and Administration for
the North American Regional office in New York City. She has a B.A. in education
from Cumberland College.

          Dr.  Adnan Z. Abou Ayyash is a director of TGH and TL.  Since 1974  he
has been General Manager and Chief Executive Officer of one of the largest firms
of consulting  engineers in Saudi  Arabia,  Rashid  Engineering.  Dr. Adnan Abou
Ayyash holds a B.S. degree in Civil Engineering from the American  University of
Beirut,  as well as M.S.  and  Ph.D.  degrees  in  Civil  Engineering  from  the
University of Texas.

          Sheikh Isam K. Kabbani is a director of TGH and TL. He is Chairman and
principal  stockholder of the IKK Group,  Jeddah,  Saudi Arabia, a manufacturing
and trading group which is active both in Saudi Arabia and  internationally.  In
1959 Sheikh Isam Kabbani joined the Saudi Arabian  Ministry of Foreign  Affairs,
and in 1960 moved to the Ministry of Petroleum for a period of ten years. During
this time he was seconded to the Organization of Petroleum  Exporting  Countries
(OPEC).  After a period as Chief  Economist of OPEC, in 1967 he became the Saudi
Arabian  member of OPEC's  Board of  Governors.  In 1970 he left the ministry of
Petroleum to establish his own business, the National Marketing Group, which has
been his principal business activity for the past 18 years. Sheikh Kabbani holds
a B.A.  degree from  Swarthmore  College,  Pennsylvania,  and an M.A.  degree in
Economics and International Relations from Columbia University.

          S. Arthur  Morris is a director  of TGH,  TEM and TL. He is a founding
partner in the firm of Morris and Kempe,  Chartered Accountants  (1962-1977) and
currently  functions  as a  correspondent  member of a number  of  international
accounting  firms through his firm Arthur Morris and Company (1978 to date).  He
is also President and director of Continental Management Limited (1977 to date).
Continental  Management Limited is a Bermuda corporation that provides corporate
representation,   administration  and  management  services  and  corporate  and
individual  trust  administration   services.  Mr.  Morris  has  over  30  years
experience in public  accounting and serves on numerous  business and charitable
organizations  in the Cayman  Islands and Turks and Caicos  Islands.  Mr. Morris
became a director of TL and TGH in 1993, and TEM in 1994.

          Dudley R.  Cottingham  is Assistant  Secretary,  Vice  President and a
director  of TGH,  TEM and TL. He is a partner  with  Arthur  Morris and Company
(1977 to date) and a Vice  President  and  director  of  Continental  Management
Limited (1978 to date), both in the Cayman Islands and Turks and Caicos Islands.
Continental  Management Limited is a Bermuda corporation that provides corporate
representation,   administration  and  management  services  and  corporate  and
individual  trust  administration  services.  Mr.  Cottingham  has over 20 years
experience  in  public   accounting  with   responsibility   for  a  variety  of
international and local clients.  Mr. Cottingham became a director of TL and TGH
in 1993, and TEM in 1994.

          Cara D. Smith is a member of the Investment  Advisory  Committee  (see
"Committees", below). Ms. Smith was the President and Chief Executive Officer of
TSC through  June 1997 and a director of TCC and TFS through  August  1997.  Ms.
Smith  joined  Textainer  in 1992,  and  prior to 1996,  was Vice  President  of
Marketing.  Ms.  Smith has  worked in the  securities  industry  for the past 13
years.  Ms. Smith's  extensive  experience  ranges from  compliance and investor
relations to  administration  and marketing of equipment  leasing,  multi-family
housing and tax credit investment  programs.  She holds five securities licenses
and is a registered  principal.  Ms. Smith is also a member of the International
Association of Financial Planners.

         Nadine  Forsman is the Controller of TCC, TFS and TSC. In this capacity
she is responsible for accounting,  financial management and reporting functions
for TCC, TFS and TSC as well as overseeing all  communications  with the Limited
Partners and as such, supervises personnel in performing this function. She is a
member  of the  Equipment  Investment  Committee  and  the  Investment  Advisory
Committee (See "Committees"  below).  Prior to joining Textainer in August 1996,
Ms. Forsman was employed by KPMG Peat Marwick LLP,  holding  various  positions,
the most recent of which was manager, from 1990 to 1996. Ms Forsman holds a B.S.
in  Accounting  and Finance  from San  Francisco  State  University  and holds a
financial and operations principal securities license.

Committees

          The Managing  General  Partner has  established  the  following  three
committees to facilitate decisions involving credit and organizational  matters,
negotiations,  documentation,  management and final disposition of Equipment for
the Partnership and for other programs organized by the Textainer Group:

          Equipment  Investment  Committee.  The Equipment  Investment Committee
will review the Equipment leasing programs of the Partnership on a regular basis
with emphasis on matters involving Equipment purchases, the Equipment mix in the
Partnership's  portfolio,  Equipment remarketing issues, and decisions regarding
ultimate  disposition  of  Equipment.  The members of the committee are James E.
Hoelter (Chairman), John A. Maccarone, John R. Rhodes, Anthony C. Sowry, Richard
G. Murphy  (Secretary),  Alex M. Brown,  Philip K. Brewer,  Robert D.  Pedersen,
Ernest J. Furtado and Nadine Forsman.

          Credit  Committee.  The Credit Committee will establish credit  limits
for every lessee and potential lessee of Equipment and periodically review these
limits. In setting such limits,  the Credit Committee will consider such factors
as customer trade routes,  country,  political risk, operational history, credit
references, credit agency analyses, financial statements, and other information.
The members of the Credit  Committee  are James E. Hoelter  (Chairman),  John A.
Maccarone,  Richard G. Murphy  (Secretary),  Janet S.  Ruggero,  John R. Rhodes,
Anthony C. Sowry , Philip K. Brewer and Robert D. Pedersen.

          Investment  Advisory  Committee.  The  Investment  Advisory  Committee
will  review  investor  program  operations  on  at  least  a  quarterly  basis,
emphasizing  matters  related  to cash  distributions  to  investors,  cash flow
management,  portfolio  management,  and  liquidation.  The Investment  Advisory
Committee is organized  with a view to applying an  interdisciplinary  approach,
involving management,  financial, legal and marketing expertise, to the analysis
of investor program operations. The members of the Investment Advisory Committee
are James E. Hoelter  (Chairman),  John A. Maccarone,  Cara D. Smith,  Ernest J.
Furtado (Secretary), Philip K. Brewer, John R. Rhodes, Nadine Forsman, Harold J.
Samson, Alex M. Brown and Neil I. Jowell.


ITEM 11 - EXECUTIVE COMPENSATION

The Registrant  has no executive  officers and does not reimburse TFS, TEM or TL
for the  remuneration  payable  to their  executive  officers.  For  information
regarding  reimbursements  made by the Registrant to the General  Partners,  see
Note 2 of the Financial Statements.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

a)        Security Ownership of Certain Beneficial Owners

          There is no person or "Group" who is known to the Registrant to be the
          beneficial owner of more than five percent of the outstanding units of
          limited partnership investment of the Registrant.

b)        Security Ownership of Management

          As of January 1, 1998:
                                                           Number
          Name of Beneficial Owner                        Of Units    %All Units

          James E. Hoelter....................             2,500        0.0405%
          John R. Rhodes......................               280        0.0045%
          Anthony C. Sowry....................               274        0.0044%
          John A. Maccarone...................             2,520        0.0409%
          Harold J. Samson....................             2,500        0.0405%
                                                       ---------        -------

          Officers and Management
             as a Group.......................             8,074        0.1308%
                                                       =========        =======

c)       Changes in control

         Inapplicable

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                             (Amounts in thousands)

(a)      Transactions with Management and Others.

          At  December  31,  1997 and  1996,  net due from  (to)  affiliates  is
          comprised of:

                                                               1997         1996
                                                               ----         ----
          Due from affiliates:
            Due from TEM.................................... $  297      $   27
                                                              -----         ----

          Due to affiliates:
            Due to TAS......................................     42           -
            Due to TFS......................................     48          52
            Due to TL.......................................      1           1
            Due to TCC......................................     15          26
                                                              -----         ----
                                                                106          79
                                                              -----         ----

          Due from (to) affiliates, net                      $  191      $  (52)
                                                              =====       ======

         These amounts  receivable  from and payable to affiliates were incurred
         in the  ordinary  course of business  between the  Partnership  and its
         affiliates and represent timing  differences in the accrual and payment
         of expenses  and fees or in the accrual  and  remittance  of net rental
         revenues from TEM.

         In addition,  the Registrant paid or will pay the following  amounts to
         the General Partners or TAS:

         Acquisition fees in connection with the purchase of Equipment on behalf
of the Registrant:
<TABLE>
<CAPTION>

                                                                     1997           1996             1995
                                                                     ----           ----             ----

<S>                                                             <C>            <C>              <C>      
                    TAS.................................        $     216      $     156        $     480
                                                                   ======        =======          =======


         Management fees in connection with the operations of the Registrant:

                                                                     1997           1996             1995
                                                                     ----           ----             ----

                    TFS                                         $     375      $     376        $     372
                    TEM and TSS                                     1,443          1,590            1,706
                                                                    -----          -----            -----
                    Total                                       $   1,818      $   1,966        $   2,078
                                                                    =====          =====            =====

         Reimbursement  for  administrative  costs  in  connection  with  of the
operations of the Registrant:

                                                                     1997           1996             1995
                                                                     ----           ----             ----

                    TFS                                         $     133      $     150        $     226
                    TEM and TSS                                     1,020          1,011            1,326
                                                                    -----          -----            -----
                    Total                                       $   1,153      $   1,161        $   1,552
                                                                    =====          =====            =====
</TABLE>

(b)      Certain Business Relationships.

         Inapplicable.

(c)      Indebtedness of Management

         Inapplicable.

(d)      Transactions with Promoters

         Inapplicable.

See  the  "Management"  and   "Compensation  of  Affiliates"   sections  of  the
Registrant's  Prospectus,  as  supplemented,  and  the  Notes  to the  Financial
Statements in Item 8.


                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)      1.       Audited financial statements of the Registrant  for  the  year
                  ended  December  31,  1997  are  contained  in  Item 8 of this
                  Report.

         2.       Financial Statement Schedules.

                  (i)      Independent   Auditors'   Report   on   Supplementary
                           Schedule.

                  (ii)     Schedule II - Valuation and Qualifying Accounts.

         3.       Exhibits Incorporated by reference.

                  (i)      The   Registrant's   Prospectus   as   contained   in
                           Pre-Effective  Amendment  No.  2 to the  Registrant's
                           Registration Statement (No. 33-36255),  as filed with
                           the  Commission on December 21, 1990 as  supplemented
                           by  Post-Effective  Amendments  No.  1, 2 and 3 filed
                           with  the  Commission  under  Section  8 (c)  of  the
                           Securities Act of 1933 on March 1, 1991,  January 13,
                           1992 and February 4, 1992, respectively.

                  (ii) The Registrant's limited partnership agreement, Exhibit A
                       to the Prospectus.

(b) During the year  ended  1997,  no reports on Form 8-K have been filed by the
    Registrant.



<PAGE>









             Independent Auditors' Report on Supplementary Schedule







The Partners
Textainer Equipment Income Fund III, L.P.:

Under the date of February  18,  1998,  we  reported  on the  balance  sheets of
Textainer  Equipment Income Fund III, L.P. (the  Partnership) as of December 31,
1997 and 1996 and the related statements of earnings, partners' capital and cash
flows for each of the years in the  three-year  period ended  December 31, 1997,
which are included in the 1997 annual report on Form 10-K.  In  connection  with
our audits of the  aforementioned  financial  statements,  we also  audited  the
related  financial  statement  schedule  as  listed in Item 14.  This  financial
statement  schedule is the responsibility of the Partnership's  management.  Our
responsibility  is to express an opinion on this  financial  statement  schedule
based on our audits.

In our  opinion,  such  schedule,  when  considered  in  relation  to the  basic
financial  statements  taken  as a  whole,  presents  fairly,  in  all  material
respects, the information set forth therein.



                              KPMG Peat Marwick LLP




San Francisco, California
February 18, 1998


<PAGE>



                    TEXTAINER EQUIPMENT INCOME FUND III, L.P.
                       (a California Limited Partnership)

                 Schedule II - Valuation and Qualifying Accounts

                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                             Charged                                       Balance
                                           Balance at       to Costs         Charged                        at End
                                            Beginning            and        to Other                          of
                                            of Period       Expenses        Accounts       Deduction        Period


<S>                                        <C>             <C>             <C>            <C>
For the year ended December 31, 1997:

Allowance for
  doubtful accounts                          $  1,616        $   166     $        -         $  (248)       $  1,534
                                             --------        -------     -----------        --------       --------

Recovery cost reserve                        $     71        $   244     $        -         $  (196)       $    119
                                             --------        -------     -----------        --------       --------

Damage protection
  plan reserve                               $    422        $   303     $        -         $  (374)       $    351
                                             --------        -------     -----------        --------       --------



For the year ended December 31, 1996

Allowance for
  doubtful accounts                          $  1,516        $   254     $        -         $  (154)       $  1,616
                                             --------        -------     -----------        --------       --------

Recovery cost reserve                        $      6        $   225     $        -         $  (160)       $     71
                                             --------        -------     -----------        --------       --------

Damage protection
  plan reserve                               $    373        $   411     $        -         $  (362)       $    422
                                             --------        -------     -----------        --------       --------



For the year ended December 31, 1995:

Allowance for doubtful accounts              $  1,466        $    554    $       -         $  (504)        $  1,516
                                             --------        --------    -----------       --------        --------

Recovery cost reserve                        $      4        $    194    $       -         $  (192)        $      6
                                             --------        --------    -----------       --------        --------

Damage protection plan reserve               $    369        $    282    $       -         $  (278)        $    373
                                             --------        --------    -----------       --------        --------



</TABLE>

<PAGE>





                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                     TEXTAINER EQUIPMENT INCOME FUND III, L.P.
                                     A California Limited Partnership

                                     By Textainer Financial Services Corporation
                                     The Managing General Partner

                                     By_________________________________
                                        John R. Rhodes
                                        Executive Vice President

Date:  March 26, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer  Financial
Services  Corporation,  the managing  general partner of the Registrant,  in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>

Signature                                        Title                                        Date



<S>                                              <C>                                         <C>
_________________________________                Executive   Vice President                   March 26, 1998
John R. Rhodes                                   (Principal Financial and
                                                 Accounting Officer) and
                                                 Secretary


_________________________________                President(Principal Executive                March 26, 1998
Philip K. Brewer                                 Officer)


_________________________________                Vice President Finance,                      March 26, 1998
Ernest J. Furtado                                Assistant Secretary and Director


_________________________________                Director                                     March 26, 1998
James E. Hoelter


_________________________________                Director                                     March 26, 1998
John A. Maccarone


</TABLE>
<PAGE>



                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                     TEXTAINER EQUIPMENT INCOME FUND III, L.P.
                                     A California Limited Partnership

                                     By Textainer Financial Services Corporation
                                     The Managing General Partner

                                     By /s/John R. Rhodes
                                        _________________________________
                                         John R. Rhodes
                                         Executive Vice President

Date: March 26, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer  Financial
Services  Corporation,  the managing  general partner of the Registrant,  in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>

Signature                                        Title                                        Date



<S>                                              <C>                                         <C>
/s/ John R. Rhodes                               Executive Vice President                     March 26, 1998
_________________________________                (Principal Financial and
John R. Rhodes                                   Accounting Officer) and
                                                 Secretary

/s/ Philip K. Brewer                             President (Principal Executive               March 26, 1998
_________________________________                Officer)
Philip K. Brewer                                 


/s/ Ernest J. Furtado                            Vice President Finance,                      March 26, 1998
_________________________________                Assistant Secretary and Director
Ernest J. Furtado                                


/s/ James E. Hoelter                             Director                                     March 26, 1998
_________________________________
James E. Hoelter


/s/ John A. Maccarone                            Director                                     March 26, 1998
_________________________________
John A. Maccarone

</TABLE>