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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-K

  X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
-----   ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended December 31, 1996       Commission File Number 0-16615


                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

           California                                    68-0062480
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


2401 Kerner Boulevard, San Rafael, California             94901-5527
--------------------------------------------------------------------------------
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code:     (415) 485-4500
                                                        --------------

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

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

Indicate by check mark 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. __________

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.

                              Yes _X_    No ___

As of December 31, 1996,  516,716  Units of Limited  Partnership  interest  were
outstanding.  No  market  exists  for the  Units  of  Partnership  interest  and
therefore there exists no aggregate market value at December 31, 1996.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE


<PAGE>


                                                                    Page 2 of 35




                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          1996 FORM 10-K ANNUAL REPORT


                                TABLE OF CONTENTS


                                                                           Page

                                     PART I

Item 1.       Business...............................................        3
Item 2.       Properties.............................................        6
Item 3.       Legal Proceedings......................................        6
Item 4.       Submission of Matters to a Vote of Security Holders....        6

                                     PART II

Item 5.       Market for the Registrant's Securities and Related
              Security Holder Matters................................        7
Item 6.       Selected Financial Data................................        7
Item 7.       Management's Discussion and Analysis of Financial
              Condition and Results of Operations....................        8
Item 8.       Financial Statements and Supplementary Data............       11
Item 9.       Disagreements on Accounting and Financial
              Disclosure Matters.....................................       31


                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.....       31
Item 11.      Executive Compensation.................................       32
Item 12.      Security Ownership of Certain Beneficial Owners and
              Management.............................................       32
Item 13.      Certain Relationships and Related Transactions.........       33


                                     PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on
              Form 8-K...............................................       33

Signatures...........................................................       34



<PAGE>


                                                                    Page 3 of 35


                                     PART I

Item 1.       Business.

General Development of Business.

         Phoenix  Leasing  Cash  Distribution  Fund III,  a  California  limited
partnership (the  Partnership),  was organized on June 29, 1987. The Partnership
was registered  with the Securities  and Exchange  Commission  with an effective
date of January 5, 1988 and shall continue to operate until its termination date
unless dissolved  sooner due to the sale of  substantially  all of the assets of
the  Partnership  or a vote  of  the  Limited  Partners.  The  Partnership  will
terminate  on  December  31,  1998.  The  General  Partner  is  Phoenix  Leasing
Incorporated,  a California  corporation.  The General Partner or its affiliates
also is or has been a general  partner in  several  other  limited  partnerships
formed to invest in capital equipment and other assets.

         The  initial   public   offering  was  for  400,000  units  of  limited
partnership  interest  at a price of $250 per unit with an option of  increasing
the public  offering  up to a maximum of 600,000  units.  The  Partnership  sold
528,151 units for a total  capitalization  of $132,037,750.  The public offering
terminated on December 31, 1990. Of the proceeds  received through the offering,
the  Partnership  has  incurred   $17,240,775  in  organizational  and  offering
expenses.

         Phoenix  Black Rock Cable J.V. is a majority  owned  subsidiary  of the
Partnership.  The  Subsidiary was formed under the laws of California on January
10,  1992 to own and operate a cable  television  system in the states of Nevada
and California. Phoenix Concept Cablevision of Indiana, L.L.C. is a wholly-owned
subsidiary  of the  Partnership.  The  Subsidiary  was formed  under the laws of
California on February 2, 1996 to own and operate a cable  television  system in
the state of Indiana.  Phoenix  Grassroots  Cable Systems,  L.L.C. is a majority
owned subsidiary of the Partnership. The Subsidiary was formed under the laws of
California on February 14, 1996 to own and operate a cable television  system in
the  states  of  Maine  and  New  Hampshire.   Hereinafter  these  entities  are
collectively referred to as "the Partnership."

Narrative Description of Business.

         The  Partnership  conducts  its  business  in  two  business  segments:
Equipment  Leasing  and  Financing  Operations,   and  Cable  Television  System
Operations. A discussion of these two segments follows:

Equipment Leasing and Financing Operations.

         From the initial  formation  of the  Partnership  through  December 31,
1996,  the total  investments  in equipment  leases and  financing  transactions
(loans),  including the  Partnership's  pro rata interest in investments made by
joint  ventures,  approximate  $219,986,000.  The average  initial  firm term of
contractual  payments from equipment subject to lease was 38.56 months,  and the
average  initial  net  monthly  payment  rate as a  percentage  of the  original
purchase price was 2.52%. The average initial firm term of contractual  payments
from loans was 58.38 months.

         The  Partnership's  principal  objective is to produce cash flow to the
investors on a  continuing  basis over the life of the  Partnership.  To achieve
this  objective,  the  Partnership  has  invested  in  various  types of capital
equipment and other assets to provide  leasing or financing of the same to third
parties, including Fortune 1000 companies and their subsidiaries,  middle-market
companies,  emerging growth  companies,  cable  television  system operators and
others,  on either a long-term or short-term  basis. The types of equipment that
the  Partnership  will invest in will include,  but is not limited to,  computer
peripherals, terminal systems, small computer systems, communications equipment,
IBM mainframes,  IBM-software compatible mainframes, office systems, CAE/CAD/CAM
equipment,  telecommunications  equipment,  cable television equipment,  medical
equipment, production and manufacturing equipment and software products.

         The Partnership has acquired  equipment  pursuant to either "Operating"
leases or  "Financing"  leases.  At December 31, 1996,  the remaining  equipment
owned by the Partnership was classified as Operating leases. The Partnership has
also provided and intends to provide  financing secured by assets in the form of
notes receivable.  Operating leases are generally  short-term leases under which
the lessor will receive aggregate rental payments in an amount that is less than
the purchase  price of the  equipment.  Financing  leases were  generally  for a
longer  term under  which the  non-cancellable  rental  payments  due during the
initial term of the lease were at least sufficient to recover the purchase price
of the  equipment.  A  significant  portion of the net offering  proceeds to the
Partnership has been invested in capital equipment subject to Operating leases.



<PAGE>


                                                                    Page 4 of 35


         The Partnership  has made secured loans to emerging  growth  companies,
security  monitoring  companies,  cable television systems and other businesses.
These loans are asset-based and the Partnership  receives a security interest in
the assets financed.

         The  Partnership's  financing  activities have been concentrated in the
cable television  industry.  The Partnership has made secured loans to operators
of cable  television  systems for the  acquisition,  refinancing,  construction,
upgrade and extension of such systems located  throughout the United States. The
loans  to  cable  television  system  operators  are  secured  by  a  senior  or
subordinated  interest  in  the  assets  of the  cable  television  system,  its
franchise  agreements,  subscriber lists,  material  contracts and other related
assets. In some cases the Partnership has also received personal guarantees from
the owners of the systems.

         Several  of  the  cable   television   system  operators  to  whom  the
Partnership provided financing have experienced  financial  difficulties.  These
difficulties are believed to have been caused by several factors.  Some of these
factors are: a significant  reduction in the availability of debt from banks and
other  financial   institutions  to  finance  the  acquisition  and  operations,
uncertainties  related to future  government  regulation in the cable television
industry and the economic  recession in the United  States.  These  factors have
resulted in a  significant  decline in the demand for the  acquisition  of cable
systems and have further  caused an overall  decrease in the value of many cable
television  systems.  As a result of the above, many of the Partnership's  notes
receivable from cable television  system  operators have gone into default.  The
result is that the Partnership has not received scheduled  payments,  has had to
grant loan extensions, has experienced an increase in legal and collection costs
and in some cases,  has had to foreclose  on the cable  television  system.  The
impact of this has been a decrease  in the overall  return on the  Partnership's
investments in such notes.

         The  Partnership  has obtained an ownership  interest in several  cable
system joint ventures that it obtained through foreclosure.  These cable systems
currently  generate a positive monthly cash flow and provided cash distributions
to the  Partnership  during  1996 and 1995.  The cable  systems  are managed and
operated by an affiliate of the General Partner. Upon foreclosure, the assets of
the cable television system were booked at the lower of the  Partnership's  cost
(the  carrying  value of the  note) or the  estimated  fair  value of the  cable
television system.

         Competition.  The General Partner has  concentrated  the  Partnership's
activities in the equipment leasing and financing industry, an area in which the
General  Partner has  developed an  expertise.  The computer  equipment  leasing
industry is  extremely  competitive.  The  Partnership  competes  with many well
established   companies  having   substantially   greater  financial  resources.
Competitive  factors include  pricing,  technological  innovation and methods of
financing (including use of various short-term and long-term financing plans, as
well as the  outright  purchase of  equipment).  Generally,  the impact of these
factors to the  Partnership  would be the  realization  of  increased  equipment
remarketing and storage costs, as well as lower residuals received from the sale
or remarketing of such equipment.

Cable Television Systems Operations.

         The Partnership's subsidiaries,  Phoenix Black Rock Cable J.V., Phoenix
Concept  Cablevision of Indiana,  L.L.C.  and Phoenix  Grassroots Cable Systems,
L.L.C., are in the cable television system business segment of the Partnership's
operations.

         During the year ended  December  31,  1996,  the  Partnership  acquired
through foreclosure two cable television systems. Phoenix Concept Cablevision of
Indiana,  L.L.C. and Phoenix Grassroots Cable Systems, L.L.C. were formed to own
and operate these cable television systems.

         Phoenix  Concept   Cablevision  of  Indiana,   L.L.C.,  a  wholly-owned
subsidiary of the Partnership,  owns a cable  television  system in the state of
Indiana that was acquired through  foreclosure on a defaulted note receivable to
the Partnership on February 2, 1996. The net carrying value of the Partnership's
share of this defaulted note receivable was approximately $4,321,000,  which was
exchanged for a 100% ownership interest in this limited liability company.

         The cable  television  system owned by Phoenix  Concept  Cablevision of
Indiana, L.L.C. is located in the counties of Benton, Parke, Greene, Montgomery,
Putnam,  Boone,  Hendricks,  Clinton,  Hamilton,  and  Madison  in the  state of
Indiana. The cable television system consists of headend equipment and 166 miles
of plant passing approximately 9,449 homes with approximately 5,462 subscribers.
The Subsidiary operates under non-exclusive franchise agreements with several of
these counties and with communities located within these counties.

         Phoenix  Grassroots Cable Systems,  L.L.C., a majority owned subsidiary
of the  Partnership,  was  acquired  through  foreclosure  on a  defaulted  note
receivable  on February 14, 1996.  The net carrying  value of the  Partnership's
<PAGE>


                                                                    Page 5 of 35

share of this defaulted note receivable was approximately $9 million,  which was
exchanged for a 98.5% ownership interest in this limited liability  company.  On
August 30, 1996,  Phoenix  Grassroots Cable Systems,  L.L.C. sold all the assets
used in the operation of the cable television system,  receiving net proceeds of
approximately $8.9 million,  recognizing a gain on the sale of the assets of the
cable  television  system  of  $162,000.  As a result  of the sale of the  cable
television system's assets, the Subsidiary ceased operations.

         The cable television system owned by Phoenix  Grassroots Cable Systems,
L.L.C. was located in the states of Maine in the counties of Franklin,  Hancock,
Kennebec,  Knox,  Oxford and  Penobscot  and the state of New  Hampshire  in the
counties of Carroll, Coos, Grafton, Merrimack, Strafford and Sullivan. The cable
television  system consisted of headend Equipment and 676 miles of plant passing
approximately 12,429 homes with approximately 7,197 subscribers.  The Subsidiary
operated under non-exclusive franchise agreements with several of these counties
and with communities located within these counties.

         Phoenix Black Rock Cable J.V., a  majority-owned  subsidiary  which was
formed on January 10, 1992,  sold all of its assets used in the operation of the
cable television system on January 17, 1996, receiving proceeds from the sale of
the assets of the cable system of $2.6  million,  recognizing a gain on the sale
of these assets of $1.2 million. As a result of the sale of the cable television
system's assets, the Subsidiary ceased operations.

         Phoenix Black Rock Cable J.V.  owned a cable  television  system in the
states of Nevada and  California  that was  acquired  through  foreclosure  on a
defaulted  note  receivable  to the  Partnership  on January 10,  1992.  The net
carrying value of the Partnership's share of this defaulted notes receivable was
approximately $1.6 million, which was exchanged for an 81.22% ownership interest
in this joint venture.

         The cable television  system owned by Phoenix Black Rock Cable J.V. was
located  in the  counties  of Clark and Nye in the  state of  Nevada  and in the
county of Inyo in the state of California. The cable television system consisted
of  headend  equipment  in  five  locations  and  156  miles  of  plant  passing
approximately  2,900  homes  and  approximately  1,820  cable  subscribers.  The
Subsidiary's cable television system served the communities of Pahrumph,  Beatty
and Blue  Diamond  in Nevada  and Cow Creek and  Grapevine  in  California.  The
Subsidiary operated under one non-exclusive  franchise agreement with the county
of Nye in Nevada and a National Park Permit for Death Valley, California.

         Phoenix  Cable  Management  Inc.  (PCMI),  an  affiliate of the General
Partner,  provides  day  to day  management  services  in  connection  with  the
operation of the cable television systems.

         Cable  television  systems receive signals  transmitted by nearby radio
and television  broadcast  stations,  microwave relay systems and communications
satellites  and distribute  the signals to  subscribers  via coaxial cable.  The
subscribers pay a monthly fee to the cable television  system for such services.
Cable television  companies  operate under a non-exclusive  franchise  agreement
granted by each local government authority.  As part of the franchise agreement,
the  franchisee  typically pays a portion of the gross revenues of the system to
the local government.

         The  Partnership  intends to own and operate the remaining cable system
until market conditions would enable a sale at acceptable terms. Any excess cash
generated  from  operations  of the cable  system will be used for  upgrades and
improvements to the system in order to maximize the value of the system.

         Competition.  The Partnership's  cable operations compete with numerous
other  companies  with far  greater  financial  resources.  In  addition,  cable
television  franchises are typically  non-exclusive and the Partnership could be
directly  competing with other cable television  systems.  Cable television also
competes  with  conventional   over-the-air   broadcast  television  and  direct
broadcast satellite  transmission.  Future  technological  developments may also
provide additional competitive factors.

         The Telecommunications Bill which was passed allows telephone companies
to enter  into  the  cable  television  business  and  vice-versa.  Large  cable
television  systems  that have  upgraded  their  systems  with fiber and two way
capabilities  may find themselves  getting a piece of the much larger  telephone
revenue.  For the  smaller  rural  cable  systems,  such as  those  owned by the
Partnership or through  investments in joint  ventures,  it is unlikely that the
Partnership will enter into telephone services nor will the telephone  companies
try to  seek  our  customers  in the  near  future.  The  systems  owned  by the
Partnership  are too small and not dense  enough to pay for the large  amount of
capital expenditures needed for these services.

         A  favorable  part of the  bill is that  small  cable  systems  will be
immediately deregulated from most regulations and that the definition of a small
cable operator is under 600,000 subscribers.  This will allow small operators to
raise rates if needed,  and eliminate the need to provide franchise  authorities
with costly  rate  filings  and  justifications.  The bill also allows the local
<PAGE>


                                                                    Page 6 of 35

telephone companies to buy out small cable operators in their own region as well
as to joint venture with small cable operators. During 1995, the General Partner
observed a renewed market  interest in small cable systems.  The final impact of
the Telecommunications Bill will not be known fully until a technical rewrite is
completed and all the legal challenges have been made.

         Please  see  Note  15 in the  Partnership's  financial  statements  for
financial information about the Partnership's business segments.

Other.

         A brief  description of the type of assets in which the Partnership has
invested as of December 31, 1996, together with information  concerning the uses
of assets is set forth in Item 2.


Item 2.       Properties.

Equipment Leasing and Financing Operations.

         The  Partnership  is engaged in the  equipment  leasing  and  financing
industry.  The primary  assets held by the  Partnership  are its  investments in
leases and loans, either directly or through its investments in joint ventures.

         As of  December  31,  1996,  the  Partnership  owns  equipment  and has
outstanding  loans to borrowers with an aggregate  original cost of $16,007,000.
The  equipment  and loans have been made to  customers  located  throughout  the
United States.  The following  table  summarizes the type of equipment  owned or
financed by the Partnership,  including its pro rata interest in joint ventures,
at December 31, 1996.

                                                                   Percentage of
                    Asset Types                 Purchase Price(1)   Total Assets
                    -----------                 -----------------   ------------
                                               (Amounts in Thousands)

Computer Peripherals                                $ 6,848              43%
Computer Mainframes                                   5,654              35
Reproduction Equipment                                1,223               8
Financing Related to Cable Television Systems and
  Other Media                                           813               5
Capital Equipment Leased to Emerging Growth Companies   575               3
Small Computer Systems                                  401               3
Telecommunications Equipment                            367               2
Miscellaneous                                           126               1
                                                    -------           -----

TOTAL                                               $16,007             100%
                                                    =======           =====

(1) These amounts include the Partnership's pro rata interest in equipment joint
    ventures of $887,000, and original cost of outstanding loans of $813,000  at
    December 31, 1996.

Cable Television System Operations.

     The  Subsidiaries'  principal  plants and  property  consist of  electronic
headend  equipment and its plant (cable).  The headends are located on land that
is owned or leased by the Subsidiaries.


Item 3.       Legal Proceedings.

         The   Registrant  is  not  a  party  to  any  material   pending  legal
proceedings.

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

         No matters were  submitted to a vote of limited  partners,  through the
solicitation of proxies or otherwise, during the year covered by this report.
<PAGE>


                                                                    Page 7 of 35

                                     PART II


Item 5.       Market for the Registrant's Securities and Related Security Holder
              Matters.

         (a)  The Registrant's  limited  partnership  interests are not publicly
              traded.   There  is  no  market  for  the   Registrant's   limited
              partnership interests and it is unlikely that any will develop.

         (b)  Approximate Number of Equity Security Investments:

                                                          Number of Unit Holders
                        Title of Class                   as of December 31, 1996
              ----------------------------------         -----------------------

              Limited Partners                                     12,592


Item 6.       Selected Financial Data.
<TABLE>
<CAPTION>
                                                 1996 (1)      1995 (1)     1994 (1)        1993           1992
                                                 --------      --------     --------        ----           ----
                                                       (Amounts in Thousands Except for Per Unit Amounts)
<S>                                             <C>           <C>           <C>           <C>           <C>
Total Income                                    $  7,075      $  5,109      $  7,697      $ 15,345      $ 25,221

Net Income (Loss)                                  4,542         3,800           945           194        (7,118)

Total Assets                                      20,991        20,381        24,322        32,435        58,644

Long-term Debt Obligations                          --            --            --            --           1,479

Distributions to Partners                          1,954         7,751         7,751        18,886        18,323

Net Income (Loss) per Limited Partnership
   Unit                                             8.70          7.28           .85          --          (13.53)

Distributions per Limited Partnership Unit          3.78         15.00         15.00         36.43         35.17

(1) The 1996,  1995 and 1994 amounts  reflect the  consolidated  activity of the Partnership and its subsidiaries.
</TABLE>

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


<PAGE>


                                                                    Page 8 of 35


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


Results of Operations

         Phoenix  Leasing  Cash  Distribution  Fund III,  a  California  limited
partnership,   and  Subsidiaries  (the  Partnership)   reported  net  income  of
$4,542,000 during the year ended December 31, 1996, as compared to net income of
$3,800,000 and $945,000 during 1995 and 1994,  respectively.  The improvement in
earnings is attributable to a significant  increase in cable subscriber revenues
and a gain on sale of assets of cable  systems for the year ended  December  31,
1996. The increase in net income during 1995, as compared to 1994, was primarily
attributable  to the  recognition,  as income,  the recovery of a portion of the
allowance for loan losses.

         Total revenues  increased by $1,966,000 for the year ended December 31,
1996, as compared to the previous year, but decreased by $2,588,000 during 1995,
compared to 1994. The increase in total revenues for the year ended December 31,
1996 is a result of an increase  in  subscriber  revenues  and a gain on sale of
assets of cable systems.  The increase in subscriber  revenues of $2,438,000 for
the year ended  December 31, 1996,  compared to 1995,  is due to the addition of
two new cable systems during 1996.

         The gain on sale of the  assets  of the  cable  television  systems  of
$1,347,000 for the year ended December 31, 1996, includes the sale of the assets
of the cable  television  system  owned by  Phoenix  Black Rock  Cable  J.V.,  a
majority owned subsidiary of the Partnership. On January 17, 1996, Phoenix Black
Rock Cable J.V. sold the assets of its cable television system for $2.6 million,
recognizing a gain on sale of $1,185,000.  The gain on sale of the assets of the
cable  television  systems  also  includes  the  sale of the  assets  of a cable
television system owned by Phoenix Grassroots Cable Systems,  L.L.C., a majority
owned  subsidiary  of  the  Partnership.   This  cable  television   system  was
transferred  to the  Partnership on February  14,1996.  On August  30,1996,  the
Partnership  subsequently  sold the assets of the cable system  recording  sales
proceeds of $8.9 million and a net gain on sale of $162,000.  As a result of the
sale of the assets,  Phoenix Black Rock Cable J.V. and Phoenix  Grassroots Cable
System, L.L.C. ceased operations.

         In February of 1996, the  Partnership  entered into agreements with two
cable  television  system  operators  to transfer all of the assets of the cable
television  systems in  satisfaction  of defaulted  notes  receivable from these
cable television system operators to newly formed limited  liability  companies,
Phoenix Concept  Cablevision of Indiana,  L.L.C.  and Phoenix  Grassroots  Cable
Systems,  L.L.C. The assets received through  foreclosure  generally  consist of
headend equipment,  cable plant, franchise agreements,  subscriber lists, leased
property,  land, tools,  vehicles and miscellaneous  other assets. The assets of
Phoenix Grassroots Cable Systems,  L.L.C. was subsequently sold during 1996. The
Partnership plans to continue to operate the remaining cable television  system,
Phoenix Concept Cablevision of Indiana, L.L.C.

         The  Partnership  reduced the  allowance  for loan losses by $2,035,000
during the year ended  December  31,  1996 as a result of the  foreclosure  of a
cable television  system, in which the Partnership had extended credit.  The net
carrying value,  before allowance for loan losses,  for this note receivable was
carried over to the basis of the cable television system.  This reduction in the
allowance for loan losses was recognized as income during 1996.

         In part,  the increase in total revenues from the gain on sale of cable
systems and the increase in cable subscriber  revenue  experienced  during 1996,
compared to 1995,  is offset by a decline in rental  income of  $1,332,000.  The
decline in rental  income of  $2,572,000  for the year ended  December 31, 1995,
compared to 1994,  was the primary factor  contributing  to the decline in total
revenues for that year. The reduction in rental income for both 1996 and 1995 is
attributable to a decrease in the amount of equipment owned by the  Partnership.
At  December  31,  1996,  the  Partnership   owned   equipment,   excluding  the
Partnership's  pro rata interest in joint ventures,  with an aggregate  original
cost of $14.3  million,  compared to $20.4 million and $48.6 million at December
31, 1995 and 1994, respectively.

         During 1995, the Partnership  received  payoffs on six notes receivable
from cable  television  system  operators  totaling  $7.8  million of which $7.5
million was from notes  receivable  considered to be impaired.  The  Partnership
recognized  interest income of $1.1 million from the receipt of the final payoff
on  these  notes  receivable.  Included  in the  payoff  of  $7.8  million  is a
settlement  payment of $2.7 million on a defaulted note  receivable from a cable
television system operator.  The Partnership had provided a loan loss reserve in
an amount  equal to the net  carrying  value of this note in a prior year.  Upon
recovery of a portion of this defaulted note receivable, the Partnership reduced
the allowance for loan losses by $2 million  during 1995.  This reduction in the
allowance for loan losses was recognized as income during the period.
<PAGE>
                                                                    Page 9 of 35


         Total expenses  increased by $1,045,000 for the year ended December 31,
1996,  compared to 1995 but  decreased by  $5,436,000  during 1995,  compared to
1994. The increase in total expenses experienced during 1996 is primarily due to
increases in depreciation expense, cable program service expense and general and
administrative expenses, resulting from the addition of two new cable television
systems during the year. In addition,  the  Partnership  reported an increase in
management  fees of $202,000 for the year ended  December 31, 1996,  compared to
1995, due to the sale of two cable systems during 1996.

         The decline in total  expenses  for the year ended  December  31, 1995,
compared  to  1994,  is  primarily  due  to  a  decrease  in  depreciation   and
amortization  expense of  $2,400,000  and a decrease in provision  for losses on
receivables of $2,795,000.  The decrease in depreciation  and  amortization is a
result of the  reduction  in the amount of equipment  owned by the  Partnership.
Additionally,  an increasing  portion of the equipment  owned by the Partnership
had been fully depreciated. Another factor contributing to the decrease in total
expenses during 1995, when compared to 1994, was a recovery of a prior provision
for losses on receivables, as discussed previously.

         Lease related operating expenses experienced a decrease during 1995, as
compared  to 1994,  primarily  as a result  of a  decrease  in  remarketing  and
administrative expenses charged to the Partnership on its reproduction equipment
that is leased pursuant to a vendor lease agreement. This decrease is reflective
of the decrease in the amount of reproduction equipment owned by the Partnership
and  a  corresponding  decrease  in  the  rental  revenues  received  from  such
equipment.

         Inflation  affects the  Partnership  in relation to the current cost of
equipment  placed on lease and the residual  values  realized when the equipment
comes  off-lease and is sold.  During the last several years  inflation has been
low, thereby having very little impact upon the Partnership.

Liquidity and Capital Resources

         The   Partnership's   primary  source  of  liquidity   comes  from  its
contractual  obligations  with lessees and borrowers for fixed payment terms. As
the initial lease terms of the leases expire,  the Partnership  will continue to
renew,  remarket or sell the equipment.  The future liquidity of the Partnership
will depend upon the General Partner's success in collecting contractual amounts
and re-leasing and selling the Partnership's equipment as it comes off lease. As
another source of liquidity,  the Partnership owns cable television systems, has
investments  in  foreclosed  cable  systems joint  ventures and  investments  in
leasing joint ventures.

         The  net  cash  generated  by  operating  activities  were  $1,528,000,
$1,761,000 and $4,721,000 during 1996, 1995 and 1994, respectively. The net cash
generated by operating  activities decreased for both 1996 and 1995, compared to
the respective prior year, primarily as a result of a decrease in rental income.
The decline in rental income,  as previously  discussed,  is  attributable  to a
reduction in the size of the equipment portfolio. The Partnership sold equipment
with an aggregate  original cost of $6.1 million at December 31, 1996,  compared
to $28.2 million and $26.7 million at December 31, 1995 and 1994,  respectively.
This, in part, was offset by an increase in cable  subscriber  revenues from the
two new cable systems in 1996.

         The net cash generated by payments  received from financing  leases and
notes receivable  was $2,020,000, $9,632,000 and $2,546,000 during 1996,1995 and
1994,  respectively.  The  decrease  for 1996 is  primarily  due to a decline in
principal  payments  from  notes  receivable.   Principal  payments  from  notes
receivable increased  substantially during 1995, due to payoffs from outstanding
notes  receivable.  The  Partnership  did not receive the degree of payoffs from
notes receivable during 1996 compared to 1995. The decline in net cash generated
by financing  activities  experienced  during 1996 is also  attributable  to the
absence of principal payments from financing leases.

         During 1996, the Partnership  received $11,510,000 in proceeds from the
sale of assets of two cable  systems  owned by the  Partnership's  subsidiaries,
Phoenix Black Rock Cable J.V. and Phoenix Grassroots Cable Systems, L.L.C.

         During  the  third  quarter  of  1995,  the  Partnership   invested  an
additional  $6,146,000  in a note  receivable  from a  cable  television  system
operator that the Partnership had previously  extended credit.  The net carrying
value of this prior credit was  approximately  $2.9 million of subordinated debt
to this cable television system operator.  This cable television system operator
is in default on its  outstanding  debt. The current funding of $6.1 million was
paid to the senior lender and the Partnership has now assumed a first and second
secured position in the assets of the cable television  system with an aggregate
net carrying value of $9 million. The General Partner believes that it is now in
a better position to negotiate a settlement or foreclosure  with the borrower in
order to maximize the Partnership's recovery of its investment.  To help finance
this additional funding, the Partnership borrowed an additional  $2,000,000 from
a bank during 1995.  The debt is repayable over 30 months with interest based on
<PAGE>


                                                                   Page 10 of 35

the bank's prime rate.  During 1995, the Partnership  repaid  $1,671,000 of this
debt,  which  included a prepayment of  $1,471,000  made in November of 1995. In
1996, principal payments of $729,000 were made and the debt was repaid in full.

         During 1995, the Partnership  reported an overall  increase of $541,000
in cash  distributions  received from its joint  ventures  compared to the prior
year.   The  overall   increase  in   distributions   reflects  an  increase  in
distributions  from equipment  joint ventures and foreclosed  cable system joint
ventures.  The increased  distributions  from the equipment joint venture during
1995 is related to  distributions  received from a joint venture that was formed
in October of 1994.  The increased  cash  distributions  from  foreclosed  cable
system joint ventures for 1995 was attributable to the sale of a cable system in
one joint  venture and the  distribution  of excess cash from  operations in the
other remaining cable system.

         As of December 31, 1996, the Partnership owned equipment held for lease
with an  aggregate  original  cost of  $2,736,000  and a net  book  value of $0,
compared to $3,690,000  and $22,000,  respectively,  as of December 31, 1995 and
$18,707,000  and $447,000,  respectively,  as of December 31, 1994.  The General
Partner is actively  engaged,  on behalf of the Partnership,  in remarketing and
selling the Partnership's off-lease portfolio.

         The cash  distributed to limited  partners  during 1996,  1995 and 1994
were $1,954,000,  $7,751,000,  and $7,751,000,  respectively.  As a result,  the
cumulative  cash   distributions   to  the  limited  partners  are  $98,180,000,
$96,226,000   and   $88,475,000  as  of  December  31,  1996,   1995  and  1994,
respectively.  The General  Partner did not receive  cash  distributions  during
1996, 1995 and 1994. The General Partner has elected not to receive payment,  at
this  time,  for its share of the cash  available  for  distribution  due to its
negative capital account.

         The Partnership's  asset portfolio  continues to decline as a result of
the ongoing  liquidation  of assets,  and therefore it is expected that the cash
generated from  Partnership  leasing  operations will also decline.  As the cash
generated by  operations  continues to decline,  the rate of cash  distributions
made to limited  partners will also decline.  The  distributions  to partners on
January 15, 1996 were made at approximately  the same rate as the  distributions
made during  1995.  After the January 15,  1996  distribution,  the  Partnership
changed  from   quarterly  to  annual   distributions   with  the  first  annual
distribution expected to be made on January 15, 1997. As a result of the sale of
certain cable  television  systems and the settlement of an impaired note during
1996, the  Partnership  will be  distributing  the excess cash provided by these
events on January 15,1997.

         Cash  generated  from leasing and financing  operations has been and is
anticipated  to continue to be sufficient to meet the  Partnership's  continuing
operational expenses and to provide for distributions to partners.

         Forward-looking statements in this report are made pursuant to the safe
harbor  provisions  of the  Private  Securities  Litigation  Reform Act of 1995.
Actual  results could differ from those  anticipated  by some of the  statements
made above. Limited Partners are cautioned that such forward-looking  statements
involve risks and uncertainties including without limitation the following:  (I)
the  Partnership's  plans are subject to change at any time at the discretion of
the General Partner of the Partnership,  (ii) future technological  developments
in the industry in which the Partnership operates, (iii) competitive pressure on
pricing or services,  (iv) substantial  customer defaults or cancellations,  (v)
changes  in  business  conditions  and the  general  economy,  (vi)  changes  in
government regulations affecting the Partnership's core businesses and (vii) the
ability of the Partnership to sell its remaining assets.



<PAGE>


                                                                   Page 11 of 35

















        Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES

                          YEAR ENDED DECEMBER 31, 1996



<PAGE>


                                                                   Page 12 of 35


                         REPORT OF INDEPENDENT AUDITORS


The Partners
Phoenix Leasing Cash Distribution Fund III, a California limited partnership

We have audited the  consolidated  financial  statements of Phoenix Leasing Cash
Distribution  Fund III, a  California  limited  partnership,  and  Subsidiaries,
listed in the  accompanying  index to financial  statements  (Item  14(a)).  Our
audits also included the  financial  statement  schedule  listed in the Index at
Item 14(a).  These financial  statements and the schedule are the responsibility
of the Partnership's management.  Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about whether the financial  statements  and schedule 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 consolidated financial statements listed in the accompanying
index to financial  statements  (Item  14(a))  present  fairly,  in all material
respects,   the  consolidated   financial   position  of  Phoenix  Leasing  Cash
Distribution Fund III, a California limited  partnership,  and Subsidiaries,  at
December 31, 1996 and 1995, and the consolidated results of their operations and
their cash flows for each of the three years in the period  ended  December  31,
1996, in conformity with generally accepted accounting principles.  Also, in our
opinion,  the related financial statement 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.


                                                               ERNST & YOUNG LLP

San Francisco, California
  January 20, 1997



<PAGE>


                                                                   Page 13 of 35


                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (Amounts in Thousands Except for Unit Amounts)

                                                              December 31,
                                                             1996       1995
                                                             ----       ----
ASSETS

Cash and cash equivalents                                 $ 15,591    $  3,619

Accounts  receivable (net of allowance for losses
   on accounts  receivable of $56 and $63 at
   December 31, 1996 and 1995, respectively)                    89         254

Notes receivable  (net of allowance  for losses
   on notes  receivable of $604 and $3,880 at
   December 31, 1996 and 1995, respectively)                    58      13,153

Equipment on operating leases and held for lease
   (net of accumulated depreciation of $12,885 and
   $17,004 at December 31, 1996 and 1995, respectively)          1          79

Net investment in financing  leases (net of allowance
   for early  terminations of $0 and $81 at December
   31, 1996 and 1995, respectively)                           --           227

Cable systems, property and equipment (net of
   accumulated  depreciation of $239 and $548 at
   December 31, 1996 and 1995, respectively)                 3,215       1,449

Cable subscriber lists (net of accumulated
   amortization of $189 and $0 at December 31, 1996
   and 1995, respectively)                                   1,464        --

Investment in joint ventures                                   547         742

Capitalized  acquisition  fees (net of accumulated
   amortization  of $8,265 and $7,994 at December 31,
   1996 and 1995, respectively)                                 11         283

Other assets                                                    15         575
                                                          --------    --------

     Total Assets                                         $ 20,991    $ 20,381
                                                          ========    ========

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

   Accounts payable and accrued expenses                  $  2,847    $  3,637

   Minority interest in subsidiary                               9         311

   Note payable                                               --           329
                                                          --------    --------

     Total Liabilities                                       2,856       4,277
                                                          --------    --------

Partners' Capital:

   General Partner                                             (25)        (71)

   Limited Partners, 600,000 units authorized,
     528,151 units issued,  516,716 units outstanding
     at December 31, 1996 and 1995                          18,160      15,618

   Unrealized gains on available-for-sale securities          --           557
                                                          --------    --------

     Total Partners' Capital                                18,135      16,104
                                                          --------    --------

     Total Liabilities and Partners' Capital              $ 20,991    $ 20,381
                                                          ========    ========

                     The accompanying notes are an integral
                            part of these statements.


<PAGE>

                                                                   Page 14 of 35


                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (Amounts in Thousands Except for Per Unit Amounts)

                                                For the Years Ended December 31,
                                                      1996    1995     1994
                                                      ----    ----     ----
INCOME

   Rental income                                   $   862  $ 2,194  $ 4,766

   Gain on sale of cable systems                     1,347     --       --

   Gain on sale of equipment                            68      356    1,019

   Interest income, notes receivable                   839    1,171      810

   Cable subscriber revenue                          3,114      676      654

   Equity in earnings (losses) from joint
     ventures, net                                     148      240      (82)

   Other income                                        697      472      530
                                                   -------  -------  -------

     Total Income                                    7,075    5,109    7,697
                                                   -------  -------  -------

EXPENSES

   Depreciation and amortization                     1,613    1,149    3,549

   Lease related operating expenses                     93      280      805

   Program service, cable system                       906      181      154

   Management fees to General Partner and affiliate    724      522      381

   Reimbursed administrative costs to General Partner  176      321      403

   Provision for (recovery of) losses on
     receivables                                    (2,294)  (2,245)     550

   Legal expense                                       259      619      379

   General and administrative expenses                 853      458      500
                                                   -------  -------  -------

     Total Expenses                                  2,330    1,285    6,721
                                                   -------  -------  -------

NET INCOME BEFORE MINORITY INTEREST                  4,745    3,824      976

   Minority Interest in earnings of subsidiary        (203)     (24)     (31)
                                                   -------  -------  -------

NET INCOME                                         $ 4,542  $ 3,800  $   945
                                                   =======  =======  =======

NET INCOME PER LIMITED PARTNERSHIP UNIT            $  8.70  $  7.28  $   .85
                                                   =======  =======  =======

ALLOCATION OF NET INCOME:

     General Partner                               $    46  $    38  $   504

     Limited Partners                                4,496    3,762      441
                                                   -------  -------  -------

                                                   $ 4,542  $ 3,800  $   945
                                                   =======  =======  =======

                     The accompanying notes are an integral
                            part of these statements.

<PAGE>

<TABLE>
                                                                                                     Page 15 of 35


                                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                                A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
                                 (Amounts in Thousands Except for Unit Amounts)

<CAPTION>
                                                   General                                Unrealized
                                                  Partner's       Limited Partners'         Gains         Total
                                                    Amount        Units       Amount       (Losses)       Amount
                                                    ------        ------------------       --------       ------
<S>                                               <C>            <C>         <C>           <C>           <C>
Balance, December 31, 1993                        $   (613)      516,716     $ 26,917      $   --        $ 26,304

Distributions to partners ($15.00 per limited
   partnership unit)                                  --            --         (7,751)         --          (7,751)

Net income                                             504          --            441          --             945
                                                  --------      --------     --------      --------      --------

Balance, December 31, 1994                            (109)      516,716       19,607          --          19,498

Distributions to partners ($15.00 per limited
   partnership unit)                                  --            --         (7,751)         --          (7,751)

Change for the year in unrealized gain on
   available-for-sale securities                      --            --           --             557           557

Net income                                              38          --          3,762          --           3,800
                                                  --------      --------     --------      --------      --------

Balance, December 31, 1995                             (71)      516,716       15,618           557        16,104

Distributions to partners ($3.78 per limited
   partnership unit)                                  --            --         (1,954)         --          (1,954)

Change for the year in unrealized gain on
   available-for-sale securities                      --            --           --            (557)         (557)

Net income                                              46          --          4,496          --           4,542
                                                  --------      --------     --------      --------      --------

Balance, December 31, 1996                        $    (25)      516,716     $ 18,160      $   --        $ 18,135
                                                  ========      ========     ========      ========      ========
</TABLE>

                                  The accompanying notes are an integral
                                         part of these statements.

<PAGE>


                                                                   Page 16 of 35


                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in Thousands)

                                                For the Years Ended December 31,
                                                    1996       1995     1994
                                                    ----       ----     ----
Operating Activities:
   Net income                                      $  4,542  $  3,800  $    945
   Adjustments to reconcile net income to
     net cash provided by operating activities:
       Depreciation and amortization                  1,613     1,149     3,549
       Gain on sale of cable systems                 (1,347)     --        --
       Gain on sale of equipment                        (68)     (356)   (1,019)
       Gain on sale of securities                      (151)       (7)     (154)
       Equity in losses (earnings) from joint
         ventures, net                                 (148)     (240)       82
       Recovery of early termination, financing
         leases                                         (81)     --        --
       Provision for (recovery of) losses on
         notes receivable                            (2,260)   (2,428)      576
       Provision for (recovery of) losses on
         accounts receivable                             47       183       (26)
       Settlement                                      --        --        (106)
       Minority interest in earnings of subsidiary      203        24        31
       Decrease (increase) in accounts receivable      (222)      473       578
       Decrease in accounts payable and
         accrued expenses                              (977)     (876)     (239)
       Decrease in other assets                           3        39       378
       Other                                            374      --         126
                                                   --------  --------  --------

Net cash provided by operating activities             1,528     1,761     4,721
                                                   --------  --------  --------

Investing Activities:
   Principal payments, financing leases                --         695     1,620
   Principal payments, notes receivable               2,020     8,937       926
   Proceeds from sale of cable systems               11,510      --        --
   Proceeds from sale of equipment                       79       623     1,965
   Proceeds from sale of securities                     151         7       165
   Distributions from joint ventures                    343       601        60
   Purchase of equipment                               --        --        (107)
   Investment in financing leases                      --        --         (40)
   Investment in notes receivable                      --      (6,146)     --
   Investment in joint ventures                        --        --        (117)
   Investment in securities                            --        --         (11)
   Cable systems, property and equipment               (337)      (49)      (32)
   Payment of acquisition fees                         --        --          (5)
                                                   --------  --------  --------

Net cash provided by investing activities            13,766     4,668     4,424
                                                   --------  --------  --------

Financing Activities:
   Proceeds from notes payable                         --       2,000      --
   Payments of principal, notes payable                (729)   (1,671)   (1,479)
   Distributions to partners                         (1,954)   (7,751)   (7,751)
   Distributions to minority partners                  (639)      (24)      (46)
                                                   --------  --------  --------

Net cash used by financing activities                (3,322)   (7,446)   (9,276)
                                                   --------  --------  --------

Increase (decrease) in cash and cash equivalents     11,972    (1,017)     (131)
Cash and cash equivalents, beginning of period        3,619     4,636     4,767
                                                   --------  --------  --------

Cash and cash equivalents, end of period           $ 15,591  $  3,619  $  4,636
                                                   ========  ========  ========

Supplemental Cash Flow Information:
   Cash paid for interest expense                  $     26  $     31  $     19

                     The accompanying notes are an integral
                            part of these statements.

<PAGE>


                                                                   Page 17 of 35


                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996


Note 1.       Organization and Partnership Matters.

         Phoenix  Leasing  Cash  Distribution  Fund III,  a  California  limited
partnership (the Partnership), was formed on July 30, 1985, to invest in capital
equipment  of various  types and to lease  such  equipment  to third  parties on
either a long-term or  short-term  basis,  and to provide  financing to emerging
growth  companies  and cable  television  system  operators.  The  Partnership's
minimum  investment  requirements  were met January 21, 1988. The  Partnership's
termination date is December 31, 1998.

         The  Partnership  has also  made  investments  in joint  ventures  with
affiliated  partnerships  managed  by the  General  Partner  for the  purpose of
reducing the risks of financing or acquiring certain capital equipment leased to
third parties. (See Note 7.)

         The Partnership's subsidiaries,  Phoenix Black Rock Cable J.V., Phoenix
Concept  Cablevision of Indiana,  L.L.C.  and Phoenix  Grassroots Cable Systems,
L.L.C. were formed to acquire the assets and liabilities of specific  foreclosed
cable  television   systems  that  the  Partnership  had  extended  credit.  The
acquisition  of assets  and  liabilities  of the  borrower  by the  subsidiaries
through foreclosure were accounted for using the "purchase method" of accounting
in which the transfer  price was allocated to the net assets in accordance  with
the relative fair market value of the assets acquired and liabilities assumed.

         On January 10, 1992, the Partnership foreclosed upon a cable television
system in Nevada  and  California  that was in default  on a  subordinated  loan
payable to the Partnership  with a carrying amount of  approximately  $1,620,000
which  was  carried  over  to the  basis  in the  cable  system.  As part of the
settlement  between the Partnership and the borrower,  the borrower  transferred
ownership  of  all  of  its  assets  and  liabilities  to a  subsidiary  of  the
Partnership,  Phoenix  Black Rock Cable J.V.  which was formed under the laws of
California  on  January  10,  1992  to own  and  operate  the  foreclosed  cable
television system.

         On January 17, 1996,  Phoenix  Black Rock Cable J.V., a majority  owned
subsidiary of the  Partnership,  sold all of the assets used in the operation of
its cable  television  system  receiving  net  proceeds  of  approximately  $2.6
million,  recognizing  a gain on the sale of the assets of this cable  system of
$1,185,000. As a result of the sale of the cable television system's assets, the
Subsidiary ceased operations.

         On February 2, 1996, the Partnership and Phoenix Concept Cablevision of
Indiana,  L.L.C. (Phoenix Concept), a newly formed limited liability company and
wholly owned  subsidiary  of the  Partnership,  entered  into a Commercial  Code
Section 9505 Agreement (the  "Agreement")  with Concept  Cablevision of Indiana,
Inc., a cable television  company that the Partnership had extended credit.  The
Agreement  which closed on February 2, 1996 allowed Phoenix Concept to foreclose
upon the cable  television  system  (the  collateral  for the  note) of  Concept
Cablevision  of Indiana,  Inc. The  Partnership's  net  carrying  value for this
outstanding  note  receivable  was  $4,321,000  at February  2, 1996,  which was
carried over to the basis in the cable system and exchanged for a 100% ownership
interest in this  limited  liability  company.  The  Partnership  had no related
allowance for this note  receivable.  In addition,  Phoenix  Concept made a cash
payment of $200,000 and assumed certain liabilities, including a note payable of
$600,000 and certain other  miscellaneous  accounts  payable as specified in the
agreement.

         On February 14, 1996,  the  Partnership  and Phoenix  Grassroots  Cable
Systems,  L.L.C. (Phoenix Grassroots),  a newly formed limited liability company
and  majority  owned  (98.5%)  subsidiary  of  the  Partnership,  entered  in  a
Settlement  Agreement  and Releases  (the  "Amendment")  with  Grassroots  Cable
Systems,  Inc., a cable  television  company that the  Partnership  had extended
credit. The Agreement which closed on February 14,1996,  allowed the Partnership
to foreclose upon the cable  television  system (the collateral for the note) of
Grassroots  Cable Systems,  Inc. The  Partnership's  net carrying value,  before
allowance for loan losses,  for this  outstanding note receivable was $9,014,000
at February  14,  1996,  which was carried over to the basis in the cable system
and exchanged for a 98.5% ownership  interest in this limited liability company.
The  Partnership  had an allowance for loan losses of  $2,035,000  for this note
receivable.  The Partnership reduced its allowance for loan losses by $2,035,000
as a result of the  acquisition  of this cable  system.  This  reduction  in the


<PAGE>


                                                                   Page 18 of 35

allowance  for loan  losses  was  recognized  as income  during  the year  ended
December 31, 1996. In addition,  Phoenix Grassroots assumed certain  liabilities
and miscellaneous payables as specified in the agreement.

         On August 30, 1996, Phoenix Grassroots Cable Systems,  L.L.C., sold the
assets of the cable  television  system  receiving net proceeds of approximately
$8.9  million,  recognizing  a gain on sale of these  assets of  $162,000.  As a
result of the sale of the  cable  television  system's  assets,  the  Subsidiary
ceased operations.

         For financial reporting purposes, Partnership income shall be allocated
as follows:  (a) first,  to the General  Partner until the cumulative  income so
allocated is equal to the cumulative  distributions to the General Partner,  (b)
second, one percent to the General Partner and 99% to the Limited Partners until
the cumulative  income so allocated is equal to any cumulative  Partnership loss
and syndication  expenses for the current and all prior accounting periods,  and
(c) the balance,  if any, to the Unit Holders.  All Partnership  losses shall be
allocated, one percent to the General Partner and 99% to the Unit Holders.

         The General  Partner is entitled  to receive  five  percent of all cash
distributions  until the Limited  Partners have recovered  their initial capital
contributions plus a cumulative return of 12% per annum. Thereafter, the General
Partner  will  receive 15% of all cash  distributions.  In the event the General
Partner has a deficit  balance in its capital account at the time of partnership
liquidation, it will be required to contribute the amount of such deficit to the
Partnership.  During  1994,  1995 and 1996 the General  Partner did not draw its
share of the 1994, 1995 and 1996 cash available for distribution.

         As compensation for management services, the General Partner receives a
fee payable  quarterly,  subject to certain  limitations,  in an amount equal to
3.5% of the Partnership's gross revenues for the quarter from which such payment
is being made, which revenues shall include rental receipts,  maintenance  fees,
proceeds from the sale of equipment and interest income.

         Phoenix  Cable  Management  Inc.  (PCMI),  an  affiliate of the General
Partner,  provides  day  to day  management  services  in  connection  with  the
operation of the Subsidiaries.  The Subsidiaries will pay a management fee equal
to four and one-half  percent of the systems'  monthly  gross  revenue for these
services.  Revenues  subject to a management fee at the joint venture level will
not be subject to management fees at the Partnership level.

         The General Partner is compensated for services performed in connection
with the analysis of equipment  available to the  Partnership,  the selection of
such assets and the acquisition  thereof,  including  negotiating and concluding
agreements with equipment  manufacturers and obtaining leases for the equipment.
As compensation for such acquisition services,  the General Partner will receive
a fee equal to four percent of (a) the purchase  price of equipment  acquired by
the Partnership,  or equipment leased by manufacturers,  the financing for which
is provided by the Partnership,  or (b) financing provided to businesses such as
cable operators, or emerging growth companies,  payable upon such acquisition or
financing,  as the case may be. Such acquisition fees are amortized  principally
on a straight-line basis.

         Schedule of  compensation  paid and  distributions  made to the General
Partner and affiliates for the years ended December 31,

                                     1996          1995          1994
                                     ----          ----          ----
                                          (Amounts in Thousands)

           Management fees           $724          $522          $381
           Acquisition fees           --            --              2
                                     ----          ----          ----

                                     $724          $522          $383
                                     ====          ====          ====


Note 2.       Summary of Significant Accounting Policies.

       Principles of Consolidation.  The 1996 financial  statements  include the
accounts of Phoenix  Leasing Cash  Distribution  Fund III and its majority owned
subsidiaries,  Phoenix  Black Rock Cable J.V.  (a  California  partnership)  and
Phoenix Grassroots Cable Systems,  L.L.C. (a Delaware limited liability company)
and its wholly owned subsidiary,  Phoenix Concept Cablevision of Indiana, L.L.C.
(a  Delaware  limited  liability   company).   Hereinafter  these  entities  are
collectively referred to as "the Partnership." In addition to 1996, the 1995 and
1994  financial  statements  include  the  accounts of the  Partnership  and its
majority  owned  subsidiary,  Phoenix  Black  Rock Cable  J.V.  All  significant
intercompany accounts and transactions have been eliminated in consolidation.



<PAGE>


                                                                   Page 19 of 35


       During 1994, the Partnership  determined that the financial  position and
operations  of  Phoenix  Black  Rock  Cable  J.V.  had  become  material  to the
operations of the Partnership. Accordingly, the Partnership has consolidated the
financial results of this joint venture with those of the Partnership  beginning
in 1994. The Partnership  reported this joint venture using the equity method of
accounting  for 1993.  The effect of this change had no impact on the net income
or equity of the Partnership.

       Leasing  Operations.  The Partnership's  leasing operations  consisted of
financing and operating  leases.  The financing  method of accounting for leases
records as  unearned  income at the  inception  of the lease,  the excess of net
rentals  receivable  and estimated  residual value at the end of the lease term,
over the cost of equipment leased. Unearned income is credited to income monthly
over the term of the lease on a declining basis to provide an approximate  level
rate of return on the unrecovered  cost of the investment.  Initial direct costs
of  consummating  new  leases  are  capitalized  and  included  in the  cost  of
equipment.  The  Partnership  reviews its  estimates of residual  value at least
annually.  If a decline in value has occurred which is other than  temporary,  a
reduction in the investment is recognized currently.

         Under the  operating  method  of  accounting  for  leases,  the  leased
equipment  is recorded as an asset at cost and  depreciated.  The  Partnerhsip's
leased  equipment is depreciated  primarily  using an  accelerated  depreciation
method over the estimated useful life of six years.

         The  Partnership's  policy  is to  review  periodically  the  remaining
expected  economic  life of its  rental  equipment  in  order to  determine  the
probability of recovering its  undepreciated  cost. Such reviews address,  among
other  things,  recent  and  anticipated  technological  developments  affecting
computer  equipment and  competitive  factors  within the computer  marketplace.
Although  remarketing  rental  rates are  expected to decline in the future with
respect to some of the Partnership's rental equipment, such rentals are expected
to exceed projected  expenses and depreciation.  Where subsequent reviews of the
equipment  portfolio  indicate that rentals plus anticipated sales proceeds will
not  exceed  expenses  in  any  future  period,  the  Partnership   revises  its
depreciation policy and provides for additional depreciation as appropriate.  As
a  result  of such  periodic  reviews,  the  Partnership  recognized  additional
depreciation  expense of $26,000,  $68,000 and $27,000 ($.05,  $.13 and $.05 per
limited  partnership  unit) for the year ended December 31, 1996, 1995 and 1994,
respectively.

         Rental  income  for the  year is  determined  on the  basis  of  rental
payments due for the period under the terms of the lease.  Maintenance,  repairs
and minor renewals of the leased equipment are charged to expense.

       Cable  Television  System  Operations.   The  consolidated  statement  of
operations  includes the operating  activity of all three  Subsidiaries  for the
year ended December 31, 1996. In addition to 1996, Phoenix Black Rock Cable J.V.
is included in the consolidated statements for the years ended December 31, 1995
and 1994. The cable  television  system owned by Phoenix Black Rock Cable,  J.V.
was  located in the  counties of Clark and Nye in the State of Nevada and in the
county of Inyo in the State of California. The cable television system consisted
of  headend  equipment  in  five  locations  and  156  miles  of  plant  passing
approximately  2,900 homes and had approximately  1,820 cable  subscribers.  The
Subsidiary's cable television system serves the communities of Pahrumph,  Beatty
and Blue  Diamond  in Nevada  and Cow Creek and  Grapevine  in  California.  The
Subsidiary operates under one non-exclusive  franchise agreement with the county
of Nye in Nevada,  and under a National  Park Service  Permit for Death  Valley,
California.

       The cable  television  system  owned by Phoenix  Concept  Cablevision  of
Indiana, L.L.C. is located in the counties of Benton, Parke, Greene, Montgomery,
Putnam, Boone, Hendricks, Clinton, Hamilton and Madison in the state of Indiana.
The cable television system consists of headend equipment and 166 miles of plant
passing  approximately  9,449 homes with approximately  5,462  subscribers.  The
Subsidiary  operates under  non-exclusive  franchise  agreements with several of
these counties and with communities located within these counties.

       The cable  television  system owned by Phoenix  Grassroots Cable Systems,
L.L.C. was located in the counties of Franklin,  Hancock, Kennebec, Knox, Oxford
and Penobscot in the state of Maine and the counties of Carroll,  Coos, Grafton,
Merrimack,  Strafford  and  Sullivan  in the State of New  Hampshire.  The cable
television  system consisted of headend equipment and 676 miles of plant passing
approximately 12,429 homes with approximately 7,197 subscribers.  The Subsidiary
operates under non-exclusive franchise agreements with several of these counties
and with communities located within these counties.

       Cable  systems,   property  and  equipment  are  depreciated   using  the
straight-line  method over estimated service lives ranging from five to thirteen
years.  Replacements,  renewals and improvements are capitalized and maintenance
and repairs are charged to expense as incurred.
<PAGE>

                                                                   Page 20 of 35

       Cable subscriber lists are amortized using the straight-line  method over
an estimated period of eight years.

       Cable  television  services  are billed  monthly in  advance.  Revenue is
deferred and recognized as the services are provided.

       Investment  in Joint  Ventures.  Minority  investments  in net  assets of
equipment joint ventures and foreclosed cable systems joint ventures reflect the
Partnership's  equity  basis  in  the  ventures.  Under  the  equity  method  of
accounting,  the  original  investment  is  recorded  at  cost  and is  adjusted
periodically  to recognize the  Partnership's  share of earnings,  losses,  cash
contributions and cash distributions  after the date of acquisition.  Foreclosed
cable  systems  were  non-performing  notes  receivable  where  foreclosure  has
occurred.

       Notes  Receivable.   Notes  receivable  generally  are  stated  at  their
outstanding unpaid principal balances, which includes accrued interest. Interest
income is accrued on the unpaid principal balance.

       Impaired Notes Receivable.  Generally, notes receivable are classified as
impaired  and the accrual of interest  on such notes are  discontinued  when the
contractual  payment of  principal  or  interest  has become 90 days past due or
management has serious doubts about further  collectibility  of the  contractual
payments,  even  though  the  loan  may  currently  be  performing.  When a note
receivable is classified as impaired,  income  recognition is discontinued.  Any
payments  received  subsequent  to the  placement of the note  receivable  on to
impaired  status  will  generally  be  applied  towards  the  reduction  of  the
outstanding  note  receivable  balance,  which may  include  previously  accrued
interest as well as principal.  Once the principal and accrued  interest balance
has been reduced to zero,  the  remaining  payments  will be applied to interest
income.  Generally,  notes  receivable  are restored to accrual  status when the
obligation is brought current,  has performed in accordance with the contractual
terms for a  reasonable  period of time and the ultimate  collectibility  of the
total contractual principal and interest is no longer in doubt.

       Allowance  for Losses.  An allowance  for losses is  established  through
provisions for losses charged  against  income.  Notes  receivable  deemed to be
uncollectible  are charged  against the  allowance  for losses,  and  subsequent
recoveries, if any, are credited to the allowance.

       Reclassification. Certain 1995 and 1994 amounts have been reclassified to
conform to the 1996 presentation.

       Cash and Cash Equivalents.  Cash and cash equivalents include deposits at
banks,  investments  in money market funds and other  highly  liquid  short-term
investments  with  original  maturities  of less than 90 days.  The  Partnership
places its cash deposits in temporary cash investments with credit worthy,  high
quality  financial  institutions.  The  concentration  of such cash deposits and
temporary  cash  investments  is not deemed to create a significant  risk to the
Partnership.

       Non Cash Investing Activities.
                                              For the Years Ended December 31,
                                                  1996      1995      1994
                                                  ----      ----      ----
                                                   (Amounts in Thousands)
      Contributions to a joint venture of
           assets received pursuant to a
           settlement agreement                   $ --        $--     $212

      Foreclosed notes receivable contributed
           to joint ventures                        --        151      161
                                                  ------     ----     ----

           Total                                  $ --       $151     $373
                                                  ======     ====     ====

         During the year  ended  December  31,  1996 and 1995,  the  Partnership
recorded an  unrealized  loss on  available-for-sale  securities  which has been
included in Other Assets of $577,000 and a gain of $577,000, respectively.

         Credit  and  Collateral.   The   Partnership's   activities  have  been
concentrated  in  the  equipment  leasing  and  financing  industry.   A  credit
evaluation  is performed  by the General  Partner for all leases and loans made,
with  the  collateral  requirements  determined  on a  case-by-case  basis.  The
Partnership's  loans are generally  secured by the equipment or assets  financed
and, in some cases,  other collateral of the borrower.  In the event of default,
the  Partnership  has the right to foreclose upon the collateral  used to secure
such loans.

         Investment  in  Available-for-Sale   Securities.  The  Partnership  had
investments in stock warrants in public  companies.  The Partnership  classified
its investments in stock warrants as  available-for-sale in accordance with FASB
Statement  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
<PAGE>


                                                                   Page 21 of 35


Securities."  Available-for-sale  securities  are  stated at their  fair  market
value,  with  unrealized  gains and losses  reported as a separate  component of
partners'  capital.  The stock warrants held by the Partnership  were granted by
certain lessees or borrowers as additional compensation for leasing or financing
equipment.  At the date of grant,  such warrants were determined to have no fair
market value and were recorded at their historical cost of $0.

         Use of Estimates. The preparation of financial statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that affect the amounts  reported in the  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.


Note 3.       Accounts Receivable.

         Accounts receivable consist of the following at December 31:

                                                           1996        1995
                                                           ----        ----
                                                       (Amounts in Thousands)

    Lease payments                                         $ 115      $ 271
    Other                                                     26         39
    General Partner                                            4          7
                                                           -----      -----
                                                             145        317

    Less:  allowance for losses on accounts receivable       (56)       (63)
                                                           -----      -----

         Total                                             $  89      $ 254
                                                           =====      =====


Note 4.       Notes Receivable.

         Notes receivable consist of the following at December 31:

                                                      1996            1995
                                                      ----            ----
                                                     (Amounts in Thousands)

     Notes receivable  from cable  television
       system  operators with stated interest
       ranging from 12% to 13% per annum,
       receivable in installments ranging from
       60 to 117  months,  collateralized  by a
       security  interest in the cable system
       assets.  These notes have a graduated
       repayment schedule followed with a
       balloon payment                              $    662      $ 16,791

     Notes receivable from security monitoring
       companies with stated interest at 16%
       per annum                                        --             242
                                                    --------      --------


                                                         662        17,033

     Less:  allowance for losses on notes
            receivable                                  (604)       (3,880)
                                                    --------      --------

       Total                                        $     58      $ 13,153
                                                    ========      ========

         The  Partnership's   notes  receivable  from  cable  television  system
operators  provide for a monthly payment rate in an amount that is less than the
contractual  interest  rate.  The  difference  between the payment  rate and the
contractual interest rate is added to the principal and therefore deferred until
the maturity date of the note. Upon maturity of the note, the original principal
and  deferred  interest is due and  payable in full.  Although  the  contractual
interest  rates may be higher,  the amount of interest  being  recognized on the
Partnership's  outstanding notes receivable to cable television system operators
is being limited to the amount of the payments  received,  thereby deferring the
recognition of a portion of the deferred interest until the loan is paid off.

         At  December  31,  1996,  the  recorded  investment  in notes  that are
considered  to be  impaired  under  Statement  114 was  $662,000,  for which the
related  allowance for losses is $604,000.  The average  recorded  investment in
<PAGE>


                                                                   Page 22 of 35

impaired  loans  during  the year  ended  December  31,  1996 was  approximately
$1,530,000.  The Partnership  recognized  interest income totaling  $63,000 from
these impaired notes during the year ended 1996.

         At  December  31,  1995,  the  recorded  investment  in notes  that are
considered  to  be  impaired  was  $15,978,000.  Included  in  this  amount  was
$11,673,000  of impaired  notes for which the related  allowance  for losses was
$3,619,000 and $4,305,000 of impaired notes for which there is no allowance. The
average recorded investment in impaired loans during the year ended December 31,
1995 was approximately  $16,448,000.  The Partnership recognized interest income
totaling $1,079,000 from these impaired notes during the year ended 1995.

         During the year ended  December 31, 1996,  the  Partnership  received a
settlement  on one of its  notes  receivable  from  a  cable  television  system
operator which was considered to be impaired. The Partnership received a partial
recovery of $1,008,000 as a settlement  which was applied towards the $1,781,000
outstanding  note  receivable  balance.  The  remaining  balance of $773,000 was
written-off  through its related  allowance  for loan losses  provided  for in a
previous  year.  Upon receipt of the  settlement  of this note  receivable,  the
Partnership  reduced the  remaining  allowance  for loan losses for this note by
$150,000  during  the year  ended  December  31,  1996.  This  reduction  in the
allowance for loan losses was recognized as income during the period.

         The Partnership also wrote-off the outstanding note receivable  balance
of $243,000  during the year ended December 31, 1996 from a security  monitoring
system  company which was  considered to be impaired.  This note  receivable had
been fully reserved for in a previous year.

         The  Partnership  also  foreclosed on two notes  receivable  from cable
television system operators as discussed in Note 1.

         During the year ended  December 31, 1995,  the  Partnership  received a
settlement  on one of its  notes  receivable  from  a  cable  television  system
operator which was considered to be impaired. The Partnership received a partial
recovery of $2,714,000 as a settlement  which was applied towards the $4,562,000
outstanding  note  receivable  balance  which had been fully  reserved  for in a
previous year. The remaining  balance of $1,848,000 was written-off  through its
related  allowance for loan losses.  The Partnership  received  settlements from
seven other impaired notes  receivable,  a payoff from one note  receivable to a
cable television  system operator and foreclosed upon the assets of another note
receivable to a cable television  system operator during the year ended December
31, 1995.  Upon  receipt of the  settlement  and payoffs of the  above-mentioned
notes  receivable,  the  Partnership  reduced the  allowance  for loan losses by
$2,428,000  during the year ended  December  31,  1995.  This  reduction  in the
allowance for loan losses was recognized as income during the period.

         The activity in the allowance for losses on notes receivable during the
years ended December 31, is as follows:

                                                     1996              1995
                                                     ----              ----
                                                     (Amounts in Thousands)
  Beginning balance                                $ 3,880           $ 8,357
       Provision for (recovery of) losses           (2,260)           (2,428)
       Write downs                                  (1,016)           (2,049)
                                                   -------           -------
  Ending balance                                   $   604           $ 3,880
                                                   =======           =======


Note 5.       Equipment on Operating Leases and Investment in Financing Leases.

         Equipment on lease consists primarily of computer peripheral  equipment
and computer mainframes subject to operating and financing leases.

         The  Partnership's  operating  leases are for  initial  lease  terms of
approximately 12 to 48 months.  During the remaining terms of existing operating
leases,  the  Partnership  will not  recover all of the  undepreciated  cost and
related expenses of its rental equipment,  and therefore must remarket a portion
of its equipment in future years.

         The Partnership has agreements with one  manufacturer of its equipment,
whereby such  manufacturer will undertake to remarket  off-lease  equipment on a
best  efforts  basis.  These  agreements  permit the  Partnership  to assume the
remarketing  function directly if certain conditions contained in the agreements
are not met.  For  their  remarketing  services,  the  manufacturers  are paid a
percentage of net monthly rentals.

         The  Partnership has also entered into direct lease  arrangements  with
lessees  consisting of Fortune 1000 companies and other  businesses in different
industries  located  throughout  the  United  States.   Generally,   it  is  the
responsibility  of the lessee to provide  maintenance on leased  equipment.  The
<PAGE>


                                                                   Page 23 of 35

General Partner  administers the equipment  portfolio of leases acquired through
the direct leasing program. Administration includes the collection of rents from
the lessees and remarketing of the equipment.

         The net  investment  in financing  leases  consists of the following at
December 31:

                                                           1996       1995
                                                           ----       ----
                                                       (Amounts in Thousands)

Minimum lease payments to be received                      $--       $  30
Estimated residual value of leased
  equipment (unguaranteed)                                  --         287
Less:  unearned income                                      --          (9)
       allowance for early termination                      --         (81)
                                                           ----      -----

Net investment in financing leases                         $--       $ 227
                                                           ====      =====

         Minimum rentals to be received on  noncancellable  operating leases for
the years ended December 31 are as follows:

                                                                Operating
                                                                ---------
                                                          (Amounts in Thousands)

         1997........................................          $    97
         1998........................................                6
         1999 and thereafter.........................              -
                                                               -------

         Totals                                                $   103
                                                               =======

         The net book value of equipment held for lease at December 31, 1996 and
1995 amounted to $0 and $22,000, respectively.


Note 6.       Cable Systems, Property and Equipment.

         The cost of cable  systems,  property,  and  equipment  and the related
accumulated depreciation consist of the following at December 31:

                                                             1996      1995
                                                             ----      ----
                                                          (Amounts in Thousands)

Distributions systems                                      $ 2,254   $ 1,935
Headend equipment                                            1,042        13
Automobiles                                                     77        11
Land                                                            41      --
Building                                                        40        38
                                                           -------   -------
                                                             3,454     1,997
Less:  accumulated depreciation                               (239)     (548)
                                                           -------   -------

Net property, cable systems and equipment                  $ 3,215   $ 1,449
                                                           =======   =======

         Depreciation  expense totaled  approximately  $583,000 and $154,000 for
the years ended December 31, 1996 and 1995, respectively.


Note 7.          Investment in Joint Ventures.

Equipment Joint Ventures.

         The  Partnership  owns a limited or  general  partnership  interest  in
equipment joint ventures.  These  investments are accounted for using the equity
method of accounting.  The other partners of the ventures are entities organized
and managed by the General Partner.

         The  purpose of the joint  ventures is the  acquisition  and leasing of
various types of equipment.  The Partnership is  participating  in the following
equipment joint ventues:
<PAGE>


                                                                   Page 24 of 35

                                                              Weighted
                Joint Venture                            Percentage Interest
                -------------                            -------------------


         Leveraged Joint Venture 1990-1                         35.29%
         Phoenix Post Joint Venture(1)                          26.69
         Phoenix Joint Venture 1994-1                            4.64

(1) Closed during 1995

         An analysis of the Partnership's investment in equipment joint ventures
is as follows:
<TABLE>
<CAPTION>
                              Net Investment                       Equity in                              Net Investment
                               at Beginning                        Earnings                                   at End
Date                            of Period       Contributions      (Losses)          Distributions           of Period
----                            ---------       -------------      --------          -------------           ---------
                                                            (Amounts in Thousands)
<S>                             <C>               <C>                 <C>               <C>                  <C>
Year Ended
  December 31, 1994             $     53          $  302              $  (104)          $     9              $     242
                                ========          ======              =======           =======              =========

Year Ended
 December 31, 1995              $    242          $    0              $   222           $   347              $     117
                                ========          ======              =======           =======              =========

Year Ended
  December 31, 1996             $    117          $    0              $   158           $   230              $      45
                                ========          ======              =======           =======              =========
</TABLE>
         The aggregate  combined  financial  information of the equipment  joint
ventures as of December 31 and for the years then ended is presented as follows:

                             COMBINED BALANCE SHEETS

                                     ASSETS

                                                             December 31,
                                                            1996      1995
                                                            ----      ----
                                                         (Amounts in Thousands)

         Cash and cash equivalents                         $  372    $  532
         Accounts receivable                                1,441     1,772
         Operating lease equipment                            525     1,021
         Other assets                                         512       691
                                                           ------    ------

              Total Assets                                 $2,850    $4,016
                                                           ======    ======

                        LIABILITIES AND PARTNERS' CAPITAL

         Accounts payable                                  $  732    $  918
         Partners' capital                                  2,118     3,098
                                                           ------    ------

              Total Liabilities and Partners' Capital      $2,850    $4,016
                                                           ======    ======

                        COMBINED STATEMENTS OF OPERATIONS

                                     INCOME

                                               For the Years Ended December 31,
                                                   1996      1995      1994
                                                   ----      ----      ----
                                                     (Amounts in Thousands)

         Rental income                           $ 2,357   $ 3,595   $ 2,583
         Gain on sale of equipment                   850     1,637     1,096
         Other income                                131       717        71
                                                 -------   -------   -------

              Total Income                         3,338     5,949     3,750
                                                 -------   -------   -------


<PAGE>


                                                                   Page 25 of 35


                                    EXPENSES
         Depreciation                                332     1,186     1,248
         Lease related operating expenses          1,385     2,832     2,378
         Management fee to the General Partner       119       286       199
         Other expenses                              125       268        62
                                                 -------   -------   -------

              Total Expenses                       1,961     4,572     3,887
                                                 -------   -------   -------

              Net Income (Loss)                  $ 1,377   $ 1,377   $  (137)
                                                 =======   =======   =======

         As of December 31, 1996 and 1995, the  Partnership's  pro rata interest
in the  equipment  joint  ventures'  net book value of off-lease  equipment  was
$2,000 and $5,000, respectively.

         The General Partner earns a management fee of 3.5% of the Partnership's
respective interest in gross revenues of each equipment joint venture.  Revenues
subject  to  management  fees at the  joint  venture  level are not  subject  to
management fees at the Partnership level.

Foreclosed Cable Systems Joint Ventures.

         The  Partnership   foreclosed  upon  nonperforming   outstanding  notes
receivable to cable  television  operators to whom the  Partnership,  along with
other  affiliated  partnerships  managed by the General  Partner,  had  extended
credit. The partnerships'  notes receivables were exchanged for interests (their
capital contribution), on a pro rata basis, in newly formed joint ventures owned
by the  partnerships  and  managed by the  General  Partner.  Title to the cable
television  systems  is held by the  joint  ventures.  Investments  in the joint
ventures are accounted for using the equity method of accounting.

         The joint  venture  investments  of the  Partnership,  along with their
percentage ownership is as follows:

                                                              Weighted
              Joint Venture                              Percentage Interest
              -------------                              -------------------

         Phoenix Black Rock Cable J.V.(4)                       81.22%
         Phoenix Pacific Northwest J.V.                         37.72
         Phoenix Glacier J.V.(1)                                45.78
         Phoenix Country Cable J.V.(3)                          40.00
         Phoenix Concept Cablevision, Inc.                      14.19
         Phoenix Independence Cable, LLC                        28.76

(1)  cable system sold and joint venture closed during 1993.
(2)  cable systems operations are consolidated during 1994, 1995 and 1996.
(3)  cable system sold during 1995 and joint venture closed during 1996.
(4)  cable system sold and joint venture closed during 1996.

         An analysis of the  Partnership's  net  investment in foreclosed  cable
systems joint ventures at December 31, is as follows:
<TABLE>
<CAPTION>
                              Net Investment                             Equity in                              Net Investment
                               at Beginning                              Earnings                                   at End
Date                            of Period        Contributions(1)        (Losses)           Distributions         of Period
----                            ---------        ----------------        --------           -------------         ---------
                                                                  (Amounts in Thousands)
<S>                               <C>                  <C>                    <C>                 <C>                <C>
Year Ended
  December 31, 1994               $1,956               $(1,218)               $ 22                $ 51               $709
                                  ======               =======                ====                ====               ====

Year Ended
  December 31, 1995               $  709               $   152                $ 18                $254               $625
                                  ======               =======                ====                ====               ====

Year Ended
  December 31, 1996               $  625               $     0                $(10)               $113               $502
                                  ======               =======                ====                ====               ====
</TABLE>


<PAGE>


                                                                   Page 26 of 35


     (1) Includes   the   reclassification   effects   of   accounting   for  an
         unconsolidated  joint venture in 1993 as a  consolidated  subsidiary in
         1994.  This  foreclosed  cable  systems  joint  venture  is  now  being
         consolidated with the Partnership.
         (See Note 2.)

     The  aggregate  combined  financial  information  of the  foreclosed  cable
systems  joint  ventures  as of  December  31 and for the  years  then  ended is
presented as follows:

                             COMBINED BALANCE SHEETS

                                     ASSETS

                                                              December 31,
                                                             1996      1995
                                                             ----      ----
                                                         (Amounts in Thousands)

    Cash and cash equivalents                              $  145    $  375
    Accounts receivable                                        78        88
    Property, plant and equipment                           2,022     2,176
    Cable subscriber lists and franchise rights                88       116
    Other assets                                               22        22
    Deferred income taxes                                     119       118
                                                           ------    ------

         Total Assets                                      $2,474    $2,895
                                                           ======    ======

                   LIABILITIES AND PARTNERS' CAPITAL

    Accounts payable                                       $  376    $  323
    Partners' capital                                       2,098     2,572
                                                           ------    ------

         Total Liabilities and Partners' Capital           $2,474    $2,895
                                                           ======    ======


                        COMBINED STATEMENTS OF OPERATIONS

                                     INCOME

                                                For the Years Ended December 31,
                                                    1996      1995      1994
                                                    ----      ----      ----
                                                    (Amounts in Thousands)

   Subscriber revenue                            $ 1,002    $ 1,077    $ 642
   Gain on sale of cable systems                      10         25     --
   Other income                                       20         12        3
                                                 -------    -------    -----

        Total Income                               1,039      1,114      645
                                                 -------    -------    -----

                                    EXPENSES

   Depreciation                                      326        321      160
   Program services                                  338        328      192
   General and administrative expenses               345        310      164
   Management fees to an affiliate of
     the General Partner                              53         48       28
   Provision for losses on accounts
     receivable                                       10         11        9
                                                 -------    -------    -----

        Total Expenses                             1,072      1,018      553
                                                 -------    -------    -----

        Net Income (Loss) Before Income Taxes        (33)        96       92
        Income tax expense                            (4)       (39)     (19)
                                                 -------    -------    -----

        Net Income (Loss)                        $   (37)   $    57    $  73
                                                 =======    =======    =====



<PAGE>


                                                                   Page 27 of 35


         Phoenix  Cable  Management  Inc.  (PCMI),  an  affiliate of the General
Partner,  provides  day  to day  management  services  in  connection  with  the
operation of the foreclosed  cable systems joint ventures.  The foreclosed cable
systems  joint  ventures  will pay a  management  fee equal to four and one-half
percent of the  System's  monthly  gross  revenue for these  services.  Revenues
subject to a management  fee at the joint  venture  level will not be subject to
management fees at the Partnership level.


Note 8.       Accounts Payable and Accrued Expenses.

         Accounts  payable  and accrued  expenses  consist of the  following  at
December 31:

                                                            1996      1995
                                                            ----      ----
                                                        (Amounts in Thousands)

    General Partner and affiliates                         $1,606    $2,086
    Equipment lease operations                                954     1,276
    Other                                                     287       275
                                                           ------    ------

         Total                                             $2,847    $3,637
                                                           ======    ======


Note 9.       Notes Payable.

         Notes payable consist of the following at December 31:

                                                           1996      1995
                                                           ----      ----
                                                       (Amounts in Thousands)

    Note payable to a bank, collateralized
      by the assets of the Partnership with
      interest tied to the bank's prime rate,
      with monthly payments of 30 months.                  $--       $329
                                                           ----      ----

      Total                                                $--       $329
                                                           ====      ====


Note 10.      Income Taxes.

         Federal  and state  income tax  regulations  provide  that taxes on the
income  or loss  of the  Partnership  and  its  majority  owned  subsidiary  are
reportable by the partners in their individual income tax returns.  Accordingly,
no  provision  for  such  taxes  has  been  made in the  accompanying  financial
statements.

         The net differences  between the tax basis and the reported  amounts of
the Partnership's assets and liabilities are as follows at December 31:

                      Reported Amounts        Tax Basis           Net Difference
                      ----------------        ---------           --------------
                                       (Amounts in Thousands)

1996
----

         Assets           $20,762               $22,275               $(1,513)
         Liabilities        2,628                 2,517                   111

1995
----

         Assets           $19,980               $23,407               $(3,427)
         Liabilities        3,876                 3,763                   113




<PAGE>


                                                                   Page 28 of 35


Note 11.      Related Entities.

         The General  Partner serves in the capacity of general partner in other
partnerships,  all of which are engaged in the  equipment  leasing and financing
business.


Note 12.      Reimbursed Costs to the General Partner.

         The General Partner incurs certain  administrative  costs, such as data
processing,   investor   and  lessee   communications,   lease   administration,
accounting,  equipment  storage  and  equipment  remarketing,  for  which  it is
reimbursed by the  Partnership.  These expenses  incurred by the General Partner
are to be  reimbursed at the lower of the actual costs or an amount equal to 90%
of the fair market value for such services.

         The  reimbursed  administrative  costs  to  the  General  Partner  were
$176,000,  $321,000 and $403,000 for the years ended December 31, 1996, 1995 and
1994, respectively. The equipment storage, remarketing and data processing costs
reimbursed to the General Partner during the years ended December 31, 1996, 1995
and 1994 were $12,000, $112,000 and $264,000, respectively.

         In  addition,  the General  Partner  receives a  management  fee and an
acquisition fee (see Note 1).


Note 13.      Net Income and Distributions per Limited Partnership Unit.

         Net income and distributions per limited partnership unit were based on
the Limited  Partner's share of consolidated net income and  distributions,  and
the weighted average number of units  outstanding of 516,716 for the years ended
December 31, 1996,  1995 and 1994.  For the purposes of allocating  consolidated
income  (loss)  and  distributions  to  each  individual  limited  partner,  the
Partnership  allocates  consolidated net income (loss) and  distributions  based
upon each respective limited partner's net capital contributions.


Note 14.      Subsequent Events.

         In January 1997,  cash  distributions  of $11,624,000  were made to the
Limited Partners.


Note 15.      Business Segments.

         The  Partnership  currently  operates  in two  business  segments:  the
equipment  leasing  and  financing  industry  and the  cable  TV  industry.  The
operations  in the cable TV industry are for the years ended  December 31, 1996,
1995 and 1994.  Information  about  the  Partnership's  operations  in these two
segments are as follows:

                                                1996        1995        1994
                                                ----        ----        ----
                                                  (Amounts in Thousands)

Total Revenues
         Equipment leasing and financing      $ 2,563     $ 4,422     $ 7,035
         Cable TV operations                    4,512         687         662
                                              -------     -------     -------
              Total                           $ 7,075     $ 5,109     $ 7,697
                                              =======     =======     =======

Net Income
         Equipment leasing and financing      $ 3,376     $ 3,695     $   810
         Cable TV operations                    1,166         105         135
                                              -------     -------     -------
              Total                           $ 4,542     $ 3,800     $   945
                                              =======     =======     =======

Identifiable Assets
         Equipment leasing and financing      $15,871     $18,643     $22,571
         Cable TV operations                    5,120       1,738       1,751
                                              -------     -------     -------
              Total                           $20,991     $20,381     $24,322
                                              =======     =======     =======

Depreciation and Amortization Expense
         Equipment leasing and financing      $   687     $   995     $ 3,399


<PAGE>


                                                                   Page 29 of 35


         Cable TV operations                      926         154         150
                                              -------     -------     -------
              Total                           $ 1,613     $ 1,149     $ 3,549
                                              =======     =======     =======

Capital Expenditures
         Equipment leasing and financing      $  --       $ 6,146     $   147
         Cable TV operations                      337          49          32
                                              -------     -------     -------
              Total                           $   337     $ 6,195     $   179
                                              =======     =======     =======


Note 16.      Fair Value of Financial Instruments.

         The following  methods and  assumptions  were used to estimate the fair
value of each class of financial  instrument which it is practicable to estimate
that value.

Cash and Cash Equivalents
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of these instruments.

Notes Receivable
The fair  value of notes  receivable  is  estimated  based on the  lesser of the
discounted  expected  future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit  ratings,  or the estimated
fair value of the underlying collateral.

Securities, Available-for-Sale
The fair values of  investments in  available-for-sale  securities are estimated
based on quoted market prices.

Notes Payable
The  carrying   amount  of  the   Partnership's   variable  rate  notes  payable
approximates fair value.

         The estimated fair values of the Partnership's financial instruments at
December 31, are as follows:

                                                         Carrying
                                                          Amount   Fair Value
                                                          ------   ----------
                                                        (Amounts in Thousands)

1996
----

         Assets
              Cash and cash equivalents                    $15,591   $15,591
              Notes receivable                                  58        58

1995
----

         Assets
              Cash and cash equivalents                    $ 3,619   $ 3,619
              Securities, available-for-sale                   559       559
              Notes receivable                              13,153    16,555
         Liabilities
              Notes payable                                    329       329


Note 17.      Pro Forma Information (Unaudited).

         As discussed in Note 1, on February 2, 1996,  the  Partnership  entered
into a Commercial  Code  Section 9505  Agreement  with  Concept  Cablevision  of
Indiana,  Inc., a cable  television  company that the  Partnership  had extended
credit. As a result of this agreement,  Phoenix Concept  Cablevision of Indiana,
L.L.C.,  a  limited  liability  company  and  wholly  owned  subsidiary  of  the
Partnership, was formed.

         On February 14, 1996, the Partnership,  along with two other affiliated
partnerships managed by the General Partner, entered into a Settlement Agreement


<PAGE>


                                                                   Page 30 of 35

and Releases with Grassroots  Cable Systems,  Inc., a cable  television  company
that the Partnership had extended credit. As a result of this agreement, Phoenix
Grassroots Cable Systems, L.L.C., a limited liability company and majority owned
subsidiary of the Partnership, was formed.

         A summary of the unaudited pro forma consolidated results of operations
of the  Partnership  for the year ended  December  31,  1995,  as if these cable
television  systems  had been  acquired  at the  beginning  of the  year,  is as
follows:

                                                    (Amounts in Thousands Except
                                                        for Per Unit Amounts)
                                                            (Unaudited)

          Cable subscriber revenue                             $5,322
          Total income                                          9,765

          Depreciation and amortization                         2,699
          Program service, cable systems                        2,263
          General and administrative expenses                   1,719
          Total expenses                                        6,178

          Net income before minority interest                   3,587
          Minority interest in earnings of subsidiary              20
          Net income                                            3,567

          Net income per limited partnership unit              $ 6.83

         These pro forma results reflect certain  adjustments which, among other
things,  include an  increase  in  operating  revenues  from cable  subscribers,
increases in operating expenses of cable systems,  depreciation and amortization
of  tangible  and  intangible  assets and  adjustments  of  interest  expense on
outstanding debt.

         The above pro forma  consolidated  statement  should not necessarily be
considered  as  indicative  of the  results  that  would have  occurred  had the
acquisitions  been  made at the  beginning  of the  year  and  their  operations
consolidated for the twelve month period.


<PAGE>


                                                                   Page 31 of 35


Item 9.       Disagreements on Accounting and Financial Disclosure Matters.

         None.


                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.

         The  registrant  is  a  limited  partnership  and,  therefore,  has  no
executive  officers or  directors.  The  general  partner of the  registrant  is
Phoenix  Leasing  Incorporated,  a California  corporation.  The  directors  and
executive officers of Phoenix Leasing Incorporated (PLI) are as follows:

         GUS CONSTANTIN,  age 59, is President,  Chief  Executive  Officer and a
Director of PLI. Mr.  Constantin  received a B.S. degree in Engineering from the
University of Michigan and a Master's Degree in Management Science from Columbia
University.  From 1969 to 1972,  he served as Director,  Computer and  Technical
Equipment of DCL Incorporated  (formerly Diebold Computer Leasing Incorporated),
a  corporation  formerly  listed on the  American  Stock  Exchange,  and as Vice
President  and  General  Manager  of DCL  Capital  Corporation,  a  wholly-owned
subsidiary of DCL Incorporated. Mr. Constantin was actively engaged in marketing
manufacturer  leasing programs to computer and medical  equipment  manufacturers
and in directing DCL Incorporated's IBM System/370 marketing  activities.  Prior
to  1969,  Mr.  Constantin  was  employed  by IBM as a data  processing  systems
engineer for four years. Mr. Constantin is an individual general partner in four
active partnerships and is an NASD registered  principal.  Mr. Constantin is the
founder of PLI and the  beneficial  owner of all of the common  stock of Phoenix
American Incorporated.

         PARITOSH K. CHOKSI,  age 43, is Senior Vice President,  Chief Financial
Officer,  Treasurer and a Director of PLI. He has been associated with PLI since
1977.  Mr. Choksi  oversees the finance,  accounting,  information  services and
systems  development  departments of the General  Partner and its Affiliates and
oversees the structuring,  planning and monitoring of the partnerships sponsored
by the General Partner and its Affiliates.  Mr. Choksi graduated from the Indian
Institute of Technology, Bombay, India with a degree in Engineering. He holds an
M.B.A. degree from the University of California, Berkeley.

         GARY W.  MARTINEZ,  age 46, is Senior Vice  President and a Director of
PLI. He has been associated with PLI since 1976. He manages the Asset Management
Department,  which is responsible for lease and loan portfolio management.  This
includes credit analysis,  contract terms, documentation and funding; remittance
application,  change processing and maintenance of customer  accounts;  customer
service, invoicing,  collection,  settlements and litigation;  negotiating lease
renewals,  extensions,  sales and buyouts; and management information reporting.
From 1973 to 1976, Mr.  Martinez was a Loan Officer with Crocker  National Bank,
San  Francisco.  Prior to 1973,  he was an Area Manager with  Pennsylvania  Life
Insurance  Company.  Mr. Martinez is a graduate of California State  University,
Chico.

         BRYANT J. TONG, age 42, is Senior Vice President,  Financial Operations
of PLI. He has been with PLI since 1982.  Mr. Tong is  responsible  for investor
services and overall company  financial  operations.  He is also responsible for
the technical and  administrative  operations of the cash management,  corporate
accounting,  partnership accounting,  accounting systems,  internal controls and
tax  departments,  in addition to Securities  and Exchange  Commission and other
regulatory  agency  reporting.  Prior to his association  with PLI, Mr. Tong was
Controller-Partnership  Accounting with the Robert A. McNeil Corporation for two
years and was an auditor with Ernst & Whinney  (succeeded by Ernst & Young) from
1977 through 1980.  Mr. Tong holds a B.S. in Accounting  from the  University of
California, Berkeley, and is a Certified Public Accountant.

         CYNTHIA  E.  PARKS,  age 41, is Vice  President,  General  Counsel  and
Assistant  Secretary  of PLI.  Prior to joining  PLI in 1984,  she was with GATX
Leasing  Corporation,  and had  previously  been  Corporate  Counsel  for  Stone
Financial  Companies,  and an Assistant  Vice  President of the Bank of America,
Bank Amerilease  Group. She has a bachelor's degree from Santa Clara University,
and earned her J.D. from the University of San Francisco School of Law.

         Neither the General  Partner nor any  Executive  Officer of the General
Partner has any family relationship with the others.

         Phoenix  Leasing  Incorporated  or its  affiliates  and  the  executive
officers of the General  Partner  serve in a similar  capacity to the  following
affiliated limited partnerships:

              Phoenix Leasing American Business Fund, L.P.
              Phoenix Leasing Cash Distribution Fund V, L.P.


<PAGE>


                                                                   Page 32 of 35


              Phoenix  Income  Fund,  L.P.
              Phoenix  High  Tech/High  Yield Fund
              Phoenix  Leasing Cash Distribution Fund IV
              Phoenix  Leasing Cash Distribution Fund II
              Phoenix  Leasing  Income  Fund VII
              Phoenix Leasing  Income  Fund VI
              Phoenix  Leasing  Growth  Fund  1982 and
              Phoenix Leasing Income Fund 1977


Item 11.      Executive Compensation.

         Set forth is the information  relating to all direct  remuneration paid
or accrued by the Registrant during the last year to the General Partner and its
affiliate.
<TABLE>
<CAPTION>
         (A)                       (B)                                    (C)                                   (D)

                                                                  Cash and cash-                           Aggregate of
Name of Individual           Capacities in                        equivalent forms                        contingent forms
or persons in group          which served                         of remuneration                         of remuneration
-------------------          ------------            ---------------------------------------------        ----------------
                                                              (C1)                     (C2)
                                                                              Securities or property
                                                Salaries, fees, directors'    insurance benefits or
                                                fees, commissions, and        reimbursement, personal
                                                bonuses                       benefits
                                                --------------------------    -----------------------
                                                                 (Amounts in Thousands)
<S>                                                     <C>                            <C>                      <C>
Phoenix Leasing
  Incorporated               General Partner            $    153(1)                    $   0                    $   0

Phoenix Cable                                                571(1)                        0                        0
 Managment, Inc.             Manager                    --------                       -----                    -----

                                                        $    724                       $   0                    $   0
                                                        ========                       =====                    =====

(1)  consists of management fees.
</TABLE>

Item 12.      Security Ownership of Certain Beneficial Owners and Management.

         (a)  No person  owns of record,  or is known by the  Registrant  to own
              beneficially,  more  than  five  percent  of any  class of  voting
              securities of the Registrant.

         (b)  The General Partner of the Registrant  owns the equity  securities
              of the Registrant set forth in the following table:
<TABLE>
<CAPTION>
                (1)                                       (2)                                            (3)
         Title of Class                         Amount Beneficially Owned                          Percent of Class
         --------------                         -------------------------                          ----------------
     <S>                              <C>                                                                <C>
     General Partner Interest         Represents a 5% interest in the Registrant's profits               100%
                                      and distributions, until the Limited Partners have
                                      recovered their capital contributions plus a
                                      cumulative return of 12% per annum, compounded
                                      quarterly, on the unrecovered portion thereof.
                                      Thereafter, the General Partner will receive 15%
                                      interest in the Registrant's profits and distributions.

     Limited Partner Interest         177 units                                                          .03%

</TABLE>


<PAGE>


                                                                   Page 33 of 35


Item 13.      Certain Relationships and Related Transactions.

         None.

                                     PART IV

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

                                                                       Page No.
                                                                       --------
(a)      1.   Financial Statements:

              Consolidated Balance Sheets as of December 31,
                1996 and 1995                                             13
              Consolidated Statements of Operations for the
                Years Ended December 31, 1996, 1995 and 1994              14
              Consolidated Statements of Partners' Capital for
                the Years Ended December 31, 1996, 1995 and 1994          15
              Consolidated Statements of Cash Flows for the Years
                Ended December 31, 1996, 1995 and 1994                    16
              Notes to Consolidated Financial Statements               17-30

         2.   Financial Statement Schedule:

              Schedule II - Valuation and Qualifying Accounts
              and Reserves                                                35

         All other schedules are omitted because they are not applicable, or not
required,  or because the  required  information  is  included in the  financial
statements or notes thereto.

(b)      Reports on Form 8-K:

         No reports on Form 8-K were filed for the quarter  ended  December  31,
1996.

(c)      Exhibits

         21.  Additional Exhibits

              a)  Balance Sheet of Phoenix Leasing Incorporated     E21 1-12

              b)  Listing of all subsidiaries of the Registrant:

                  Phoenix  Black  Rock  Cable   J.V.,   a   California   general
                    partnership and majority (81.22%) owned subsidiary.
                  Phoenix  Concept  Cablevision of Indiana,  LLC, a wholly owned
                    Subsidiary.
                  Phoenix  Grassroots  Cable System,  LLC, a wholly
                    owned Subsidiary.

         27.  Financial Data Schedule


<PAGE>


                                                                   Page 34 of 35


                                   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.

                                     PHOENIX LEASING CASH DISTRIBUTION FUND III
                                                    (Registrant)

                                     BY:    PHOENIX LEASING INCORPORATED,
                                            A CALIFORNIA CORPORATION
                                            GENERAL PARTNER


         Date:  March 25, 1997       By:    /S/  GUS CONSTANTIN
                --------------              -------------------
                                            Gus Constantin, President

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

         Signature                     Title                          Date
         ---------                     -----                          ----


/S/ GUS CONSTANTIN      President, Chief Executive Officer and a  March 25, 1997
----------------------- Director of Phoenix Leasing Incorporated  --------------
(Gus Constantin)        General Partner


/S/  PARITOSH K. CHOKSI Chief Financial Officer,                  March 25, 1997
----------------------- Senior Vice President,                    --------------
(Paritosh K. Choksi)    Treasurer and a Director of
                        Phoenix Leasing Incorporated
                        General Partner


/S/  BRYANT J. TONG     Senior Vice President,                    March 25, 1997
----------------------  Financial Operations of                   --------------
(Bryant J. Tong)        (Principal Accounting Officer)
                        Phoenix Leasing Incorporated
                        General Partner


/S/  GARY W. MARTINEZ   Senior Vice President and a Director of   March 25, 1997
----------------------  Phoenix Leasing Incorporated              --------------
(Gary W. Martinez)      General Partner


/S/  MICHAEL K. ULYATT  Partnership Controller                    March 25, 1997
----------------------- of Phoenix Leasing Incorporated           --------------
(Michael K. Ulyatt)     General Partner


<PAGE>

<TABLE>
                                                                                                       Page 35 of 35

                                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                                 A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARY

                                                  SCHEDULE II
                                            (Amounts in Thousands)



SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES


<CAPTION>
              COLUMN A                     COLUMN B           COLUMN C        COLUMN D        COLUMN E         COLUMN F
           Classification                 Balance at         Charged to      Charged to      Deductions       Balance at
                                         Beginning of         Expense         Revenue                           End of
                                            Period                                                              Period
-------------------------------------   -------------        ----------      ----------      ----------       ----------

<S>                                          <C>                <C>           <C>             <C>             <C>
Year ended December 31, 1994
   Allowance for losses on accounts
     receivable                              $  597(1)          $  6          $   32          $  179          $  392
   Allowance for early termination
     of financing leases                        228                0               0              99             129
   Allowance for losses on notes
     receivable                               7,781              576               0               0           8,357
                                             ------             ----          ------          ------          ------

     Totals                                  $8,606             $582          $   32          $  278          $8,878
                                             ======             ====          ======          ======          ======


Year ended December 31, 1995
   Allowance for losses on accounts
     receivable                              $  392             $183          $    0          $  512          $   63
   Allowance for early termination
     of financing leases                        129                0               0              48              81
   Allowance for losses on notes
     receivable                               8,357                0           2,428           2,049           3,880
                                             ------             ----          ------          ------          ------

     Totals                                  $8,878             $183          $2,428          $2,609          $4,024
                                             ======             ====          ======          ======          ======


Year ended December 31, 1996
   Allowance for losses on accounts
     receivable                              $   63             $  8          $    0          $   15          $   56
   Allowance for early termination
     of financing leases                         81                0              81               0               0
   Allowance for losses on notes
     receivable                               3,880                0           2,260           1,016             604
                                             ------             ----          ------          ------          ------

     Totals                                  $4,024             $  8          $2,341          $1,031          $  660
                                             ======             ====          ======          ======          ======


(1)  Includes allowance for losses on accounts receivable of $4,000 for a subsidiary which in prior years was not consolidated
</TABLE>