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 For the fiscal year ended December 31, 1998.

[  ]        Transition Report Pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934
            For the transition period from              to

                         Commission file number 1-10813
                             -----------------------

                          PLM EQUIPMENT GROWTH FUND III
             (Exact name of registrant as specified in its charter)

       California                                      68-0146197
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                      Identification No.)

One Market, Steuart Street Tower
  Suite 800, San Francisco, CA                          94105-1301
   (Address of principal                                 (Zip code)
    executive offices)

        Registrant's telephone number, including area code (415) 974-1399
                             -----------------------
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 ______

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) 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. [X]

Aggregate market value of voting stock:  N/A

Indicate  the number of units  outstanding  of each of the  issuer's  classes of
depositary units, as of the latest practicable date:

          Class                              Outstanding at March 17, 1999
Limited partnership depositary units:                9,871,073
General Partnership units:                                   1

An index of exhibits filed with this Form 10-K is located at page 26.
Total number of pages in this report:  48.


<PAGE>


                                     PART I
ITEM 1.    BUSINESS

(A)  Background

On October 27, 1987, PLM Financial Services,  Inc. (FSI or the General Partner),
a  wholly-owned  subsidiary of PLM  International,  Inc. (PLM  International  or
PLMI),  filed a  Registration  Statement  on Form S-1 with  the  Securities  and
Exchange Commission with respect to a proposed offering of 10,000,000 depositary
units  (the  units) in PLM  Equipment  Growth  Fund III,  a  California  limited
partnership (the  Partnership,  the Registrant,  or EGF III). The  Partnership's
offering became effective on March 21, 1988. FSI, as General Partner,  owns a 5%
interest  in  the  Partnership.  The  Partnership  engages  in the  business  of
investing  in  diversified  equipment  portfolio  consisting  primarily of used,
long-lived,  low-obsolescence  capital equipment that is easily transportable by
and among prospective users.

The Partnership's primary objectives are:

     (1) to maintain a diversified  portfolio of  long-lived,  low-obsolescence,
high residual-value  equipment which were purchased with the net proceeds of the
initial  partnership  offering,  supplemented  by debt  financing,  and  surplus
operating cash during the investment phase of the Partnership.  All transactions
over $1.0  million  must be  approved  by the PLM  International  Credit  Review
Committee  (the  Committee),  which is made up of members  of PLM  International
Senior  Management.  In determining a lessee's  creditworthiness,  the Committee
will consider, among other factors, the lessee's financial statements,  internal
and external credit ratings, and letters of credit;

     (2) to generate sufficient net operating cash flow from lease operations to
meet liquidity  requirements  and to generate cash  distributions to the limited
partners  until  such  time  as  the  General  Partner   commences  the  orderly
liquidation of the  Partnership  assets or unless the  Partnership is terminated
earlier upon sale of all Partnership property or by certain other events;

     (3) To selectively  sell equipment when the General Partner  believes that,
due to market conditions,  market prices for equipment exceed inherent equipment
values or that expected future benefits from continual ownership of a particular
asset will have an adverse affect on the Partnership. Proceeds from these sales,
together  with  excess  net cash flow from  operations  (net  cash  provided  by
operating  activities plus  distributions  from  unconsolidated  special-purpose
entities  (USPEs)),  are used for distributions to the partners or for repayment
of outstanding debt;

     (4) To  preserve  and protect the value of the  portfolio  through  quality
management, maintaining diversity, and constantly monitoring equipment markets.

The offering of the units of the Partnership closed on May 11, 1989. The General
Partner contributed $100 for its 5% general partner interest in the Partnership.
On August 16, 1991, the units of the  Partnership  began trading on the American
Stock Exchange (AMEX).  Thereupon each unitholder  received a depositary receipt
representing  ownership  of the number of units  owned by such  unitholder.  The
General Partner  delisted the  Partnership's  depositary  units from the AMEX on
April 8, 1996. The last day for trading on the AMEX was March 22, 1996.

As of December 31, 1998, there were 9,871,073 depositary units outstanding.

Beginning in the Partnership's eighth year of operations, which began January 1,
1997,  the General  Partner  stopped  reinvesting  cash flow and surplus  funds,
which, if any, less reasonable reserves, will be distributed to the partners. In
the eleventh year of operations of the  Partnership,  which commences on January
1, 2000, the General  Partner will begin the  dissolution  and  liquidation  the
assets of the Partnership in an orderly fashion.  The Partnership will terminate
on December 31, 2000, unless the Partnership is terminated  earlier upon sale of
all of the Partnership's equipment or by certain other events.


<PAGE>


Table  1,  below,  lists  the  equipment  and the cost of the  equipment  in the
Partnership's   portfolio,   and  the  cost  of  investments  in  unconsolidated
special-purpose entities, as of December 31, 1998 (in thousands of dollars):

                                     TABLE 1

<TABLE>
<CAPTION>

 Units                             Type                                     Manufacturer                    Cost
----------------------------------------------------------------------------------------------------------------------

Owned equipment held for operating leases:

    <S>    <C>                                                   <C>                                    <C>       
      3    737-200 Stage II commercial aircraft                  Boeing                                 $   30,506
      1    DC-9-32  Stage II commercial aircraft                 McDonnell Douglas                          10,028
      1    Dash 8-300 Stage II commuter aircraft                 Dehavilland                                 5,748
      1    737-200 Stage III commercial aircraft                 Boeing                                      5,746
    739    Non-pressurized tank railcars                         Various                                    17,794
    477    Pressurized tank railcars                             Various                                    11,417
    119    Coal railcars                                         Various                                     4,788
    355    Marine containers                                     Various                                     5,606
     85    Over-the-road refrigerated trailers                   Various                                     2,670
    162    Intermodal trailers                                   Various                                     2,503
     16    Over-the-road dry trailers                            Stoughton and Strick                           84
                                                                                                        --------------

               Total owned equipment held for operating leases                                          $   96,890 <F1>
                                                                                                        ==============

Investments in unconsolidated special-purpose entities:

   0.56    Bulk carrier marine vessel                            Naikai Zosen                           $    7,163 <F2>
   0.17    Two trusts comprised a total of:
             three 737-200 Stage II commercial aircraft,         Boeing                                      4,706 <F3>
             two Stage II aircraft engines, and a                Pratt Whitney                                 195 <F3>
             portfolio of rotable components                     Various                                       325 <F3>
                                                                                                        --------------

               Total investments in unconsolidated special-purpose entities                             $   12,389 <F1>
                                                                                                        ==============
<FN>

<F1> Includes equipment and investments purchased with the proceeds from capital
     contributions,  undistributed  cash flow from  operations,  and Partnership
     borrowings.   Includes  costs   capitalized   subsequent  to  the  date  of
     acquisition,  and  equipment  acquisition  fees paid to PLM  Transportation
     Equipment  Corporation.  All  equipment  was used  equipment at the time of
     purchase, except for 50 marine containers and 164 dry piggyback trailers.

<F2> Jointly owned:  EGF III (56%) and an affiliated program.

<F3> Jointly owned:  EGF III (17%) and three affiliated programs.

</FN>

</TABLE>


The equipment is generally  leased under  operating  leases with terms of one to
six years. All of the Partnership's marine containers are leased to operators of
utilization-type  leasing pools,  that include  equipment  owned by unaffiliated
parties.  In such instances,  revenues received by the Partnership  consist of a
specified  percentage of revenues  generated by leasing the pooled  equipment to
sublessees,  after  deducting  certain direct  operating  expenses of the pooled
equipment.

As of  December  31,  1998,  approximately  38%  of  the  Partnership's  trailer
equipment is operated in rental yards owned and maintained by PLM Rental,  Inc.,
the short-term trailer rental subsidiary of PLM International  doing business as
PLM Trailer Leasing.  Revenues collected under short-term rental agreements with
the rental yards' customers are credited to the owners of the related  equipment
as received.  Direct expenses associated with the equipment are charged directly
to the  Partnership.  An  allocation  of  indirect  expenses  of the rental yard
operations is charged to the Partnership  monthly.  The remaining  trailer fleet
operated with a short-line railroad system.



<PAGE>


The  lessees  of the  equipment  include  but are not  limited  to:  Continental
Airlines,  Inc., Canadian Airlines International,  Varig S.A. (Viaco Aerea Rio -
Grandense), Time Air, Inc., and Terra Nitrogen.

(B)  Management of Partnership Equipment

The  Partnership  has entered into an equipment  management  agreement  with PLM
Investment  Management,  Inc.  (IMI), a wholly-owned  subsidiary of FSI, for the
management  of  the  Partnership's   equipment.   The  Partnership's  management
agreement with IMI is to co-terminate  with the dissolution of the  Partnership,
unless the limited  partners vote to terminate the agreement  prior to that date
or at the  discretion  of the  General  Partner.  IMI has agreed to perform  all
services  necessary to manage the equipment on behalf of the  Partnership and to
perform or contract for the  performance of all  obligations of the lessor under
the Partnership's  leases. In consideration for its services and pursuant to the
Partnership agreement,  IMI is entitled to a monthly management fee (see Notes 1
and 2 to the financial statements).

(C)  Competition

(1)  Operating Leases versus Full Payout Leases

Generally,  the equipment  owned or invested in by the Partnership is leased out
on an  operating  lease  basis  wherein  the rents  received  during the initial
noncancelable  term of the lease are  insufficient to recover the  Partnership's
purchase  price of the  equipment.  The short to  mid-term  nature of  operating
leases  generally  commands a higher rental rate than  longer-term,  full payout
leases and offers lessees relative flexibility in their equipment commitment. In
addition, the rental obligation under an operating lease need not be capitalized
on the lessee's balance sheet.

The Partnership  encounters  considerable  competition from lessors that utilize
full payout leases on new  equipment,  i.e.  leases that have terms equal to the
expected  economic  life  of  the  equipment.  While  some  lessees  prefer  the
flexibility offered by a shorter-term  operating lease, other lessees prefer the
rate  advantages  possible with a full payout lease.  Competitors may write full
payout  leases  at  considerably  lower  rates  and for  longer  terms  than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates,  which may put the Partnership at a competitive
disadvantage.

(2)  Manufacturers and Equipment Lessors

The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases.  Manufacturers may provide  ancillary  services that the
Partnership  cannot offer, such as specialized  maintenance  service  (including
possible substitution of equipment),  training,  warranty services, and trade-in
privileges.

The  Partnership  also  competes  with many  equipment  lessors,  including  ACF
Industries,  Inc.  (Shippers Car Line Division),  GATX Corp.,  General  Electric
Railcar  Services  Corporation,   General  Electric  Capital  Aviation  Services
Corporation, XTRA Corporation, and other investment programs that lease the same
types of equipment.

(D)  Demand

The Partnership operates or operated in six primary operating segments: aircraft
leasing,  mobile offshore drilling unit leasing,  marine vessel leasing,  marine
container leasing,  railcar leasing, and trailer leasing. Each equipment leasing
segment  engages in  short-term  to  mid-term  operating  leases to a variety of
customers.  Except for those  aircraft  leased to passenger  air  carriers,  the
Partnership's  transportation  equipment  is used  to  transport  materials  and
commodities, rather than people.



<PAGE>


The following  section describes the international and national markets in which
the Partnership's capital equipment operates:

(1)      Aircraft

(a)  Commercial aircraft

The world's major  airlines  experienced a fourth  consecutive  year of profits,
showing a combined  marginal net income (net income  measured as a percentage of
revenue)  of 6%,  compared  to the  industry's  historical  annual  rate  of 1%.
Airlines recorded positive marginal net annual income of 2% in 1995, 4% in 1996,
6% in 1997,  and 6% in 1998.  The two factors that have led to this  increase in
profitability are improvements in yield management systems and reduced operating
costs,  particularly  lowered fuel costs.  These higher levels of  profitability
have allowed many airlines to re-equip their fleets with new aircraft, resulting
in a record number of orders for manufacturers.


Major  airlines  increased  their fleets from 7,181 aircraft in 1997 to 7,323 in
1998,  which has  resulted  in more used  aircraft  available  on the  secondary
market. Despite these increases, the number of Stage II aircraft in these fleets
(similar to those owned by the Partnership)  decreased by 26% from 1997 to 1998,
and  sharper  decreases  are  expected  in 1999.  This  trend is due to  Federal
Aviation  Regulation  section C36.5,  which requires airlines to convert 100% of
their fleets to Stage III aircraft,  which have lower noise levels than Stage II
aircraft,  by the year 2000 in the United States and the year 2002 in Canada and
Europe.  Stage II aircraft can be modified to Stage III with the installation of
a  hushkit  that  significantly  reduces  engine  noise.  The  cost  of  hushkit
installation ranges from $1.0 to $2.0 million for the types of aircraft owned by
the Partnership.


Orders for new aircraft  have risen rapidly  worldwide in recent  years:  691 in
1995,  1,182 in 1996, 1,328 in 1997, and an estimated 1,500 in 1998. As a result
of this increase in orders,  manufacturers  have expanded their production,  and
new aircraft deliveries have increased from 482 in 1995, 493 in 1996, and 674 in
1997, to an estimated 825 in 1998.


The industry now has in place two of the three  conditions that led to financial
problems in the early 1990s: potential excess orders and record deliveries.  The
missing element is a worldwide recession. Should a recession occur, the industry
will experience  another period of excess aircraft capacity and surplus aircraft
on the ground.


The  Partnership's  fleet  consists of several  late-model  Stage II  narrowbody
(single-aisle) commercial aircraft and one Stage III 1980 B737-200. The Stage II
aircraft  are  either  positioned  with  air  carriers  that are  outside  Stage
III-legislated  areas or  anticipated  to be sold or leased outside of Stage III
areas before the year 2000.  The  Partnership  has  scheduled one owned Stage II
narrowbody  aircraft for sale during 1999. The Partnership's 17% interest in two
trusts that  comprised  of a total of three Stage II  narrowbody  aircraft,  two
Stage II  aircraft  engines,  and a  portfolio  of rotable  components  are also
scheduled for sale during 1999.

(b)  Commuter Aircraft

Major changes have occurred in the commuter market due to the 1993  introduction
of small regional jets. The original  concept for regional jets was to take over
the North American hub-and-spoke routes served by the large turboprops, but they
are also finding successful niches in point-to-point routes. The introduction of
this smaller  aircraft has allowed major  airlines to shift the regional jets to
those marginal routes previously operated by narrowbody (single-aisle) aircraft,
allowing  larger-capacity  aircraft  to  be  more  efficiently  employed  in  an
airline's route system.


The Partnership leases commuter turboprops containing from 36 to 50 seats. These
aircraft all fly in North  America,  which  continues to be the  fastest-growing
market for commuter  aircraft in the world. The  Partnership's  aircraft possess
unique performance capabilities,  compared to other turboprops, which allow them
to readily operate at maximum  payloads from unimproved  surfaces,  hot and high
runways,  and short  runways.  However,  the growing use of regional jets in the
commuter  market has resulted in an increase in demand for regional  jets at the
expense of turboprops. Several major turboprop programs have been terminated and
all  turboprop  manufacturers  are  cutting  back on  production  due to reduced
demand.



<PAGE>


(c)  Aircraft Engines

Availability has decreased over the past two years for the Pratt & Whitney Stage
II JT8D  engine,  which  powers many of the  Partnership's  Stage II  commercial
aircraft.  This decrease in supply is due primarily to the limited production of
spare  parts to support  these  engines.  The  demand for this type of  aircraft
engines  currently  exceeds  supply.  The  partnership  expects to sell its JT8D
engines in 1999 that were part of the  Partnership's  17% interest in two trusts
that own a total of three Stage II aircraft,  two Stage II JT8D  engines,  and a
portfolio of aircraft rotables.


(d)  Rotables


Aircraft  rotables,  or  components,  are  replacement  spare  parts  held in an
airline's  inventory.  They are  recycled  parts that are first  removed from an
aircraft or engine, overhauled,  and then recertified,  returned to an airline's
inventory,  and ultimately  refit to an aircraft in as-new  condition.  Rotables
carry  identification  numbers that allow them to be individually tracked during
their use.


The types of rotables owned and leased by the Partnership  include landing gear,
certain engine components,  avionics,  auxiliary power units, replacement doors,
control surfaces,  pumps, and valves. The market for the Partnership's  rotables
remains stable.


The  Partnership  expects  to sell the  rotables  used on its Stage II  aircraft
during 1999 as part of the  Partnership's  17% interest in two trusts that own a
total of three Stage II aircraft,  two Stage II engines,  and  rotables  jointly
owned by the Partnership and three affiliated programs.

(2)  Railcars

(a)  Nonpressurized, General Purpose Tank Cars

Tank cars that do not require  pressurization are used to transport a variety of
bulk liquid  commodities and chemicals,  including  certain  petroleum fuels and
products,  liquified asphalt, lubricating and vegetable oils, molten surfur, and
corn syrup. The largest  consumers of chemical  products are the  manufacturing,
automobile, and housing sectors. Because the bulk liquid industry is so diverse,
its overall  health is reflected by such  general  indicators  as changes in the
Gross  Domestic  Product,  personal  consumption  expenditures,   retail  sales,
currency exchange rates, and national and international economic forecasts.

In North  America,  railcar  loadings  for the  commodity  group  that  includes
chemicals and petroleum  products remained  essentially  unchanged,  compared to
1997. The Partnership's general purpose cars continue to be in high demand, with
utilization over 98% in 1998.

(b)  Pressurized Tank Railcars

Pressurized tank cars transport primarily two chemicals: liquefied petroleum gas
(natural  gas) and  anhydrous  ammonia  (fertilizer).  Natural  gas is used in a
variety of ways in businesses,  electric plants, factories,  homes, and now even
cars.  The demand for  fertilizer  is driven by a number of  factors,  including
grain prices,  the status of  government  farm subsidy  programs,  the amount of
farming acreage and mix of crops planted,  weather patterns,  farming practices,
and the value of the U.S. dollar.

In North  America,  1998 carload  originations  of both  chemicals and petroleum
products  remained  relatively  constant,  compared to 1997. The 98% utilization
rate of the  Partnership's  pressurized  tank  cars  was  consistent  with  this
statistic.

(c)  Coal Railcars

Since most coal is shipped to domestic  electric  utilities,  demand for coal is
greatly  influenced by summer air conditioning  and, to a lesser extent,  winter
heating  requirements.  Coal car loadings in North America in 1998  increased 3%
from 1997.

Coal cars owned by the Partnership are on long-term  leases and operated at 100%
utilization during 1998.



<PAGE>


(3)  Marine Containers

The marine container market began 1998 with industrywide  utilization in the low
80% range.  This  percentage  eroded  somewhat  during the year,  while per diem
rental  rates  remained  steady.   One  factor  affecting  the  market  was  the
availability   of   historically   low-priced   marine   containers  from  Asian
manufacturers.  This trend is expected to remain in 1999,  and will  continue to
put pressure on economic results fleetwide.

The trend  toward  industrywide  consolidation  continued  in 1998,  as the U.S.
parent company of one of the industry's top ten container lessors announced that
it would be outsourcing  the management of its container  fleet to a competitor.
While  this  announcement  has yet to be  finalized,  over the long  term,  such
industrywide  consolidation  should bring more  rationalization to the container
leasing  market and result in both  higher  fleetwide  utilization  and per diem
rates.

(4)  Trailers

(a)  Over-the-Road Refrigerated Trailers

The temperature-controlled  over-the-road trailer market remained strong in 1998
as  freight  levels  improved  and  equipment   oversupply  was  reduced.   Many
refrigerated  equipment  users retired  older  trailers and  consolidated  their
fleets, making way for new,  technologically  improved units.  Production of new
equipment is backlogged  into the third quarter of 1999. In light of the current
tight  supply of  trailers  available  on the  market,  it is  anticipated  that
trucking companies and other refrigerated  trailer users will look outside their
own fleets more  frequently  by leasing  trailers on a short-term  basis to meet
their equipment needs.

This  leasing  trend  should  benefit the  Partnership,  which makes most of its
trailers  available for short-term  leasing from rental yards owned and operated
by a PLM International subsidiary. The Partnership's utilization of refrigerated
trailers showed  improvement in 1998, with  utilization  rates  approaching 70%,
compared to 60% in 1997.

(b)  Intermodal (Piggyback) Trailers

Intermodal  (piggyback)  trailers  are used to ship goods  either by truck or by
rail.  Activity  within the North American  intermodal  trailer market  declined
slightly in 1998, with trailer shipments down 4% from 1997 levels, due primarily
to rail service problems  associated with the mergers in this area.  Utilization
of the intermodal  per diem rental fleet,  consisting of  approximately  170,000
units, was 73%. Intermodal utilization in 1999 is expected to decline another 2%
from 1998 levels,  due to a slight leveling off of overall economic  activity in
1999, after a robust year in 1998.

The General  Partner  has  initiated  expanded  marketing  and asset  management
efforts for its intermodal trailers, from which it expects to achieve,  improved
trailer  utilization and operating  results.  During 1998,  average  utilization
rates for the Partnership's intermodal trailer fleet approached 80%.

(c)  Over-the-Road Dry Trailers

The U.S. over-the-road nonrefrigerated (dry) trailer market continued to recover
in 1998, with a strong domestic economy resulting in heavy freight volumes.  The
leasing outlook continues to be positive, as equipment surpluses of recent years
are being  absorbed by a buoyant  market.  In addition to high freight  volumes,
declining  fuel  prices  have led to a strong  trucking  industry  and  improved
equipment demand.

The  Partnership's  nonrefrigerated  van fleet  experienced  strong  utilization
throughout 1998, with utilization  rates remaining well above 70% throughout the
year.



<PAGE>


(5)  Marine Vessel

The Partnership has investment  with another  affiliated  program in small-sized
dry bulk vessel that is traded in worldwide markets and carry commodity cargoes.
Demand  for  commodity   shipping  closely  follows  worldwide  economic  growth
patterns,  which can alter demand by causing  changes in volume on trade routes.
The General Partner operates the Partnership's vessel through period charter, an
operating  approach that provides the  flexibility  to adapt to changing  market
situations.

Freight rates for dry bulk vessels  decreased  for all ship sizes in 1998,  with
the largest  vessels  experiencing  the  greatest  declines.  After a relatively
stable year in 1997,  rates  declined due to a decrease in cargo tonnage  moving
from the Pacific  Basin and Asia to western  ports.  The size of the overall dry
bulk carrier  fleet  decreased by 3%, as measured by the number of vessels,  but
increased by 1%, as measured by deadweight  (dwt)  tonnage.  While  scrapping of
ships was a significant  factor in 1998  (scrapping  increased by 50% over 1997)
overall  there was no material  change in the size of the dry bulk vessel fleet,
as deliveries and scrapings were nearly equal.

Total dry trade (as  measured  in  deadweight  tons) was flat,  compared to a 3%
growth in 1997. As a result, the market had no foundation for increasing freight
rates, and charter rates declined as trade not only failed to grow, but actually
declined due to economic  disruptions in Asia.  Overall  activity is expected to
remain flat in 1999, with trade in two of the three major commodities  static or
decreasing in volume.  Iron ore volume is expected to decrease,  and grain trade
is anticipated to be flat, while a bright spot remains in an estimated  increase
in steam coal trade.

Ship values experienced a significant decline in 1998, as expectations for trade
growth  were  dampened.  The  decline in ship  values was also driven by bargain
pricing for newbuilding in Asian yards.

The uncertainty in forecasts is the Asian economic  situation;  if there is some
recovery  from the  economic  shake-up  that started in the second half of 1997,
then  1999 has  prospects  for  improvement.  The  delivery  of ships in 1999 is
expected to be less than in 1998, and high scrapping levels should continue. Dry
bulk  shipping  is a cyclical  business -- inducing  capital  investment  during
periods of high freight rates and discouraging  investment during periods of low
rates. The current environment thus discourages investment. However, the history
of the industry  implies that this period will be followed by one of  increasing
rates and investment in new ships, driven by growth in demand. Over time, demand
grows at an average of 3% a year,  so when  historic  levels of growth in demand
resume, the industry is expected to experience a significant increase in freight
rates and ship values.

(E)  Government Regulations

The use,  maintenance,  and  ownership  of equipment  are  regulated by federal,
state,  local, or foreign  government  authorities.  Such regulations may impose
restrictions and financial burdens on the Partnership's  ownership and operation
of  equipment.  Changes  in  government  regulations,   industry  standards,  or
deregulation  may also  affect  the  ownership,  operation,  and  resale  of the
equipment.  Substantial  portions of the Partnership's  equipment  portfolio are
either registered or operated internationally.  Such equipment may be subject to
adverse  political,   government,  or  legal  actions,  including  the  risk  of
expropriation  or loss arising from  hostilities.  Certain of the  Partnership's
equipment is subject to extensive  safety and operating  regulations,  which may
require  its  removal  from  service  or  extensive  modification  to meet these
regulations,  at considerable cost to the Partnership.  Such regulations include
but are not limited to:

     (1) the U.S. Oil Pollution  Act of 1990,  which  established  liability for
         operators and owners of vessels and mobile offshore drilling units that
         create environmental pollution.  This regulation has resulted in higher
         oil  pollution  liability  insurance.   The  lessee  of  the  equipment
         typically reimburses the Partnership for these additional costs;

     (2) the U.S. Department of Transportation's  Aircraft Capacity Act of 1990,
         which limits or eliminates the operation of commercial  aircraft in the
         United  States that do not meet certain  noise,  aging,  and  corrosion
         criteria.   In  addition,   under  United   States   Federal   Aviation
         Regulations, after December 31, 1999, no person may operate an aircraft
         to or from any  airport in the  contiguous  United  States  unless that
         aircraft  has been  shown to comply  with Stage III noise  levels.  The
         Partnership   has  Stage  II  aircraft  that  do  not  meet  Stage  III
         requirements. The cost to husk-kit a Stage II aircraft is approximately
         $1.5  million,  depending  on the type of aircraft.  The  Partnership's
         Stage II aircraft  are either  positioned  with air  carriers  that are
         outside Stage  III-legislated areas or anticipated to be sold or leased
         outside of Stage III areas before the year 2000.  The  Partnership  has
         scheduled one owned Stage II narrowbody  aircraft for sale during 1999.
         The  Partnership's 17% interest in two trusts that comprised of a total
         of three Stage II narrowbody  aircraft,  two Stage II aircraft engines,
         and a  portfolio  of rotable  components  are also  scheduled  for sale
         during 1999;

     (3) the Montreal  Protocol on  Substances  that Deplete the Ozone Layer and
         the U.S. Clean Air Act  Amendments of 1990,  which call for the control
         and eventual replacement of substances that have been found to cause or
         contribute  significantly to harmful effects to the stratospheric ozone
         layer and which are used  extensively as  refrigerants  in refrigerated
         marine cargo containers and over-the-road refrigerated trailers;

     (4) the   U.S.   Department   of   Transportation's   Hazardous   Materials
         Regulations,   which  regulate  the  classification  of  and  packaging
         requirements  for hazardous  materials and which apply  particularly to
         the Partnership's tank railcars.

As of December  31,  1998,  the  Partnership  was in  compliance  with the above
government  regulations.   Typically,   costs  related  to  extensive  equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.

ITEM 2.       PROPERTIES

The Partnership  neither owns nor leases any properties other than the equipment
it has  purchased  its  interests  in entities  that own  equipment  for leasing
purposes.  As of  December  31,  1998,  the  Partnership  owned a  portfolio  of
transportation and related equipment and investments in equipment owned by USPEs
as described in Item 1, Table 1. The  Partnership  acquired  equipment  with the
proceeds of the  Partnership  offering  of $199.7  million,  proceeds  from debt
financing of $41.9  million,  and by reinvesting a portion of its operating cash
flow in additional equipment.

The  Partnership  maintains its principal  office at One Market,  Steuart Street
Tower, Suite 800, San Francisco,  California  94105-1301.  All office facilities
are provided by FSI without reimbursement by the Partnership.

ITEM 3.       LEGAL PROCEEDINGS

The Partnership,  together with affiliates,  has initiated litigation in various
official forums in India against a defaulting Indian airline lessee to repossess
Partnership  property and to recover damages for failure to pay rent and failure
to maintain such  property in accordance  with  relevant  lease  contracts.  The
Partnership  has  repossessed  all of its  property  previously  leased  to such
airline, and the airline has ceased operations. In response to the Partnership's
collection efforts, the airline filed counter-claims  against the Partnership in
excess of the  Partnership's  claims  against the airline.  The General  Partner
believes that the airline's  counterclaims are completely without merit, and the
General Partner will vigorously defend against such counterclaims.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 1998.











                      (This space intentionally left blank)


<PAGE>



                                     PART II

ITEM 5.       MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED DEPOSITARY UNIT 
              MATTERS


As of March 17, 1999, there were 9,871,073  depositary units outstanding.  There
are 8,499 depositary unitholders of record as of the date of this report.

There are several  secondary market facilitate sales and purchases of depositary
units.  Secondary  markets are characterized as having few buyers for depositary
units and therefore are generally viewed as inefficient vehicles for the sale of
depositary units. Presently,  there is no public market for the depositary units
and none is likely to develop.

To prevent the units from being considered  publicly traded and thereby to avoid
taxation of the Partnership as an association treated as a corporation under the
Internal Revenue Code, the depositary units will not be transferable without the
consent  of  the  General  Partner,  which  may  be  withheld  in  its  absolute
discretion.  The General  Partner  intends to monitor  transfers  of units in an
effort to ensure that they do not exceed the  percentage or number  permitted by
certain safe harbors promulgated by the Internal Revenue Service. A transfer may
be  prohibited  if the  intended  transferee  is not an U.S.  citizen  or if the
transfer would cause any portion of the depositary  units of a "Qualified  Plan"
as defined by the Employee Retirement Income Security Act of 1974 and Individual
Retirement Accounts to exceed the allowable limit.

On  January  14,  1999,  the  General  Partner  announced  that it will begin to
recognize  transfers  involving trading of units in the partnership for the 1999
calendar  year.  The  partnership  is listed on the OTC Bulletin Board under the
symbols GFZPZ.

In making the  announcement,  the General  Partner  noted  that,  as in previous
years,  it will continue to monitor the volume of such trades to ensure that the
Partnership  remain in  compliance  with Internal  Revenue  Service (IRS) Notice
88-75 and IRS Code  Section  7704.  These IRS  regulations  contain  safe harbor
provisions  stipulating  the  maximum  number of  partnership  units that can be
traded  during a  calendar  year in order for a  partnership  not to be deemed a
publicly traded partnership for income tax purposes.

Should the Partnership  approach the annual safe harbor  limitation  later on in
1999,  the General  Partner will,  at that time,  cease to recognize any further
transfers  involving  trading  of  Partnership  units.   Transfers  specifically
excluded from the safe harbor  limitations,  referred to in the  regulations  as
"transfers not involving  trading," which include transfers at death,  transfers
between family members,  and transfers involving  distributions from a qualified
retirement  plan,  will  continue  to  be  recognized  by  the  General  Partner
throughout the year.

Pursuant  to the terms of the  partnership  agreement,  the  General  Partner is
generally  entitled to a 5% interest in the profits and losses and distributions
of the Partnership subject to certain special allocation provisions.

The Partnership  engaged in a plan to repurchase up to 250,000 depositary units.
There were no repurchases  of depositary  units in 1998 and 1997. As of December
31, 1998, the Partnership had purchased a cumulative total of 128,853 depositary
units at a total cost of $0.9  million.  The General  Partner  does not plan any
future repurchase of depositary units on behalf of the Partnership.












<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA

Table 2, below, lists selected financial data for the Partnership:

                                     TABLE 2

                        For the Years Ended December 31,
   (In thousands of dollars, except weighted-average depositary unit amounts)

<TABLE>
<CAPTION>

                                                     1998            1997            1996             1995            1994
                                                 --------------------------------------------------------------------------------

    <S>                                          <C>             <C>             <C>              <C>               <C>     
    Operating results:
      Total revenues                             $   19,999      $   26,066      $   25,886       $   28,055        $  40,247  
      Net gain on disposition
        of equipment                                  3,808           5,629           6,450            2,936            2,863
      Loss on revaluation of
        equipment                                        --              --              --               --           (1,082 )
      Equity in net income of unconsolidated
         special-purpose entities                        76             485           6,864               --               --
      Net income                                      2,917           1,937           9,760            2,706              252

    At year-end:
      Total assets                               $   33,068      $   53,186      $   78,651       $   83,317           98,779   
      Total liabilities                              20,986          33,627          50,638           52,980           54,028
      Note payable                                   18,540          29,290          40,284           41,000           41,000

    Cash distribution                            $   10,394      $   10,391      $   11,964       $   16,737           16,811   

    Cash distribution representing a return
      of capital to the limited partners         $    7,477      $    8,454      $    2,204       $   14,031           15,970   

    Per weighted-average depositary unit:

    Net income (loss)                            $     0.24<F1>  $     0.14<F1>  $     0.93<F2>   $     0.19<F3>         (0.06)<F4>

    Cash distribution                            $     1.00      $     1.00      $     1.15       $     1.60             1.60      

    Cash distribution representing a return
      of capital to the limited partners         $     0.76      $     0.86      $     0.22       $     1.41             1.60      

<FN>

<F1> After  reduction of $0.4  million  ($0.04 per  weighted-average  depositary
     unit) resulting from a special  allocation to the General Partner  relating
     to the  gross  gain on the sale of assets  (see Note 1 to the  consolidated
     financial statements).

<F2> After  reduction of $0.1  million  ($0.01 per  weighted-average  depositary
     unit) resulting from a special  allocation to the General Partner  relating
     to the  gross  gain on the sale of assets  (see Note 1 to the  consolidated
     financial statements).

<F3> After  reduction of $0.7  million  ($0.07 per  weighted-average  depositary
     unit) resulting from a special  allocation to the General Partner  relating
     to the  gross  gain on the sale of assets  (see Note 1 to the  consolidated
     financial statements).

<F4> After  reduction of $0.8  million  ($0.08 per  weighted-average  depositary
     unit) resulting from a special  allocation to the General Partner  relating
     to the  gross  gain on the sale of assets  (see Note 1 to the  consolidated
     financial statements).

</FN>

</TABLE>

<PAGE>


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

(A)  Introduction

Management's  discussion  and  analysis of  financial  condition  and results of
operations relates to the financial  statements of PLM Equipment Growth Fund III
(the Partnership).  The following  discussion and analysis of operations focuses
on the  performance of the  Partnership's  equipment in the various  segments in
which  it  operates  and  its  effect  on the  Partnership's  overall  financial
condition.

(B)  Results of Operations -- Factors Affecting Performance

(1)  Re-leasing Activity and Repricing Exposure to Current Economic Conditions

     The exposure of the  Partnership's  equipment  portfolio to repricing  risk
occurs whenever the leases for the equipment expire or are otherwise  terminated
and the  equipment  must be  remarketed.  Major actors  influencing  the current
market rate for Partnership's  equipment include,  supply and demand for similar
or comparable types of transport capacity,  desirability of the equipment in the
leasing market,  market conditions for the particular  industry segment in which
the  equipment  is  to be  leased,  overall  economic  conditions,  and  various
regulations of concerning  the use of the  equipment.  Equipment that is idle or
out of service  between  the  expiration  of one lease and the  assumption  of a
subsequent  lease can result in a reduction of contribution to the  Partnership.
The Partnership  experienced  re-leasing or repricing activity in 1998 primarily
in its aircraft, marine containers, trailers, and railcars.

     (a)  Aircraft:  One  Boeing  737-200  Stage III  commercial  aircraft  came
off-lease  during the third quarter of 1998.  This  aircraft is currently  being
marketed for sale or re-lease.

     (b) Marine containers:  All of the Partnership's marine container portfolio
is operated in  utilization-based  leasing pools and, as such, is highly exposed
to  repricing  activity.  The  Partnership  saw lower  re-lease  rates and lower
utilization on the remaining marine containers fleet during 1998.

     (c)  Trailers:  All of the  Partnership's  trailer  portfolio  operates  in
short-term  rental  facilities or short-line  railroad  systems.  The relatively
short  duration  of most  leases in these  operations  exposes  the  trailers to
considerable re-leasing activity.

     (d) Railcars:  While this equipment  experienced some re-leasing  activity,
lease rates in this market remain relatively constant.

(2)  Equipment Liquidations

Liquidation  of  Partnership  equipment and  investments  in USPEs  represents a
reduction in the size of the  equipment  portfolio and may result in a reduction
of contribution to the  Partnership.  Lessees not performing  under the terms of
their  leases,  either by not paying rent,  not  maintaining  or  operating  the
equipment in accordance  with the  conditions of the leases,  or other  possible
departures from the leases,  can result not only in reductions in  contribution,
but also may require the Partnership to assume  additional  costs to protect its
interests under the leases,  such as repossession or legal fees. The Partnership
experienced the following in 1998:

During 1998, the  Partnership  disposed of owned  equipment that included marine
containers,  trailers,  railcars,  and a mobile offshore drilling unit for total
proceeds of $12.1 million.

(3)  Equipment Valuation

In accordance  with  Financial  Accounting  Standards  Board  Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be  Disposed  Of",  the  General  Partner  reviews  the  carrying  value  of the
Partnership's  equipment  portfolio  at least  quarterly in relation to expected
future market conditions for the purpose of assessing the  recoverability of the
recorded amounts. If projected  undiscounted future lease revenues plus residual
values are less than the carrying value of the equipment,  a loss on revaluation
is recorded.  No  reductions to the carrying  values of equipment  were required
during either 1998, 1997, or 1996.

As of December 31, 1998, the General  Partner  estimated the current fair market
value of the  Partnership's  equipment  portfolio,  including the  Partnership's
interest in equipment  owned by USPEs,  to be $64.6  million.  This  estimate is
based on recent market  transactions for equipment  similar to the Partnership's
equipment portfolio and the Partnership's  interest in equipment owned by USPEs.
Ultimate  realization  of  fair  market  value  by the  Partnership  may  differ
substantially from the estimate due to specific market conditions, technological
obsolescence,  and government regulations,  among other factors that the General
Partner cannot accurately predict.

(C)  Financial Condition -- Capital Resources and Liquidity

The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity  offering of $199.7 million and permanent
debt  financing of $41.9  million.  No further  capital  contributions  from the
limited  partners are  permitted  under the terms of the  Partnership's  limited
partnership  agreement.  In addition,  the  Partnership,  under its current loan
agreement,  does not have the capacity to incur additional debt. The Partnership
relies on operating cash flow to meet its operating obligations and to make cash
distributions to the limited partners.

For the year ended December 31, 1998, the Partnership generated $11.4 million in
operating cash (net cash provided by operating  activities plus  non-liquidating
cash  distributions  from USPES) to meet its operating  obligations  and to make
distributions  (total of $10.4  million in 1998) to the  partners  but also used
undistributed available cash from prior periods of approximately $0.8 million.

The Partnership's note payable,  which bears interest at 1.5% over LIBOR, had an
outstanding balance of $18.5 million as of December 31, 1998 and March 17, 1999.
Commencing October 1, 1997, the loan required quarterly principal payments equal
to the net proceeds from asset sales from that quarter,  or maintain the minimum
of the facility  balance  specified  in the loan  agreement.  During  1998,  the
Partnership  paid $10.8 million of the  outstanding  loan balance as a result of
asset sales.

The General  Partner has not  planned any  expenditures,  nor is it aware of any
contingencies  that would  cause it to require  any  additional  capital to that
mentioned above.











                      (This space intentionally left blank)


<PAGE>


(D)  Results of Operations -- Year-to-Year Detailed Comparison

(1)  Comparison  of the  Partnership's  Operating  Results  for the Years  Ended
     December 31, 1998 and 1997

(a)  Owned Equipment Operations

Lease  revenues  less  direct  expenses  (defined  as repairs  and  maintenance,
equipment  operating and asset-specific  insurance  expenses) on owned equipment
decreased for the year ended  December 31, 1998 when compared to the same period
of 1997.  Certain expenses such as depreciation and amortization and general and
administrative  expenses  relating to the operating  segments (see Note 5 to the
audited financial statements), are not included in the owned equipment operation
discussion  because these expenses are more indirect in nature,  not a result of
operations but more the result of owning a portfolio of equipment. The following
table presents  lease revenues less direct  expenses by segment (in thousands of
dollars):

<TABLE>
<CAPTION>

                                                         For the Years
                                                      Ended December 31,
                                                    1998              1997
  ----------------------------------------------------------------------------------
  <S>                                          <C>               <C>            
  Aircraft                                     $         5,150   $         6,499
  Rail equipment                                         4,768             5,319
  Trailers                                               1,035             1,539
  Mobile offshore drilling unit                            738             1,612
  Marine containers                                        272             1,077
  Marine vessels                                           (54 )            (160 )

</TABLE>

Aircraft: Aircraft lease revenues and direct expenses were $6.5 million and $1.3
million,  respectively,  for 1998,  compared to $7.9  million and $1.4  million,
respectively,  during 1997. Lease revenues decreased $1.4 million for 1998, when
compared to 1997 due to the sale of a total of two aircraft during the third and
fourth  quarters of 1997 and one aircraft  that went  offlease  during the third
quarter of 1998.  The  decrease  in lease  revenue was  partially  offset by the
incremental  lease  revenue  from an  aircraft  that  was  transferred  into the
Partnership's  owned equipment  portfolio from a trust during the second quarter
of 1998.

Rail equipment: Railcar lease revenues and direct expenses were $7.1 million and
$2.4 million, respectively, for 1998, compared to $7.5 million and $2.2 million,
respectively,  during  1997.  The  decrease  in  lease  revenues  was due to the
disposition of rail equipment during 1998 and 1997 and more rail equipment being
off lease during 1998 when compared to the same period of 1997.  The increase in
direct expenses resulted from running repairs required on certain rail equipment
in the fleet during 1998 that were not needed during 1997.

Trailers:  Trailer lease revenues and direct expenses were $1.3 million and $0.2
million,  respectively,  for 1998,  compared to $1.8  million and $0.3  million,
respectively,  during 1997. The number of trailers owned by the  Partnership has
been declining due to sales and dispositions. The result of this declining fleet
has been a decrease in trailers net contribution.

Mobile  offshore  drilling  unit:  Mobile  offshore  drilling  unit (MODU) lease
revenues and direct  expenses were $0.8 million and $19,000,  respectively,  for
1998,  compared to $1.6 million and  $31,000,  respectively,  during  1997.  The
decrease in contribution was due to the sale of the  Partnership's  MODU in June
of 1998.

Marine  containers:  Marine  containers  lease revenues and direct expenses were
$0.3 million and $6,000,  respectively,  for 1998,  compared to $1.1 million and
$10,000, respectively, during 1997. The number of marine containers owned by the
Partnership has been declining due to sales and dispositions. The result of this
declining fleet has been a decrease in marine container net contribution.

Marine  vessels:  Marine vessel lease revenues and direct expenses were zero and
$0.1  million,   respectively,   1998,   compared  to  zero  and  $0.2  million,
respectively,  during 1997. The decrease of net contribution was due to the sale
of all the Partnership's  marine vessels during 1996. The direct expense of $0.1
million for 1998 was due to additional  supplemental liability insurance charged
to the  Partnership  for sold  vessels by the  former  insurance  company.  This
expense was partially  offset by loss of hire insurance  refund  received during
the second quarter of 1998 from Transportation  Equipment Indemnity Company Ltd.
(TEI), an affiliate of the General Partner, due to lower claims from the insured
Partnership  and other insured  affiliated  partnerships.  The direct expense of
$0.2 million in 1997 was  primarily due to  uncollectible  port costs for a sold
vessel that were formerly borne by the lessee.

(b)  Indirect Expenses Related to Owned Equipment Operations

Total  indirect  expenses of $13.2 million for 1998 decreased from $20.5 million
for 1997. Significant variances are explained as follows:

     (i) A decrease of $4.5 million in  depreciation  and  amortization  expense
from 1997 levels reflects the sale or disposition of certain  Partnership assets
during 1998 and 1997 and the Partnership's use of the  double-declining  balance
method of depreciation which results in greater  depreciation in the first years
an asset is owned.

     (ii)A decrease of $1.5 million in interest expense was due to lower average
debt outstanding during 1998 when compared to 1997.

     (iii) A decrease of $0.8  million in bad debt  expense from 1997 due to the
collection  of $0.4  million  from  past due  receivables  during  1998 that had
previously been reserved for as a bad debt and the General Partner's  evaluation
of the collectability of receivables due from certain lessees.

     (iv)A decrease of $0.3 million in general and  administrative  expenses was
primarily due to reduced legal fees to collect outstanding  receivables due from
an aircraft lessee.

     (v) A decrease of $0.2  million in  management  fees was due to lower lease
revenues in 1998, compared to 1997.

(c)  Net Gain on Disposition of Owned Equipment

The net gain on  disposition of equipment was $3.8 million for 1998 and resulted
from the  disposition of marine  containers,  trailers,  railcars,  and a mobile
offshore  drilling  unit.  These assets had an aggregate  net book value of $8.3
million and were sold or liquidated for proceeds of $12.1 million.  The net gain
on disposition of equipment  totaled $5.6 million for 1997 and resulted from the
disposition of marine containers, trailers, railcars, and aircraft. These assets
had an aggregate net book value of $6.5 million and were sold or liquidated  for
proceeds of $12.1 million.

(d)      Interest and Other Income

Interest  and other income  decreased by $0.2 million for 1998  compared to 1997
primarily due to lower cash balances available for investment.

(e)  Equity in Net  Income  (Loss) of  Unconsolidated  Special-Purpose  Entities
     (USPEs)

Net income (loss) generated from the operation of jointly-owned assets accounted
for under the  equity  method is shown in the  following  table by  segment  (in
thousands of dollars):

<TABLE>
<CAPTION>

                                                            For the Years
                                                          Ended December 31,
                                                       1998               1997
                                                  -------------------------------------
  <S>                                             <C>                <C>            
  Aircraft, aircraft engines, and rotables        $            49    $           857
  Marine vessels                                               27               (372 )
                                                  =====================================
    Equity in net income of USPEs                 $            76    $           485
                                                  =====================================

</TABLE>

Aircraft,  aircraft engines,  and rotables:  The Partnership's share of aircraft
revenues and  expenses  were $1.2 million and $1.2  million,  respectively,  for
1998, compared to $2.8 million and $1.9 million,  respectively,  during 1997. As
of December  31, 1998 and 1997,  the  Partnership  had an interest in two trusts
that own a total of three  commercial  aircraft,  two  aircraft  engines,  and a
portfolio of aircraft  rotables.  As of December 31, 1997, the Partnership  also
owned an interest in a trust that owned four commercial  aircraft.  The aircraft
in this  trust was  transferred  out of the trust into the  Partnership's  owned
equipment  portfolio  in the  second  quarter  of 1998.  The  decrease  in lease
revenues  was due to the  renewal  of the  leases in 1998 for  three  commercial
aircraft,  two aircraft engines, and a portfolio of aircraft rotables at a lower
rate than was in place during the same period of 1997.  In  addition,  the lease
revenues  decreased  because of the aircraft that was transferred out of a trust
into the Partnership's owned equipment portfolio went offlease during the second
quarter of 1998.  Depreciation,  direct expenses,  and  administrative  expenses
decreased as a result of this transfer and due to the  double-declining  balance
method of depreciation, which results in greater depreciation in the first years
an asset is owned.

Marine  vessel:  The  Partnership's  share of  revenues  and  expenses of marine
vessels was $1.4 million and $1.4 million,  respectively,  for 1998, compared to
$1.4 million and $1.8 million,  respectively,  for 1997. As of December 31, 1998
and  1997,  the  Partnership  had a  56%  interest  in an  entity  that  owns  a
bulk-carrier  marine vessel. The net income of $27,000 in 1998,  compared to the
net loss of $0.4 in 1997, was due to lower insurance and  depreciation  expenses
in 1998 than in 1997.

(f) Net Income

As a result of the  foregoing,  the  Partnership's  net income for 1998 was $2.9
million,  compared to net income of $1.9 million during 1997. The  Partnership's
ability to operate,  liquidate  assets,  and re-lease  those assets whose leases
expire is subject to many factors, and the Partnership's  performance during the
year ended December 31, 1998 is not necessarily indicative of future periods. In
the year ended  December 31, 1998 and 1997,  the  Partnership  distributed  $9.9
million to the limited partners, or $1.00 per weighted-average depositary unit.

(2)  Comparison  of the  Partnership's  Operating  Results  for the Years  Ended
     December 31, 1997 and 1996

(a)  Owned Equipment Operations

Lease  revenues  less  direct  expenses  (defined  as repairs  and  maintenance,
equipment  operating and asset-specific  insurance  expenses) on owned equipment
increased for the year ended  December 31, 1997 when compared to the same period
of 1996.  Certain expenses such as depreciation and amortization and general and
administrative  expenses  relating to the operating  segments (see Note 5 to the
audited financial statements), are not included in the owned equipment operation
discussion  because these expenses are more indirect in nature,  not a result of
operations but more the result of owning a portfolio of equipment. The following
table presents  lease revenues less direct  expenses by segment (in thousands of
dollars):

<TABLE>
<CAPTION>

                                                         For the Years
                                                      Ended December 31,
                                                    1997              1996
  ----------------------------------------------------------------------------------
  <S>                                          <C>               <C>            
  Aircraft and aircraft engines                $         6,499   $         3,688
  Rail equipment                                         5,319             4,976
  Mobile offshore drilling unit                          1,612               701
  Trailers                                               1,539             1,748
  Marine containers                                      1,077             1,482
  Marine vessels                                          (160 )             926

</TABLE>

Aircraft and aircraft engines:  Aircraft lease revenues and direct expenses were
$7.9 million and $1.4 million,  respectively, for 1997, compared to $5.0 million
and $1.3 million,  respectively,  during 1996. The increase in net  contribution
was due to three aircraft  acquired during the second and third quarter of 1996,
one  aircraft  that was off lease for part of 1996 and went back on lease during
the first  quarter of 1997,  partially  offset by  disposition  of two  aircraft
during the third and fourth quarter of 1997.

Rail equipment: Railcar lease revenues and direct expenses were $7.5 million and
$2.2 million, respectively, for 1997, compared to $7.8 million and $2.8 million,
respectively,  during 1996. The increase in railcar  contribution  resulted from
running repairs  required on certain railcars in the fleet in 1996 that were not
needed  during 1997.  The increase in  contribution  caused by lower repairs was
partially  offset by a decrease in railcar  revenue due to lower  average  lease
rate in 1997 when compared to 1996.

Mobile offshore  drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $1.6 million and $31,000,  respectively, for 1997, compared
to $0.7  million  and  $19,000,  respectively,  during  1996.  The  increase  in
contribution  was  due to a full  year of  revenue  earned  on the rig in  1997,
compared to five months in 1996.

Trailers:  Trailer lease revenues and direct expenses were $1.8 million and $0.3
million,  respectively,  for 1997,  compared to $2.1  million and $0.4  million,
respectively,  during 1996. The number of trailers owned by the  Partnership has
been declining due to sales and dispositions. The result of this declining fleet
has been a decrease in trailers net contribution.

Marine containers: Marine container lease revenues and direct expenses were $1.1
million  and  $10,000,  respectively,  for 1997,  compared  to $1.5  million and
$12,000, respectively, during 1996. The number of marine containers owned by the
Partnership has been declining due to sales and dispositions. The result of this
declining fleet has been a decrease in marine container net contribution.

Marine  vessels:  Marine vessel lease revenues and direct expenses were zero and
$0.2 million, respectively, for 1997, compared to $1.4 million and $0.5 million,
respectively,  during 1996. The decrease of net contribution was due to the sale
of all the  Partnership's  marine vessels during 1996. The $0.2 million net loss
in 1997 was  primarily  due to  uncollectible  port costs for a sold vessel that
were formerly borne by the lessee.

(b)  Indirect Expenses Related to Owned Equipment Operations

Total  indirect  expenses of $20.5 million for 1997 increased from $18.1 million
for 1996. Significant variances are explained as follows:

     (i) An increase of $2.9 million in depreciation  and  amortization  expense
from 1996 levels  reflects  the  Partnership's  entire year of  depreciation  on
equipment  purchased  in  1996,  which  was  partially  offset  by the  sale  or
disposition of certain Partnership assets during 1997 and 1996.

     (ii) An increase of $0.1 million in management fees was due to higher lease
revenues in 1997, compared to 1996.

     (iii) A decrease  of $0.4  million  in bad debt  expense  from 1996  levels
primarily  reflects the  Partnership's  evaluation of  collectibility of certain
receivable balances.

     (iv) A decrease of $0.3 million in general and administrative  expenses was
primarily due to decreases in inspection costs and various taxes.

(c)  Net Gain on Disposition of Owned Equipment

The net gain on  disposition of equipment was $5.6 million for 1997 and resulted
from the disposition of marine  containers,  trailers,  railcars,  and aircraft.
These  assets had an  aggregate  net book value of $6.5 million and were sold or
liquidated  for  proceeds  of  $12.1  million.  The net gain on  disposition  of
equipment  totaled $6.5 million for 1996 and resulted  from the  disposition  of
aircraft engines,  marine vessels,  marine containers,  trailers,  and railcars.
These  assets had an  aggregate  net book value of $8.0 million and were sold or
liquidated for proceeds of $13.8  million.  Included in the gain of $6.5 million
from the sale of equipment was the unused portion of accrued  drydocking of $0.7
million.

(d)  Interest and Other Income

Interest  and other income  decreased by $0.5 million for 1997  compared to 1996
primarily due to no sales-type  lease income in 1997 compared to $0.5 million in
1996.  The charterer  exercised its option to buy the vessel which was under the
sales-type lease in July 1996.



<PAGE>


(e)  Equity in Net Income (Loss) of USPEs

Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity  method is shown in the following  table by equipment  type
(in thousands of dollars):

<TABLE>
<CAPTION>

                                                         For the Years
                                                      Ended December 31,
                                                    1997              1996
                                               -------------------------------------
  <S>                                          <C>               <C>            
  Aircraft, aircraft engines, and rotables     $           857   $           901
  Marine vessels                                          (372 )            (611 )
  Mobile offshore drilling unit                             --             6,574
                                               =====================================
    Equity in net income of USPEs              $           485   $         6,864
                                               =====================================

</TABLE>

Aircraft,  aircraft engines,  and rotables:  The Partnership's share of aircraft
revenues and  expenses  were $2.8 million and $1.9  million,  respectively,  for
1997, compared to $3.6 million and $2.7 million,  respectively,  during 1996. As
of December 31, 1997, the Partnership had a partial beneficial interest in three
trusts that hold seven commercial aircraft,  two aircraft engines, and a package
of  rotable  components.  The  decrease  in  net  contribution  was  due  to the
Partnership's  liquidation  of its 50%  investment  in an entity  that  owned an
aircraft  engine in the third quarter of 1996,  resulting in $0.7 million in net
gains on sale.

Marine  vessel:  The  Partnership's  share of  revenues  and  expenses of marine
vessels was $1.4 million and $1.8 million,  respectively,  for 1997, compared to
$1.4 million and $2.0 million,  respectively, for 1996. As of December 31, 1997,
the Partnership had a 56% interest in an entity that owns a bulk-carrier  marine
vessel.  The  decrease in net loss in 1997,  when  compared to 1996,  was due to
lower repairs and maintenance and lower marine  operating  expenses in 1997 than
in 1996.

Mobile offshore drilling unit: The Partnership's  share of revenues and expenses
of the mobile offshore drilling unit was zero for 1997, compared to $7.2 million
and $0.6  million,  respectively,  for 1996.  The income of $6.6 million for the
twelve  months ended  December 31, 1996 was  primarily  due to the sale,  in the
third quarter of 1996, of the Partnership's  investment in an entity that owns a
mobile offshore drilling unit, for a gain of which the  Partnership's  share was
$6.5 million.

(f) Net Income

As a result of the  foregoing,  the  Partnership's  net income for 1997 was $1.9
million,  compared to net income of $9.8 million during 1996. The  Partnership's
ability to operate,  liquidate  assets,  and re-lease  those assets whose leases
expire is subject to many factors, and the Partnership's  performance during the
year ended December 31, 1997 is not necessarily indicative of future periods. In
the year ended December 31, 1997, the  Partnership  distributed  $9.9 million to
the limited partners, or $1.00 per weighted-average depositary unit.

(E)  Geographic Information

Certain  of the  Partnership's  equipment  operates  in  international  markets.
Although these operations expose the Partnership to certain currency, political,
credit,  and economic risks,  the General Partner  believes that these risks are
minimal or has implemented  strategies to control the risks.  Currency risks are
at a minimum  because all invoicing,  with the exception of a number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are minimized
by avoiding  operations in countries that do not have a stable  judicial  system
and established  commercial business laws. Credit support strategies for lessees
range from letters of credit supported by U.S. banks to cash deposits.  Although
these credit support mechanisms  generally allow the Partnership to maintain its
lease yield,  there are risks associated with  slow-to-respond  judicial systems
when legal  remedies  are  required to secure  payment or  repossess  equipment.
Economic risks are inherent in all international markets and the General Partner
strives to minimize this risk with market analysis prior to committing equipment
to a  particular  geographic  area.  Refer  to Note 6 to the  audited  financial
statements  for  information on the revenues,  net income  (loss),  and net book
value of equipment in various geographic regions.

Revenues and net operating income by geographic  region are impacted by the time
period  the  asset is owned  and the  useful  life  ascribed  to the  asset  for
depreciation  purposes.  Net  income  (loss)  from  equipment  is  significantly
impacted  by  depreciation  charges,  which are  greatest  in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues,  net income (loss), and net book value
of equipment are expected to change  significantly in the future, as assets come
off  lease and  decisions  are made to either  redeploy  the  assets in the most
advantageous geographic location or sell the assets.

The Partnership's owned equipment on lease to the United States (U.S.)-domiciled
lessees  consisted of railcars,  trailers,  and an aircraft.  During 1998,  U.S.
lease revenues  accounted for 27% of the lease revenues  generated by wholly-and
partially-owned  equipment, while these operations accounted for $1.5 million in
net income of the Partnership's total aggregate net income of $2.9 million.

The  Partnership's  owned  equipment  on  lease  to  Canadian-domiciled  lessees
consisted  of  railcars  and  an  aircraft   that  was   transferred   into  the
Partnership's  owned equipment  portfolio from a trust during the second quarter
of 1998.  Canadian  lease  revenues  accounted  for 32% of total lease  revenues
generated  by  wholly-and  partially-owned  equipment,  while  these  operations
accounted for $1.6 million in net income of the  Partnership's  total  aggregate
net income of $2.9 million.

The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to Europe  consisted of three owned aircraft and an interest in two trusts
that own three aircraft,  two aircraft engines, and aircraft rotable components.
During 1998, the lease revenues for these operations  accounted for 24% of total
lease revenues generated by wholly-and  partially-owned  equipment and accounted
for a loss of $0.5  million in 1998 of the  Partnership's  total  aggregate  net
income of $2.9 million.

The Partnership's owned equipment on lease to Asian-domiciled  lessees consisted
of an aircraft  which  accounted  for 5% of total  lease  revenue  generated  by
wholly-and  partially-owned  equipment.  During 1998,  the net loss generated by
this operation was $1.1 million of the Partnership's  total aggregate net income
of $2.9 million. The net loss of $1.1 million in 1998 was due to $1.2 million of
repairs and maintenance expenses to prepare the aircraft for re-lease.

The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to lessees in the rest of the world  consisted of marine  containers,  one
mobile offshore drilling unit, and a partially owned marine vessel. During 1998,
lease revenues for these operations accounted for 13% of the total lease revenue
generated  by  wholly-and  partially-owned  equipment,  while  these  operations
accounted for $3.9 million in net income of the  Partnership's  total  aggregate
net income of $2.9 million.  The mobile offshore  drilling unit was sold in June
of 1998 with a gain of $3.6 million.

(F)      Effects of Year 2000

It is possible that the General Partner's  currently installed computer systems,
software  products,  and other business systems,  or the Partnership's  vendors,
service  providers,  and customers,  working either alone or in conjunction with
other  software or systems,  may not accept  input of,  store,  manipulate,  and
output  dates on or after  January  1, 2000  without  error or  interruption  (a
problem commonly known as the "Year 2000" problem). Since the Partnership relies
substantially  on the General  Partner's  software  systems,  applications,  and
control devices in operating and monitoring significant aspects of its business,
any Year 2000  problem  suffered  by the General  Partner  could have a material
adverse effect on the Partnership's business,  financial condition,  and results
of operations.

The General Partner has  established a special Year 2000 oversight  committee to
review  the  impact  of Year  2000  issues on its  software  products  and other
business  systems  in  order to  determine  whether  such  systems  will  retain
functionality  after  December  31, 1999.  The General  Partner (a) is currently
integrating Year  2000-compliant  programming code into its existing  internally
customized and internally developed transaction  processing software systems and
(b) the General Partner's  accounting and asset management software systems have
either already been made Year 2000-compliant or Year 2000-compliant  upgrades of
such systems are planned to be implemented by the General Partner before the end
of  fiscal  1999.  Although  the  General  Partner  believes  that its Year 2000
compliance  program can be completed by the  beginning of 1999,  there can be no
assurance that the  compliance  program will be completed by that date. To date,
the  costs  incurred  and  allocated  to the  Partnership  to  become  Year 2000
compliant have not been material.  Also, the General Partner believes the future
cost  allocable to the  Partnership  to become Year 2000  compliant  will not be
material.

It is possible that certain of the  Partnership's  equipment lease portfolio may
not be  Year  2000  compliant.  The  General  Partner  is  currently  contacting
equipment  manufacturers  of the  Partnership's  leased  equipment  portfolio to
assure Year 2000 compliance or to develop  remediation  strategies.  The General
Partner does not expect that  non-Year 2000  compliance of its leased  equipment
portfolio will have an adverse material impact on its financial statements.

Some risks  associated  with the Year 2000 problem are beyond the ability of the
General  Partner or Partnership to control,  including the extent to which third
parties can address the Year 2000 problem.  The General Partner is communicating
with vendors, services providers, and customers in order to assess the Year 2000
compliance  readiness of such parties and the extent to which the Partnership is
vulnerable to any third-party  Year 2000 issues.  There can be no assurance that
the  software  systems  of such  parties  will be  converted  or made  Year 2000
compliant in a timely manner.  Any failure by the General  Partner or such other
parties  to make  their  respective  systems  Year 2000  compliant  could have a
material  adverse  effect on the business,  financial  position,  and results of
operations from the Partnership. The General Partner will make an ongoing effort
to recognize and evaluate  potential  exposure relating to third-party Year 2000
non-compliance,  and will  develop a  contingency  plan if the  General  Partner
determines that third-party  non-compliance  will have a material adverse effect
on the Partnership's business, financial position, or results of operation.

The General  Partner is currently  developing a contingency  plan to address the
possible  failure of any  systems  due to the Year 2000  problems.  The  General
Partner anticipates these plans will be completed by September 30, 1999.

(G)  Accounting Pronouncements

In June 1998, the Financial  Accounting  Standards Board issued  "Accounting for
Derivative   Instruments  and  Hedging   Activities"   (SFAS  No.  133),   which
standardizes  the  accounting  for  derivative  instruments,  including  certain
derivative instruments embedded in other contracts,  by requiring that an entity
recognize  those items as assets or  liabilities  in the  statement of financial
position and measure  them at fair value.  This  statement is effective  for all
quarters of fiscal years beginning after June 15, 1999. As of December 31, 1998,
the  General  Partner is  reviewing  the effect this  standard  will have on the
Partnership's consolidated financial statements.

(H)  Inflation

Inflation had no significant impact on the Partnership's operations during 1998,
1997, or 1996.

(I)  Forward-Looking Information

Except for historical  information contained herein, the discussion in this Form
10-K contains  forward-looking  statements that involve risks and uncertainties,
such as statements of the Partnership's  plans,  objectives,  expectations,  and
intentions.  The cautionary  statements made in this Form 10-K should be read as
being applicable to all related forward-looking  statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.

(J)  Outlook for the Future

The Partnership will enter its liquidation  phase beginning January 1, 2000. The
General  Partner will be seeking to  selectively  re-lease or sell assets as the
existing leases expire.  Sale decisions will cause the operating  performance of
the  Partnership to decline over the remainder of its life. The General  Partner
anticipates that the liquidation of Partnership  assets will be completed by the
scheduled termination of the Partnership at the end of the year 2000.

Several factors may affect the Partnership's  operating  performance in 1999 and
beyond,  including  changes in the markets for the  Partnership's  equipment and
changes in the regulatory environment in which that equipment operates.

The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is  intended  to reduce its  exposure  to  volatility  in  individual
equipment sectors.

The  ability  of the  Partnership  to  realize  acceptable  lease  rates  on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations.  The  unpredictability of these factors, or
of their  occurrence,  makes it  difficult  for the  General  Partner to clearly
define trends or influences that may impact the performance of the Partnership's
equipment.  The General Partner continually  monitors both the equipment markets
and the performance of the Partnership's equipment in these markets. The General
Partner  may  decide to reduce the  Partnership's  exposure  to those  equipment
markets in which it  determines  that it cannot  operate  equipment  and achieve
acceptable rates of return.

The  Partnership  intends  to use cash  flow  from  operations  to  satisfy  its
operating  requirements,  pay loan principal on debt, and pay cash distributions
to the investors.

(1)  Repricing Risk

Certain of the Partnership's aircraft,  railcars,  trailers, and containers will
be remarketed in 1999 as existing  leases  expire,  exposing the  Partnership to
some repricing risk/opportunity.  Additionally, the General Partner may elect to
sell certain  underperforming  equipment or equipment whose continued  operation
may become prohibitively  expensive. In either case, the General Partner intends
to re-lease or sell equipment at prevailing market rates;  however,  the General
Partner  cannot  predict these future rates with any certainty at this time, and
cannot  accurately  assess the  effect of such  activity  on future  Partnership
performance.

(2)  Impact of Government Regulations on Future Operations

The General  Partner  operates the  Partnership's  equipment in accordance  with
current applicable regulations (see Item 1, Section E, Government  Regulations).
However, the continuing implementation of new or modified regulations by some of
the  authorities  mentioned  previously,  or others,  may  adversely  affect the
Partnership's  ability to continue to own or operate equipment in its portfolio.
Additionally,  regulatory  systems  vary  from  country  to  country,  which may
increase the burden to the Partnership of meeting regulatory  compliance for the
same equipment  operated between countries.  Currently,  the General Partner has
observed  rising  insurance  costs to operate  certain  vessels  in U.S.  ports,
resulting  from  implementation  of the U.S. Oil Pollution Act of 1990.  Ongoing
changes  in  the  regulatory   environment,   both  in  the  United  States  and
internationally,  cannot be predicted  with  accuracy,  and preclude the General
Partner from  determining the impact of such changes on Partnership  operations,
purchases, or sale of equipment. Under U.S. Federal Aviation Regulations,  after
December 31,  1999,  no person may operate an aircraft to or from any airport in
the contiguous  United States unless that aircraft has been shown to comply with
Stage III noise levels.  The  Partnership has Stage II aircraft that do not meet
Stage  III   requirements.   The  cost  to  husk-kit  a  Stage  II  aircraft  is
approximately $1.5 million, depending on the type of aircraft. The Partnership's
Stage II aircraft are either positioned with air carriers that are outside Stage
III-legislated  areas or  anticipated  to be sold or leased outside of Stage III
areas before the year 2000.  The  Partnership  has  scheduled one owned Stage II
narrowbody  aircraft for sale during 1999. The Partnership's 17% interest in two
trusts that  comprised  of a total of three Stage II  narrowbody  aircraft,  two
Stage II  aircraft  engines,  and a  portfolio  of rotable  components  are also
scheduled for sale during 1999.

(3) Distributions

During the passive  liquidation  phase,  the Partnership will use operating cash
flow and proceeds from the sale of equipment to meet its operating  obligations,
make loan principal and interest payments on debt, and make distributions to the
partners.  Although the General Partner intends to maintain a sustainable  level
of  distributions  prior  to  final  liquidation  of  the  Partnership,   actual
Partnership  performance  and other  considerations  may require  adjustments to
existing  distribution  levels. In the long term, changing market conditions and
used equipment values precludes the General Partner from accurately  determining
the impact of future  re-leasing  activity and  equipment  sales on  Partnership
performance and liquidity.

The Partnership  will enter the active  liquidation  phase beginning  January 1,
2000.  During  this phase,  the size of the  Partnership's  remaining  equipment
portfolio  and,  in turn,  the  amount of net cash flows  from  operations  will
continue  to  become   progressively   smaller  as  assets  are  sold.  Although
distribution  levels  may be  reduced,  significant  asset  sales may  result in
potential special distributions to unitholders.



<PAGE>


ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The  Partnership's  primary  market risk exposures are that of interest rate and
currency  devaluation risk. The Partnership's  senior secured note is a variable
rate debt. The Partnership  estimates a one percent  increase or decrease in the
Partnership's  variable  rate debt  would  result in an  increase  or  decrease,
respectively,  in interest expense of $0.1 million in 1999, and $25,000 in 2000.
The   Partnership   estimates  a  two  percent   increase  or  decrease  in  the
Partnership's  variable  rate debt  would  result in an  increase  or  decrease,
respectively, in interest expense of $0.3 million in 1999 and $49,000 in 2001.

During 1998,  73% of the  Partnership's  total lease  revenues  from  wholly-and
partially-owned equipment came from non-United States domiciled lessees. Most of
the  Partnership's  leases require payment in United States (U.S.) currency.  If
these  lessees  currency  devalues  against the U.S.  dollar,  the lessees could
potentially  encounter  difficulty in making the U.S. dollar  denominated  lease
payments.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  financial  statements  for the  Partnership  are  listed  in the  Index  to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K.

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
              FINANCIAL DISCLOSURE
None.









                    (This space is intentionally left blank)

<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL
              AND PLM FINANCIAL SERVICES, INC.

As of the date of this annual  report,  the directors and executive  officers of
PLM  International  and of PLM  Financial  Services,  Inc.  (and  key  executive
officers of its subsidiaries) are as follows:

<TABLE>
<CAPTION>

Name                                     Age                Position
---------------------------------------- ------------------ -------------------------------------------------------

<S>                                      <C>                <C>                                                     
Robert N. Tidball                        60                 Chairman of the Board, Director, President, and Chief
                                                            Executive Officer, PLM International, Inc.; Director,
                                                            PLM Financial Services, Inc.; Vice President, PLM
                                                            Railcar Management Services, Inc.; President, PLM
                                                            Worldwide Management Services Ltd.

Randall L.-W. Caudill                    51                 Director, PLM International, Inc.

Douglas P. Goodrich                      52                 Director and Senior Vice President, PLM
                                                            International, Inc.; Director and President, PLM
                                                            Financial Services, Inc.; President, PLM
                                                            Transportation Equipment Corporation; President, PLM
                                                            Railcar Management Services, Inc.

Warren G. Lichtenstein                   33                 Director, PLM International, Inc.

Howard M. Lorber                         50                 Director, PLM International, Inc.

Harold R. Somerset                       63                 Director, PLM International, Inc.

Robert L. Witt                           58                 Director, PLM International, Inc.

J. Michael Allgood                       50                 Vice President and Chief Financial Officer, PLM
                                                            International, Inc. and PLM Financial Services, Inc.

Robin L. Austin                          52                 Vice President, Human Resources, PLM International,
                                                            Inc. and PLM Financial Services, Inc.

Stephen M. Bess                          52                 President, PLM Investment Management, Inc.; Vice
                                                            President and Director, PLM Financial Services, Inc.

Richard K Brock                          36                 Vice President and Corporate Controller, PLM
                                                            International, Inc. and PLM Financial Services, Inc.

James C. Chandler                        50                 Vice President, Planning and Development, PLM
                                                            International, Inc. and PLM Financial Services, Inc.

Susan C. Santo                           36                 Vice President, Secretary, and General Counsel, PLM
                                                            International, Inc. and PLM Financial Services, Inc.

Janet M. Turner                          42                 Vice President, Investor Relations and Corporate
                                                            Communications, PLM International, Inc. and PLM
                                                            Investment Management, Inc.
</TABLE>


Robert N.  Tidball  was  appointed  Chairman  of the  Board in  August  1997 and
President and Chief Executive Officer of PLM International in March 1989. At the
time of his  appointment  as  President  and  Chief  Executive  Officer,  he was
Executive Vice President of PLM International.  Mr. Tidball became a director of
PLM  International  in April 1989.  Mr.  Tidball was appointed a Director of PLM
Financial Services, Inc. in July 1997 and was elected President of PLM Worldwide
Management Services Limited in February 1998. He has served as an officer of PLM
Railcar  Management  Services,  Inc.  since June 1987. Mr. Tidball was Executive
Vice President of Hunter Keith,  Inc., a  Minneapolis-based  investment  banking
firm,  from March  1984 to  January  1986.  Prior to Hunter  Keith,  he was Vice
President, General Manager, and Director of North American Car Corporation and a
director of the American Railcar Institute and the Railway Supply Association.

Randall L.-W.  Caudill was elected to the Board of Directors in September  1997.
He is  President  of  Dunsford  Hill  Capital  Partners,  a San  Francisco-based
financial  consulting firm serving emerging growth companies.  Prior to founding
Dunsford  Hill Capital  Partners,  Mr.  Caudill held senior  investment  banking
positions at Prudential  Securities,  Morgan Grenfell Inc., and The First Boston
Corporation. Mr. Caudill also serves as a director of Northwest Biotherapeutics,
Inc., VaxGen, Inc., SBE, Inc., and RamGen, Inc.

Douglas  P.  Goodrich  was  elected  to the  Board of  Directors  in July  1996,
appointed  Senior  Vice  President  of PLM  International  in  March  1994,  and
appointed Director and President of PLM Financial  Services,  Inc. in June 1996.
Mr.  Goodrich  has also served as Senior Vice  President  of PLM  Transportation
Equipment Corporation since July 1989 and as President of PLM Railcar Management
Services,  Inc. since September 1992,  having been a Senior Vice President since
June 1987.  Mr.  Goodrich was an executive  vice  president of G.I.C.  Financial
Services  Corporation of Chicago,  Illinois, a subsidiary of Guardian Industries
Corporation, from December 1980 to September 1985.

Warren G.  Lichtenstein  was elected to the Board of Directors in December 1998.
Mr.  Lichtenstein  is the Chief  Executive  Officer of Steel  Partners II, L.P.,
which is PLM International's  largest  shareholder,  currently owning 16% of the
Company's common stock. Additionally,  Mr. Lichtenstein is Chairman of the Board
of Aydin Corporation,  a NYSE-listed defense  electronics  concern, as well as a
director of Gateway  Industries,  Rose's Holdings,  Inc., and Saratoga  Beverage
Group,  Inc. Mr.  Lichtenstein is a graduate of the University of  Pennsylvania,
where he received a Bachelor of Arts degree in economics.

Howard M.  Lorber was elected to the Board of  Directors  in January  1999.  Mr.
Lorber is President and Chief Operating  Officer of New Valley  Corporation,  an
investment banking and real estate concern. He is also Chairman of the Board and
Chief  Executive  Officer  of  Nathan's  Famous,  Inc.,  a  fast  food  company.
Additionally,  Mr. Lorber is a director of United Capital  Corporation and Prime
Hospitality  Corporation and serves on the boards of several  community  service
organizations.  He is a graduate of Long Island University,  where he received a
Bachelor  of Arts  degree and a Masters  degree in  taxation.  Mr.  Lorber  also
received charter life  underwriter and chartered  financial  consultant  degrees
from the American  College in Bryn Mawr,  Pennsylvania.  He is a trustee of Long
Island University and a member of the Corporation of Babson College.

Harold R. Somerset was elected to the Board of Directors of PLM International in
July 1994.  From February 1988 to December 1993, Mr.  Somerset was President and
Chief Executive  Officer of California & Hawaiian Sugar Corporation (C&H Sugar),
a subsidiary of Alexander & Baldwin,  Inc. Mr. Somerset joined C&H Sugar in 1984
as Executive Vice President and Chief  Operating  Officer,  having served on its
Board of Directors  since 1978.  Between 1972 and 1984, Mr.  Somerset  served in
various  capacities  with  Alexander & Baldwin,  Inc., a publicly  held land and
agriculture company headquartered in Honolulu,  Hawaii, including Executive Vice
President of Agriculture  and Vice President and General  Counsel.  Mr. Somerset
holds a law  degree  from  Harvard  Law  School  as well as a  degree  in  civil
engineering  from the  Rensselaer  Polytechnic  Institute and a degree in marine
engineering from the U.S. Naval Academy.  Mr. Somerset also serves on the boards
of directors for various other companies and organizations, including Longs Drug
Stores, Inc., a publicly held company.

Robert L. Witt was elected to the Board of Directors  in June 1997.  Since 1993,
Mr. Witt has been a principal with WWS  Associates,  a consulting and investment
group specializing in start-up situations and private  organizations about to go
public.  Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel  Corporation,  an international  advanced materials company with sales
primarily in the aerospace,  transportation, and general industrial markets. Mr.
Witt also serves on the boards of  directors  for various  other  companies  and
organizations.

J. Michael Allgood was appointed Vice President and Chief  Financial  Officer of
PLM International in October 1992 and Vice President and Chief Financial Officer
of PLM Financial Services,  Inc. in December 1992. Between July 1991 and October
1992,  Mr.  Allgood  was a  consultant  to  various  private  and  public-sector
companies  and  institutions   specializing  in  financial   operations  systems
development.  In October 1987, Mr. Allgood  co-founded  Electra Aviation Limited
and its holding  company,  Aviation  Holdings Plc of London,  where he served as
Chief Financial Officer until July 1991. Between June 1981 and October 1987, Mr.
Allgood  served as a first vice  president  with  American  Express Bank Ltd. In
February 1978,  Mr. Allgood  founded and until June 1981 served as a director of
Trade Projects  International/Philadelphia  Overseas  Finance  Company,  a joint
venture with  Philadelphia  National Bank. From March 1975 to February 1978, Mr.
Allgood served in various capacities with Citibank, N.A.

Robin  L.  Austin  became  Vice  President,  Human  Resources  of PLM  Financial
Services,  Inc. in 1984, having served in various capacities with PLM Investment
Management,  Inc., including Director of Operations, from February 1980 to March
1984.  From June 1970 to September 1978, Ms. Austin served on active duty in the
United  States Marine Corps and served in the United States Marine Corp Reserves
from 1978 to 1998.  She retired as a Colonel of the United  States  Marine Corps
Reserves  in 1998.  Ms.  Austin  has  served  on the Board of  Directors  of the
Marines'  Memorial  Club  and is  currently  on the  Board of  Directors  of the
International Diplomacy Council.

Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997.  Mr. Bess was appointed  President of PLM Investment  Management,  Inc. in
August  1989,   having  served  as  Senior  Vice  President  of  PLM  Investment
Management,  Inc. beginning in February 1984 and as Corporate  Controller of PLM
Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate
Controller  of  PLM,  Inc.  beginning  in  December  1982.  Mr.  Bess  was  Vice
President-Controller  of Trans Ocean Leasing  Corporation,  a container  leasing
company, from November 1978 to November 1982, and Group Finance Manager with the
Field  Operations  Group of Memorex  Corporation,  a  manufacturer  of  computer
peripheral equipment, from October 1975 to November 1978.

Richard K Brock was appointed  Vice  President  and Corporate  Controller of PLM
International and PLM Financial Services, Inc. in June 1997, having served as an
accounting  manager  beginning in September 1991 and as Director of Planning and
General  Accounting  beginning  in  February  1994.  Mr.  Brock  was a  division
controller of Learning Tree International,  a technical education company,  from
February 1988 through July 1991.

James C.  Chandler  became  Vice  President,  Planning  and  Development  of PLM
International  in  April  1996.  From  1994 to 1996  Mr.  Chandler  worked  as a
consultant to public  companies,  including PLM, in the  formulation of business
growth  strategies.  Mr.  Chandler was Director of Business  Development at Itel
Corporation from 1987 to 1994, serving with both the Itel  Transportation  Group
and Itel Rail.

Susan C. Santo  became Vice  President,  Secretary,  and General  Counsel of PLM
International and PLM Financial Services,  Inc. in November 1997. She has worked
as an  attorney  for PLM  International  since  1990 and  served  as its  Senior
Attorney since 1994.  Previously,  Ms. Santo was engaged in the private practice
of law in San  Francisco.  Ms. Santo  received her J.D.  from the  University of
California, Hastings College of the Law.

Janet M. Turner became Vice President of Investor  Services of PLM International
in  1994,   having  previously  served  as  Vice  President  of  PLM  Investment
Management,  Inc.  since 1990.  Before 1990,  Ms.  Turner held the  positions of
manager of systems development and manager of investor relations at the Company.
Prior  to  joining  PLM  in  1984,   she  was  a  financial   analyst  with  The
Toronto-Dominion Bank in Toronto, Canada.

The directors of PLM  International,  Inc. are elected for a three-year term and
the directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified.  No family relationships exist
between  any  director or  executive  officer of PLM  International  Inc. or PLM
Financial Services,  Inc., PLM Transportation Equipment Corp., or PLM Investment
Management, Inc.


<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

The Partnership has no directors, officers, or employees. The Partnership had no
pension,  profit  sharing,  retirement,  or similar benefit plan in effect as of
December 31, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     (A) Security Ownership of Certain Beneficial Owners

         The  General  Partner is  generally  entitled  to a 5%  interest in the
         profits  and losses and  distributions  of the  Partnership  subject to
         certain  special  allocations  of income.  In  addition  to its General
         Partner  interest,  FSI  owned  8,000  units in the  Partnership  as of
         December  31, 1998.  As of December 31, 1998,  no investor was known by
         the General Partner to beneficially  own more than 5% of the depositary
         units of the Partnership.

     (B) Security Ownership of Management

         Table 3, below,  sets forth, as of the date of this report,  the amount
         and  percent  of  the   Partnership's   outstanding   depositary  units
         beneficially  owned by each of the directors and executive officers and
         all directors and executive  officers as a group of the General Partner
         and its affiliates:
                                     TABLE 3

         Name                           Depositary Units    Percent of Units

         Robert N. Tidball                  2,000                  *

         All directors and officers
         As a group (1 person)              2,000                  *

         * Less than 1%.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Transactions with Management and Others

         During 1998, the Partnership  paid or accrued the following fees to FSI
         or its affiliates: management fees, $0.9 million; equipment acquisition
         fees,  $0.1  million;   and  lease  negotiation  fees,   $12,000.   The
         Partnership   reimbursed  FSI  or  its  affiliates   $0.6  million  for
         administrative and data processing  services performed on behalf of the
         Partnership  during  1998.  The  Partnership  also paid  Transportation
         Equipment  Indemnity  Company Ltd. (TEI) a wholly owned,  Bermuda-based
         subsidiary of PLM International,  $4,000 for insurance coverages during
         1998; these amounts were paid substantially to third-party  reinsurance
         underwriters  or  placed  in risk  pools  managed  by TEI on  behalf of
         affiliated partnerships and PLM International,  which provide threshold
         coverages on marine vessel loss of hire and hull and machinery  damage.
         All pooling  arrangement  funds are either paid out to cover applicable
         losses or refunded pro rata by TEI. The  Partnership  received a refund
         of $55,000 from TEI during 1998 due to lower  loss-of-hire and hull and
         machinery damage claims from a previous year.

         During 1998, the USPEs paid or accrued the following fees to FSI or its
         affiliates   (based  on  the   Partnership's   proportional   share  of
         ownership):  management fees, $0.1 million, and administrative and data
         processing services, $43,000.









<PAGE>


                                     PART IV

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

     (A) 1.   Financial Statements

              The  financial  statements  listed  in the  accompanying  Index to
              Financial  Statements  are filed as part of this Annual  Report on
              Form 10-K.

     (B) Reports on Form 8-K

         None.

     (C) Exhibits

         4.         Limited Partnership  Agreement of Partnership.  Incorporated
                    by reference to the Partnership's  Registration Statement on
                    Form S-1 (Reg. No.  33-18104),  which became  effective with
                    the Securities and Exchange Commission on March 25, 1988.

         4.1        Amendment,  dated November 18, 1991, to Limited  Partnership
                    Agreement of  Partnership.  Incorporated by reference to the
                    Partnership's  Annual  Report  on Form 10-K  filed  with the
                    Securities and Exchange Commission on March 30, 1992.

         10.1       Management  Agreement between Partnership and PLM Investment
                    Management,   Inc.   Incorporated   by   reference   to  the
                    Partnership's  Registration  Statement on Form S-1 (Reg. No.
                    33-18104),  which became  effective  with the Securities and
                    Exchange Commission on March 25, 1988.

         10.2       $41,000,000  Credit  Agreement dated as of December 13, 1994
                    with First Union National Bank of North Carolina.

         24.        Powers of Attorney. 


<PAGE>


                                   SIGNATURES

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

The Partnership has no directors or officers.  The General Partner has signed on
behalf of the Partnership by duly authorized officers.


Date:  March 17, 1999                    PLM EQUIPMENT GROWTH FUND III
                                         PARTNERSHIP

                                         By:  PLM Financial Services, Inc.
                                              General Partner



                                         By:  /s/ Douglas P. Goodrich
                                              -------------------------- 
                                              Douglas P. Goodrich
                                              President & Director



                                         By:  /s/ Richard K Brock
                                              -------------------------- 
                                              Richard K Brock
                                              Vice President and
                                              Corporate Controller



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  directors of the  Partnership's  General
Partner on the dates indicated.


Name                         Capacity                          Date


*___________________
Robert N. Tidball          Director, FSI                    March 17, 1999


*___________________
Douglas P. Goodrich        Director, FSI                    March 17, 1999


*___________________
Stephen M. Bess            Director, FSI                    March 17, 1999

*Susan C. Santo,  by signing her name hereto,  does sign this document on behalf
of the persons  indicated  above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.



/s/ Susan C. Santo
------------------------                                        
Susan C. Santo
Attorney-in-Fact



<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          INDEX TO FINANCIAL STATEMENTS


                                  (Item 14(a))


                                                                         Page

Independent auditors' report                                             29

Balance sheets as of December 31, 1998 and 1997                          30

Statements of income for the years ended December 31,
     1998, 1997, and 1996                                                31

Statements of changes in partners' capital for
     the years ended December 31, 1998, 1997, and
     1996                                                                32

Statements of cash flows for the years ended December 31,
     1998, 1997, and 1996                                                33

Notes to financial statements                                            34-44


All other financial  statement  schedules have been omitted because the required
information  is not pertinent to the  registrant or is not material,  or because
the  information  required  is included in the  financial  statements  and notes
thereto.



<PAGE>




                          INDEPENDENT AUDITORS' REPORT


The Partners
PLM Equipment Growth Fund III:



We have audited the  accompanying  financial  statements of PLM Equipment Growth
Fund III (the  Partnership)  as listed in the  accompanying  index to  financial
statements.   These  financial   statements  are  the   responsibility   of  the
Partnership's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We have  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 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.

As described in Note 1 to the financial  statements,  PLM Equipment  Growth Fund
III, in accordance with the limited partnership  agreement,  entered its passive
phase on January 1, 1997 and as a result,  the  Partnership  is not permitted to
reinvest  in  equipment.  On  January  1, 2000 the  Partnership  will  enter the
liquidation phase and commence an orderly liquidation of the Partnership assets.
The Partnership will terminate on December 31, 2000, unless  terminated  earlier
upon sale of all equipment or by certain other events.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of PLM Equipment Growth Fund III
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year  period ended December 31, 1998 in
conformity with generally accepted accounting principles.


/s/ KPMG LLP
------------------------

SAN FRANCISCO, CALIFORNIA
March 12, 1999


<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                                 BALANCE SHEETS
                                  December 31,
                 (in thousands of dollars, except unit amounts)

<TABLE>
<CAPTION>




                                                                            1998                 1997
                                                                        -----------------------------------
  <S>                                                                    <C>                  <C>            
  Assets

  Equipment held for operating leases, at cost                           $   96,890           $  105,308        
  Less accumulated depreciation                                             (73,580 )            (67,234 )
                                                                         ---------------------------------
      Net equipment                                                          23,310               38,074

  Cash and cash equivalents                                                   3,429                4,239
  Accounts receivable, net of allowance for doubtful
      accounts of $1,469 in 1998 and $1,837 in 1997                           1,164                1,316
  Investments in unconsolidated special-purpose entities                      4,974                9,179
  Lease negotiation fees to affiliates, net of accumulated
      amortization of $155 in 1998 and $161 in 1997                              50                  155
  Debt issuance costs, net of accumulated
      amortization of $248 in 1998 and $187 in 1997                              91                  152
  Prepaid expenses and other assets                                              50                   71
                                                                         ---------------------------------

        Total assets                                                     $   33,068           $   53,186 
                                                                         =================================

  Liabilities and partners' capital

  Liabilities
  Accounts payable and accrued expenses                                  $    1,234           $    1,294  
  Due to affiliates                                                             155                2,208
  Lessee deposits and reserve for repairs                                     1,057                  835
  Note payable                                                               18,540               29,290
                                                                         ---------------------------------
    Total liabilities                                                        20,986               33,627
                                                                         ---------------------------------

  Partners' capital
  Limited partners (9,871,073 depositary units
      as of December 31, 1998 and 1997)                                      12,082               19,559
  General Partner                                                                --                   --
                                                                         ---------------------------------
    Total partners' capital                                                  12,082               19,559
                                                                         ---------------------------------

        Total liabilities and partners' capital                          $   33,068           $   53,186 
                                                                         =================================

</TABLE>












                       See accompanying notes to financial
                                  statements.

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                              STATEMENTS OF INCOME
                        For the Years Ended December 31,
         (in thousands of dollars, except weighted-average unit amounts)

<TABLE>
<CAPTION>


                                                                            1998            1997           1996
                                                                        --------------------------------------------
  Revenues

  <S>                                                                    <C>              <C>           <C>       
  Lease revenue                                                          $  15,905        $ 19,989      $  18,459 
  Interest and other income                                                    286             448            977
  Net gain on disposition of equipment                                       3,808           5,629          6,450
                                                                         -------------------------------------------
    Total revenues                                                          19,999          26,066         25,886
                                                                         -------------------------------------------

  Expenses

  Depreciation and amortization                                              9,447          13,959         11,047
  Repairs and maintenance                                                    3,785           3,707          4,475
  Equipment operating expenses                                                  28             248            176
  Insurance expense to affiliate                                               (52 )             6             --
  Other insurance expenses                                                     287             211            359
  Management fees to affiliate                                                 923           1,153          1,004
  Interest expense                                                           1,706           3,164          3,078
  General and administrative expenses to affiliates                            557             777            747
  Other general and administrative expenses                                    813             931          1,276
  Provision for (recovery of) bad debts                                       (336 )           458            828
                                                                         -------------------------------------------
    Total expenses                                                          17,158          24,614         22,990
                                                                         -------------------------------------------

  Equity in net income of unconsolidated
        special-purpose entities                                                76             485          6,864
                                                                         -------------------------------------------

        Net income                                                       $   2,917        $  1,937      $   9,760   
                                                                         ===========================================

  Partners' share of net income

  Limited partners                                                       $   2,397        $  1,417      $   9,162   
  General Partner                                                              520             520            598
                                                                         -------------------------------------------

        Total                                                            $   2,917        $  1,937      $   9,760   
                                                                         ===========================================

  Net income per weighted-average depositary unit                        $    0.24        $   0.14      $    0.93 
                                                                         ===========================================

  Cash distribution                                                      $  10,394        $ 10,391      $  11,964 
                                                                         ===========================================

  Cash distribution per weighted-average depositary unit                 $    1.00        $   1.00      $    1.15 
                                                                         ===========================================

</TABLE>










                       See accompanying notes to financial
                                  statements.


<PAGE>




                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
              For the Years Ended December 31, 1998, 1997, and 1996
                            (in thousands of dollars)


<TABLE>
<CAPTION>


                                                         Limited           General
                                                         Partners          Partner           Total
                                                       ------------------------------------------------

  <S>                                                  <C>                 <C>             <C>       
  Partners' capital as of December 31, 1995            $   30,337          $   --          $   30,337

  Net income                                                9,162             598               9,760

  Repurchase of depositary units                             (120 )            --                (120 )

  Cash distribution                                       (11,366 )          (598 )           (11,964 )
                                                       ------------------------------------------------

    Partners' capital as of December 31, 1996              28,013              --              28,013

  Net income                                                1,417             520               1,937

  Cash distribution                                        (9,871 )          (520 )           (10,391 )
                                                       ------------------------------------------------

    Partners' capital as of December 31, 1997              19,559              --              19,559

  Net income                                                2,397             520               2,917

  Cash distribution                                        (9,874 )          (520 )           (10,394 )
                                                       ------------------------------------------------

    Partners' capital as of December 31, 1998          $   12,082          $   --          $   12,082
                                                       ================================================


</TABLE>























                       See accompanying notes to financial
                                  statements.

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                            STATEMENTS OF CASH FLOWS
                        For the Years Ended December 31,
                            (In thousands of dollars)

<TABLE>
<CAPTION>

                                                                            1998            1997            1996
                                                                        ---------------------------------------------
  <S>                                                                      <C>             <C>             <C>       
  Operating activities
  Net income                                                             $    2,917      $    1,937      $    9,760
  Adjustments to reconcile net income
        to net cash provided by (used in) operating activities:
    Depreciation and amortization                                             9,447          13,959          11,047
    Net gain on disposition of equipment                                     (3,808 )        (5,629 )        (6,450 )
    Equity in net income from unconsolidated special-
        purpose entities                                                        (76 )          (485 )        (6,864 )
    Income from sales-type lease                                                 --              --          (1,885 )
    Changes in operating assets and liabilities:
      Restricted cash and marketable securities                                  --           5,966            (306 )
      Accounts and notes receivable, net                                        169             205             727
      Prepaid expenses and other assets                                          21              (7 )            10
      Accounts payable and accrued expenses                                     (60 )          (211 )           150
      Due to affiliates                                                        (261 )          (881 )          (202 )
      Lessee deposits and reserves for repairs                                  222          (6,717 )          (914 )
                                                                         --------------------------------------------
        Net cash provided by operating activities                             8,571           8,137           5,073
                                                                         --------------------------------------------

  Investing activities
  Payments for purchase of equipment                                             --              --         (28,540 )
  Equipment purchased and placed in unconsolidated special-
      purpose entities                                                       (1,198 )            --              --
  Payment of capitalized repairs                                               (126 )          (248 )          (728 )
  Payments of acquisition fees to affiliate                                     (54 )            --          (1,284 )
  Payments of lease negotiation fees to affiliate                               (12 )             -            (285 )
  Payments received on sales-type lease                                          --              --           6,403
  Proceeds from disposition of equipment                                     12,077          12,085          13,786
  Liquidation distribution from unconsolidated
      special-purpose entities                                                   --              --          13,711
  Distribution from unconsolidated
      special-purpose entities                                                2,868           2,444           2,835
  -------------------------------------------------------------------------------------------------------------------
        Net cash provided by investing activities                            13,555          14,281           5,898
                                                                         --------------------------------------------

  Financing activities
  (Repayments to) net receipts from - affiliate                              (1,792 )         1,792              --
  Proceeds from notes payable                                                    --              --          19,148
  Principal payments on notes payable                                       (10,750 )       (10,994 )       (19,864 )
  Repurchase of depositary units                                                 --              --            (120 )
  Cash distribution paid to limited partners                                 (9,874 )        (9,871 )       (11,366 )
  Cash distribution paid to General Partner                                    (520 )          (520 )          (598 )
  -------------------------------------------------------------------------------------------------------------------
        Net cash used in financing activities                               (22,936 )       (19,593 )       (12,800 )
                                                                         --------------------------------------------

  Net (decrease) increase in cash and cash equivalents                         (810 )         2,825          (1,829 )
  Cash and cash equivalents at beginning of year                              4,239           1,414           3,243
                                                                         --------------------------------------------
  Cash and cash equivalents at end of year                               $    3,429      $    4,239      $    1,414
                                                                         ============================================

  Supplemental information
  Interest paid                                                          $    1,712      $    3,339      $    2,957
  ===================================================================================================================

</TABLE>



                       See accompanying notes to financial
                                  statements.

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

1.   Basis of Presentation

     Organization

     PLM  Equipment  Growth  Fund III, a  California  limited  partnership  (the
     Partnership),  was formed on October 15, 1987 to engage in the  business of
     owning,   leasing,   or   otherwise   investing   in   predominately   used
     transportation and related equipment. PLM Financial Services, Inc. (FSI) is
     the General Partner of the Partnership. FSI is a wholly-owned subsidiary of
     PLM International, Inc. (PLM International).

     The  Partnership  will  terminate on December 31, 2000,  unless  terminated
     earlier upon sale of all equipment or by certain other events. Beginning in
     the Partnership's eighth year of operations,  which commenced on January 1,
     1997, the General Partner stopped  reinvesting  excess cash, if any, which,
     less reasonable reserves, will be distributed to the Partners. Beginning in
     the Partnership's eleventh year of operations which commences on January 1,
     2000, the General  Partner  intends to begin an orderly  liquidation of the
     Partnership's  assets.  During the  liquidation  phase,  the  Partnership's
     assets will continue to be recorded at the lower of carrying amount or fair
     value less cost to sell.

     FSI manages the affairs of the Partnership.  The net income (loss) and cash
     distributions of the Partnership are generally allocated 95% to the limited
     partners  and 5% to  the  General  Partner,  (see  Net  Income  (Loss)  and
     Distributions per Limited  Partnership Unit, below). The General Partner is
     also  entitled to receive a  subordinated  incentive  fee after the limited
     partners  receive a minimum  return  on, and a return  of,  their  invested
     capital.

     These  financial  statements  have been  prepared on the  accrual  basis of
     accounting in accordance  with generally  accepted  accounting  principles.
     This requires  management to make estimates and assumptions that affect the
     reported  amounts  of assets and  liabilities,  disclosures  of  contingent
     assets and  liabilities  at the date of the financial  statements,  and the
     reported  amounts of revenues and  expenses  during the  reporting  period.
     Actual results could differ from those estimates.

     Operations

     The  equipment  owned by the  Partnership  is managed,  under a  continuing
     management   agreement  by  PLM  Investment   Management,   Inc.  (IMI),  a
     wholly-owned  subsidiary of FSI. IMI receives a monthly management fee from
     the   Partnership  for  managing  the  equipment  (see  Note  2).  FSI,  in
     conjunction with its subsidiaries, sells equipment to investor programs and
     third  parties,  manages  pools  of  equipment  under  agreements  with the
     investor programs, and is a general partner of other programs.

     Accounting for Leases

     The Partnership's leasing operations generally consist of operating leases.
     Under  the  operating  lease  method of  accounting,  the  leased  asset is
     recorded at cost and  depreciated  over its estimated  useful life.  Rental
     payments  are recorded as revenue  over the lease term.  Lease  origination
     costs were capitalized and amortized over the term of the lease.

     Depreciation and Amortization

     Depreciation of  transportation  equipment,  held for operating  leases, is
     computed on the  double-declining  balance  method,  taking a full  month's
     depreciation in the month of acquisition, based upon estimated useful lives
     of 15 years for  railcars  and 12 years for most other types of  equipment.
     Certain aircraft are depreciated under the double-declining  balance method
     over the lease term. The  depreciation  method is changed to  straight-line
     method when annual  depreciation  expense  using the  straight-line  method
     exceeds that calculated by the double-declining balance method. Acquisition

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

1.   Basis of Presentation (continued)

     Depreciation and Amortization (continued)

     fees  have  been  capitalized  as part of the  cost  of the  equipment  and
     amortized over the equipment's depreciable life. Lease negotiation fees are
     amortized over the initial  equipment  lease term.  Debt placement fees are
     amortized over the term of the related loan.  Major  expenditures  that are
     expected to extend the useful lives or reduce future operating  expenses of
     equipment are capitalized  and amortized over the estimated  remaining life
     of the equipment.

     Transportation Equipment

     In accordance with Financial  Accounting Standards Board Statement No. 121,
     "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
     Assets to Be Disposed Of", the General  Partner  reviews the carrying value
     of the Partnership's  equipment portfolio at least quarterly in relation to
     expected  future  market  conditions  for  the  purpose  of  assessing  the
     recoverability of the recorded amounts.  If projected  undiscounted  future
     lease revenues plus residual values are less than the carrying value of the
     equipment, a loss on revaluation is recorded. No reductions to the carrying
     values of equipment were required during either 1998, 1997, or 1996.

     Investments in Unconsolidated Special-Purpose Entities

     The Partnership has interests in  unconsolidated  special-purpose  entities
     (USPEs) that own  transportation  equipment.  These interests are accounted
     for using the equity method.

     The  Partnership's  investment  in USPEs  includes  acquisition  and  lease
     negotiation  fees paid by the Partnership to PLM  Transportation  Equipment
     Corporation  (TEC),  a  wholly-owned  subsidiary of FSI. The  Partnership's
     interests in USPEs are managed by IMI. The Partnership's equity interest in
     the net income (loss) of USPEs is reflected net of management  fees paid or
     payable to IMI and the  amortization of acquisition  and lease  negotiation
     fees paid to TEC or WMS.

     Repairs and Maintenance

     Repair  and  maintenance  costs  for  railcars,  marine  vessels,  and  the
     trailers, are usually the obligation of the Partnership.  Maintenance costs
     of most of the other  equipment are the  obligation of the lessee.  If they
     are  not  covered  by  the  lessee,  they  are  generally  charged  against
     operations as incurred.  To meet the  maintenance  requirements  of certain
     aircraft  airframes  and engines,  reserve  accounts  are  prefunded by the
     lessee.  Estimated  costs  associated  with  marine  vessel dry docking are
     accrued  and  charged  to  income  ratably  over the  period  prior to such
     dry-docking.  The reserve  accounts  are  included in the balance  sheet as
     lessee deposits and reserve for repairs.

     Net Income (Loss) and Distributions Per Depositary Unit

     The net income (loss) of the Partnership is generally  allocated 95% to the
     limited  partners and 5% to the General  Partner.  Special  allocations  of
     income are made to the General  Partner  equal to the deficit  balance,  if
     any, in the capital account of the General Partner.  Cash  distributions of
     the Partnership are generally  allocated 95% to the limited partners and 5%
     to the General Partner and may include amounts in excess of net income. The
     limited partners' net income (loss) is allocated among the limited partners
     based on the  number of limited  partnership  units  owned by each  limited
     partner  and on the number of days of the year each  limited  partner is in
     the Partnership.  The General Partner received a special  allocation in the
     amount of $0.4 million,  $0.4 million, and $0.1 million from the gross gain
     on disposition  of equipment for the years ended  December 31, 1998,  1997,
     and 1996,  respectively.  The  limited  partners'  net  income  (loss)  and
     distributions  are allocated among the limited partners based on the number
     of depositary units owned by each limited partner and on the number of days
     of the year each limited partner is in the Partnership.


<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

1.   Basis of Presentation (continued)

     Net Income (Loss) and Distributions per Depositary Unit (continued)

     Cash  distributions are recorded when paid. Cash distributions to investors
     in  excess  of  net  income  are  considered  a  return  of  capital.  Cash
     distributions  to the limited partners of $7.5 million,  $8.5 million,  and
     $2.2  million  for the years  ended  December  31,  1998,  1997,  and 1996,
     respectively, were deemed to be a return of capital.

     Cash distributions  relating to the fourth quarter of 1998, 1997, and 1996,
     of $2.1 million,  $2.6 million, and $2.6 million,  respectively,  were paid
     during the first quarter of 1999, 1998, and 1997.

     Net Income (Loss) Per Weighted-Average Depositary Unit

     Net income  (loss) per  weighted-average  depositary  unit was  computed by
     dividing  net  income  (loss)  attributable  to  limited  partners  by  the
     weighted-average  number of depositary units deemed  outstanding during the
     period. The weighted-average  number of depositary units deemed outstanding
     during the years ended  December 31, 1998,  1997,  and 1996 was  9,871,073,
     9,871,073, and 9,873,821, respectively.

     Comprehensive Income

     During 1998, the Partnership adopted Financial Accounting Standards Board's
     Statement  No.  130,  "Reporting   Comprehensive  Income,"  which  requires
     enterprises  to report,  by major  component  and in total,  all changes in
     equity from nonowner sources.  The Partnership's net income (loss) is equal
     to  comprehensive  income for the years ended December 31, 1998,  1997, and
     1996.

     Cash and Cash Equivalents

     The  Partnership  considers  highly  liquid  investments  that are  readily
     convertible  into known amounts of cash with  original  maturities of three
     months or less to be cash equivalents.

     Restricted Cash

     Lessee security  deposits and required reserves held by the Partnership are
     considered restricted cash.

     Reclassification

     Certain   amounts  in  1997  and  1996  financial   statements   have  been
     reclassified to conform to the 1998 presentation.

2.   General Partner and Transactions with Affiliates

     An  officer of FSI,  a  wholly-owned  subsidiary  of the  General  Partner,
     contributed $100 of the Partnership's initial capital.  Under the equipment
     management  agreement,  IMI,  subject  to  certain  reductions,  receives a
     monthly  management fee attributable to either owned equipment or interests
     in  equipment  owned by the USPEs  equal to the lesser of (a) the fees that
     would be charged by an  independent  third party for similar  services  for
     similar  equipment  or (b) the sum of (i) 5% of the  gross  lease  revenues
     attributable to equipment that is subject to operating  leases,  (ii) 2% of
     the gross lease revenues  attributable to equipment that is subject to full
     payout net leases, and (iii) 7% of the gross lease revenues attributable to
     equipment for which IMI provides both management and additional

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

2.   General Partner and Transactions with Affiliates (continued)

     services  relating  to  the  continued  and  active  operation  of  program
     equipment,  such as on-going marketing and re-leasing of equipment,  hiring
     or arranging for the hiring of crew or operating  personnel for  equipment,
     and  similar  services.  The  Partnership's   proportional  share  of  USPE
     management fees of $10,000 and $0.1 million were payable as of December 31,
     1998 and 1997, respectively.  The Partnership's proportional share of USPEs
     management fee expense during 1998,  1997, and 1996 was $0.1 million,  $0.2
     million, and $0.2 million, respectively. The Partnership reimbursed FSI and
     its  affiliates   $0.6  million,   $0.8  million,   and  $0.7  million  for
     administrative  and data  processing  services  performed  on behalf of the
     Partnership in 1998, 1997, 1996, respectively.

     The  Partnership's  proportional  share  of USPEs  administrative  and data
     processing  services  reimbursed to FSI was $43,000,  $0.1 million and $0.1
     million during 1998, 1997, and 1996, respectively.

     The Partnership paid $6,000 to Transportation  Equipment  Indemnity Company
     Ltd.  (TEI),  an affiliate of the General  Partner,  that  provides  marine
     insurance coverage and other insurance  brokerage services in 1997. No fees
     for  owned  equipment  were  paid to TEI in 1998 or  1996.  No fees for the
     Partnership's  share of USPE  were paid to TEI in 1998.  The  Partnership's
     proportional  share of USPE marine insurance  coverage paid to TEI was $0.1
     million,  and $0.1 million  during 1997 and 1996. A substantial  portion of
     this amount was paid to third-party  reinsurance  underwriters or placed in
     risk  pools  managed  by TEI on  behalf  of  affiliated  programs  and  PLM
     International,  which provide threshold  coverages on marine vessel loss of
     hire and hull and  machinery  damage.  All  pooling  arrangement  funds are
     either paid out to cover applicable losses or refunded pro rata by TEI. The
     Partnership's proportional share of a refund of $18,000 was received during
     1998, from lower  loss-of-hire  insurance claims from the insured USPEs and
     other insured  affiliated  programs.  No similar refund was received during
     1997 and 1996.  TEI did not  provide the same level of  insurance  coverage
     during 1998 as had been provided during previous years. These services were
     provided  by an  unaffiliated  third  party.  PLM  International  plans  to
     liquidate TEI in 1999.

     The Partnership  paid lease  negotiation and equipment  acquisition fees of
     $0.1 and $1.6 million to TEC and PLM  Worldwide  Management  Services  Ltd.
     (WMS) during 1998 and 1996. No lease negotiation and equipment  acquisition
     fees were paid to TEC or WMS during 1997.

     As of December 31, 1998,  approximately  38% of the  Partnership's  trailer
     equipment  was in  rental  facilities  operated  by PLM  Rental,  Inc.,  an
     affiliate of the General  Partner,  doing business as PLM Trailer  Leasing.
     Revenues  collected  under  short-term  rental  agreements  with the rental
     yards'  customers  are  credited to the owners of the related  equipment as
     received.  Direct  expenses  associated  with  the  equipment  are  charged
     directly to the  Partnership.  An  allocation  of indirect  expenses of the
     rental yard operations is charged to the Partnership monthly.

     The  Partnership  owned certain  equipment in conjunction  with  affiliated
     programs during 1998, 1997, and 1996 (see Note 4).

     The balance due to affiliates as of December 31, 1998 included $0.2 million
     due to FSI and its  affiliates  for  management  fees.  The  balance due to
     affiliates as of December 31, 1997 included $0.4 million due to FSI and its
     affiliates for management fees and $1.8 million due to an affiliated USPEs.





<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

3.   Equipment

     The  components  of owned  equipment  as of December 31, are as follows (in
     thousands of dollars):

<TABLE>
<CAPTION>

  Equipment Held for Operating Leases:                     1998              1997
                                                       --------------------------------

  <S>                                                    <C>                <C>       
  Aircraft                                             $   52,028         $   46,282
  Rail equipment                                           33,999             34,859
  Marine containers                                         5,606              7,421
  Trailers                                                  5,257              7,080
  Mobile offshore drilling unit                                --              9,666
                                                       --------------------------------
                                                           96,890            105,308
  Less accumulated depreciation                           (73,580 )          (67,234 )
                                                       --------------------------------
  Net equipment                                        $   23,310         $   38,074
                                                       ================================
</TABLE>

     Revenues are earned by placing the equipment under operating leases. All of
     the  Partnership's  marine  containers  and  marine  vessel  are  leased to
     operators of utilization-type  leasing pools, which include equipment owned
     by  unaffiliated  parties.  In such  instances,  revenues  received  by the
     Partnership  consist of a specified  percentage  of revenues  generated  by
     leasing the pooled equipment to sublessees,  after deducting certain direct
     operating expenses of the pooled equipment. Rents for railcars are based on
     mileage  traveled or a fixed rate;  rents for all other equipment are based
     on fixed rates.

     As of December 31, 1998, all owned equipment in the  Partnership  portfolio
     was on lease or  operating  in  PLM-affiliated  short-term  trailer  rental
     yards, except for 25 marine containers, 69 railcars, and an aircraft. As of
     December 31, 1997, all owned equipment in the Partnership  portfolio was on
     lease or operating  in  PLM-affiliated  short-term  trailer  rental  yards,
     except for 28 marine  containers  and 41 railcars.  The  aggregate net book
     value of  equipment  off  lease was $2.4  million  and $0.3  million  as of
     December 31, 1998 and 1997, respectively.

     During  1998,  a  commercial  aircraft,  which  was in a  trust  which  the
     Partnership  had a 25% interest in, was  transferred  out of the trust into
     the Parntership's owned equipment portfolio (See Note 4).

     During  1998,  the  Partnership  sold or  disposed  of  marine  containers,
     trailers,  railcars,  and a mobile offshore drilling unit with an aggregate
     net book value of $8.3 million for proceeds of $12.1 million.

     During  1997,  the  Partnership  sold or  disposed  of  marine  containers,
     trailers,  railcars,  and aircraft with an aggregate net book value of $6.5
     million for proceeds of $12.1 million.

     In the fourth quarter of 1996, the Partnership  ended its investment  phase
     in  accordance  with  the  limited  partnership  agreement;  therefore,  no
     equipment was purchased during 1998 and 1997.  Capital  improvements to the
     Partnership's existing equipment of $0.1 million and $0.2 million were made
     during 1998 and 1997, respectively.

     All leases for owned equipment are being accounted for as operating leases.
     Future minimum rentals under noncancelable leases for owned equipment as of
     December  31,  1998  during  each of the next five years are  approximately
     $12.2  million in 1999,  $9.4 million in 2000,  $6.7 million in 2001,  $2.2
     million  in 2002,  $1.1  million  in 2003,  and  $0.6  million  thereafter.
     Contingent rentals based upon utilization were $0.3 million,  $0.9 million,
     and $1.5 million in 1998, 1997, and 1996, respectively.


<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

4.       Investments in Unconsolidated Special Purpose Entities 

     The net investments in USPEs include the following  jointly-owned equipment
     (and related  assets and  liabilities)  as of December 31, (in thousands of
     dollars):

<TABLE>
<CAPTION>

                                                                                               1998             1997
                ---------------------------------------------------------------------------------------------------------
                     <S>                                                                    <C>              <C>       
                     56% interest in an entity owning a bulk-carrier marine vessel          $    2,814       $    3,104
                     17% interest in two trusts owning a total of three 737-200
                       Stage II commercial aircraft, two Stage II aircraft engines,
                       and a portfolio of aircraft rotables                                      2,054            4,021
                     25% interest in a trust that owned four 737-200 Stage II
                       commercial aircraft                                                         106            2,054
                     ----------------------------------------------------------------------------------      -----------
                         Net investments                                                    $    4,974       $    9,179
                                                                                            ===========      ===========
</TABLE>

     During 1998,  the  Partnership  increased its  investment in a trust owning
     four  commercial  aircraft by funding the  installation  of a hushkit on an
     aircraft  assigned to the  Partnership  in the trust for $1.2 million.  The
     Partnership  paid a total of $0.1 million lease  negotiation  and equipment
     acquisition  fees  to  TEC  for  the  installation  of  the  hushkit.   The
     Partnership was required to install hushkit per the Partnership  agreement.
     In  this  Trust,  all of the  commercial  aircraft  except  the  commercial
     aircraft  designated  to  the  Partnership  were  sold  by  the  affiliated
     programs. The aircraft,  designated to the Partnership, was transferred out
     of the Trust into the Partnership's owned equipment portfolio (see Note 3).
     As of December 31, 1998, the Partnership's  remaining interest in the Trust
     were $0.1 million of receivables from the former lessee.

     The following  summarizes the financial  information  for the USPEs and the
     Partnership's  interests therein as of and for the years ended December 31,
     (in thousands of dollars):

<TABLE>
<CAPTION>

                                           1998                          1997                         1996
                                        -----------                   -----------                   ---------
                                                Net                              Net                      Net
                                   Total         Interest        Total        Interest         Total       Interest
                                   USPEs            of           USPEs           of            USPEs      of
                                                Partnership                  Partnership                  Partnership
                                ---------------------------   ---------------------------   ---------------------------
        <S>                     <C>             <C>            <C>            <C>           <C>           <C>       
        Net Investments         $    17,606     $    4,974     $   45,015     $    9,179    $    49,985   $   11,138
        Lease revenues                8,787          2,633         18,882          4,199         22,146        5,065
        Net income (loss)             9,262             76         11,077            485         15,930        6,864

</TABLE>

     All leases for the partially  owned  equipment  are being  accounted for as
     operating  leases.  Future minimum rentals under  noncancelable  leases for
     partially  owned  equipment as of December 31, 1998 during each of the next
     five years are approximately $1,000 in 1999 and $0 thereafter.

5.   Operating Segments

     The Partnership  operates or operated primarily in six different  segments:
     aircraft leasing,  marine container leasing,  mobile offshore drilling unit
     (MODU)  leasing,  marine  vessel  leasing,  trailer  leasing,  and  railcar
     leasing.  Each equipment  leasing segment engages in short-term to mid-term
     operating leases to a variety of customers.

     The General  Partner  evaluates  the  performance  of each segment based on
     profit  or  loss  from   operations   before   allocation  of  general  and
     administrative expenses,  interest expense, and certain other expenses. The
     segments are managed  separately due to different  business  strategies for
     each operation.



<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

5.   Operating Segments (continued)

     The  following  tables  present a summary  of the  operating  segments  (in
thousands of dollars):

<TABLE>
<CAPTION>

                                                      Marine
                                           Aircraft  Container    MODU    Trailer    Railcar   All 
     For the Year Ended December 31, 1998  Leasing   Leasing    Leasing   Leasing    Leasing   Other<F1>    Total
     ------------------------------------  -------   -------    -------   -------    -------   ----         -----

     <S>                                   <C>       <C>        <C>       <C>        <C>       <C>        <C>     
     Revenues
       Lease revenue                       $  6,471  $    278   $    756  $  1,256   $  7,144  $     --   $ 15,905
       Interest income and other                 23        --         --        --         78       185        286
       Net gain (loss) on disposition of
         equipment                              (14 )      60      3,619      (123 )      266        --      3,808
                                           ------------------------------------------------------------------------
         Total revenues                       6,480       338      4,375     1,133      7,488       185     19,999

     Expenses
       Operations support                     1,321         6         18       221      2,376       106      4,048
       Depreciation and amortization          6,240       240        512       496      1,849       110      9,447
       Interest expense                          --        --         --        --         --     1,706      1,706
       General and administrative expenses      509        19         44       263        782       676      2,293
       Provision for bad debts                 (358 )      --         --        44        (22 )      --       (336 )
                                           ------------------------------------------------------------------------
         Total costs and expenses             7,712       265        574     1,024      4,985     2,598     17,158
                                           ------------------------------------------------------------------------
     Equity in net income of USPEs               49        --         --        --         --        27         76
                                           ------------------------------------------------------------------------
                                           ========================================================================
     Net income (loss)                     $ (1,183 )$     73   $  3,801  $    109   $  2,503  $ (2,386 ) $  2,917
                                           ========================================================================

     As of December 31, 1998
     Total assets                          $ 14,788  $    512   $     --  $  2,148   $  8,072  $  7,548   $ 33,068
                                           ========================================================================
<FN>

<F1> Includes costs not  identifiable  to a particular  segment such as interest
     expense,  certain amortization expense,  certain interest income and other,
     operations support expenses and general and administrative  expenses.  Also
     includes income from an investment in an entity owning a marine vessel.

</FN>

</TABLE>

<TABLE>
<CAPTION>

                                                      Marine
                                           Aircraft  Container    MODU    Trailer    Railcar   All 
     For the Year Ended December 31, 1997  Leasing   Leasing    Leasing   Leasing    Leasing   Other<F1>    Total
     ------------------------------------  -------   -------    -------   -------    -------   ----         -----

     <S>                                   <C>       <C>        <C>       <C>        <C>       <C>        <C>     
     Revenues
       Lease revenue                       $  7,873  $  1,087   $  1,642  $  1,850   $  7,537  $     --   $ 19,989
       Interest income and other                 45        17         --        --         82       304        448
       Net gain on disposition of
         equipment                            5,493        48         --        51         37        --      5,629
                                           ------------------------------------------------------------------------
         Total revenues                      13,411     1,152      1,642     1,901      7,656       304     26,066

     Expenses
       Operations support                     1,374        10         30       311      2,218       229      4,172
       Depreciation and amortization          8,943       753      1,487       725      1,941       110     13,959
       Interest expense                          12        --         --        --         --     3,152      3,164
       General and administrative expenses      532        62        104       408        801       954      2,861
       Provision for bad debts                  379         1         --         5         71         2        458
                                           ------------------------------------------------------------------------
         Total costs and expenses            11,240       826      1,621     1,449      5,031     4,447     24,614
                                           ------------------------------------------------------------------------
     Equity in net income (loss) of USPEs       857        --         --        --         --      (372 )      485
                                           ------------------------------------------------------------------------
                                           ========================================================================
     Net income (loss)                     $  3,028  $    326   $     21  $    452   $  2,625  $ (4,515 ) $  1,937
                                           ========================================================================

     As of December 31, 1997
     Total assets                          $ 22,249  $  1,168   $  7,422  $  3,434   $ 10,031  $  8,882   $ 53,186
                                           ========================================================================

<FN>

<F1> Includes costs not  identifiable  to a particular  segment such as interest
     expense,  certain amortization expense,  certain interest income and other,
     operations support expenses and general and administrative  expenses.  Also
     includes income from an investment in an entity owning a marine vessel.

</FN>

</TABLE>








<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

5.   Operating Segments (continued)

<TABLE>
<CAPTION>

                                                      Marine     Marine
                                           Aircraft  Container   Vessel   Trailer    Railcar   All
     For the Year Ended December 31, 1996  Leasing   Leasing    Leasing   Leasing    Leasing   Other<F2>    Total
     ------------------------------------  -------   -------    -------   -------    -------   ----         -----

     <S>                                   <C>       <C>        <C>       <C>        <C>       <C>        <C>     
     Revenues
       Lease revenue                       $  5,014  $  1,494   $  1,368  $  2,073   $  7,790  $    720   $ 18,459
       Interest income and other                 27        --        504        --         10       436        977
       Net gain (loss) on disposition of
         equipment                             (110 )     211      5,317        (3 )    1,035        --      6,450
                                           ------------------------------------------------------------------------
         Total revenues                       4,931     1,705      7,189     2,070      8,835     1,156     25,886

     Expenses
       Operations support                     1,326        12        442       325      2,814        91      5,010
       Depreciation and amortization          5,787       927        395       894      2,148       896     11,047
       Interest expense                          --        --         --        --         --     3,078      3,078
       General and administrative expenses      523        81         71       461        974       917      3,027
       Provision for bad debts                  935         9         --        21       (137 )      --        828
                                           ------------------------------------------------------------------------
         Total costs and expenses             8,571     1,029        908     1,701      5,799     4,982     22,990
                                           ------------------------------------------------------------------------
     Equity in net income (loss) of USPEs       901        --       (611 )      --         --     6,574      6,864
                                           ------------------------------------------------------------------------
                                           ========================================================================
     Net income (loss)                     $ (2,739 )$    676   $  5,670  $    369   $  3,036  $  2,748   $  9,760
                                           ========================================================================

     As of December 31, 1996
     Total assets                          $ 42,315  $  3,562   $  4,128  $  4,331   $ 12,055  $ 12,260   $ 78,651
                                           ========================================================================

<FN>

<F1> Includes costs not  identifiable  to a particular  segment such as interest
     expense,  certain amortization expense,  certain interest income and other,
     operations support expenses and general and administrative  expenses.  Also
     includes income from an investment in an entity owning a marine vessel.

<F2> Includes costs not  identifiable  to a particular  segment such as interest
     expense,   amortization   expense,   certain  interest  income  and  other,
     operations support expenses and general and administrative  expenses.  Also
     includes  income from an investment  in an entity owning a mobile  offshore
     drilling unit.

</FN>

</TABLE>

6.   Geographic Information

     The  Partnership  owns  certain  equipment  that  is  leased  and  operated
     internationally.  A limited number of the  Partnership's  transactions  are
     denominated in a foreign  currency.  Gains or losses resulting from foreign
     currency transactions are included in the results of operations and are not
     material.

     The Partnership  leases or leased its aircraft,  railcars,  and trailers to
     lessees domiciled in four geographic  regions:  the United States,  Canada,
     Europe,  and Asia. The marine vessels,  mobile offshore  drilling unit, and
     marine  containers are leased to multiple lessees in different regions that
     operate this equipment worldwide.




<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

6.   Geographic Information (continued)

     The table  below set forth  lease  revenue  by  geographic  region  for the
     Partnership's  owned equipment and investments in USPEs grouped by domicile
     of the lessee as of and for the years ended  December 31, (in  thousands of
     dollars):

<TABLE>
<CAPTION>



             Region                  Owned Equipment                   Investments in USPES
  --------------------------------------------------------------------------------------------------

                                1998         1997        1996        1998         1997        1996
                             -----------------------------------  -------------------------------------

     <S>                     <C>         <C>         <C>          <C>         <C>            <C>    
     United States           $   4,917   $    5,227  $    7,749   $      --   $       --     $    --
     Canada                      5,474        5,479       3,434         449        1,019       1,083
     Europe                      3,619        3,620       1,120         780        1,766       1,869
     Asia                          861        2,558       2,069          --           --          --
     Rest of the world           1,034        3,105       4,087       1,404        1,414       2,113
                             ===================================  =====================================
   Lease revenues            $  15,905   $   19,989  $   18,459   $   2,633   $    4,199     $ 5,065
                             ===================================  =====================================
</TABLE>

     The following table sets forth net income (loss)  information by region for
     the owned  equipment and  investments in USPEs for the years ended December
     31, (in thousands of dollars):

<TABLE>
<CAPTION>

                Region                          Owned Equipment                       Investments in USPEs
  -----------------------------------------------------------------------------------------------------------------

                                             1998        1997        1996         1998        1997         1996
                                         -------------------------------------  ------------------------------------

     <S>                                 <C>         <C>          <C>         <C>             <C>      <C>       
     United States                       $    1,513  $    1,130   $   1,639   $       --      $   --   $       --
     Canada                                   1,556       3,340       2,591           10          84         (307 )
     Europe                                    (551 )    (2,662 )    (1,728 )         39         773        1,209
     Asia                                    (1,138 )     3,771      (2,821 )         --          --           --
     Rest of the world                        3,836         941       6,858           27        (372 )      5,962
                                         -------------------------------------  ------------------------------------
   Regional income                            5,216       6,520       6,539           76         485        6,864
   Administrative and other net loss         (2,375 )    (5,068 )    (3,643 )         --          --           --
                                         -------------------------------------  ------------------------------------
   Net income                            $    2,841  $    1,452   $   2,896   $       76      $  485   $    6,864   
                                         =====================================  ====================================
</TABLE>

     The net book value of these  assets as of December  31, were as follows (in
thousands of dollars):

<TABLE>
<CAPTION>

                Region                        Owned Equipment                      Investments in USPEs
      ----------------------------  -------------------------------------  --------------------------------------

                                        1998         1997        1996           1998         1997        1996
                                     -------------------------------------   -------------------------------------

       <S>                           <C>         <C>          <C>             <C>        <C>         <C>         
       United States                 $    6,475  $    8,639   $  10,862       $     --   $       --  $       --  
       Europe                             7,258      11,175      17,399          2,054        4,021       4,564
       Canada                             7,114       6,866       8,136            106        2,054       2,575
       Asia                               1,951       2,852       8,067             --           --          --
       Rest of the world                    512       8,542      13,599          2,814        3,104       3,999
                                     -------------------------------------   -------------------------------------
                                     =====================================   =====================================
           Net book value            $   23,310  $   38,074   $  58,063       $  4,974   $    9,179  $   11,138 
                                     =====================================   =====================================
</TABLE>



<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

7.   Note Payable

     The Partnership had a note  outstanding with a face amount of $18.5 million
     as of December  31,  1998,  with  interest  computed at LIBOR plus 1.5% per
     annum.  The note had different  maturities  based on the General  Partner's
     ability to select various LIBOR maturities (one month, two months, or three
     months).  Rates are set when the note  matures  and are  reset  (6.8% as of
     December  31, 1998 and 7.4% as of December 31,  1997).  During the first 15
     months following conversion to a term loan on September 30, 1996, quarterly
     principal  payments  equal to 75% of net proceeds from asset sales was due.
     Commencing October 1, 1997,  quarterly  principal payments will be equal to
     75% of net proceeds from asset sales from that quarter,  or to maintain the
     minimum facility balance specified on the loan agreements. During 1998, the
     Partnership  paid $10.8 million of the outstanding loan balance as a result
     of asset sales.

     The General Partner  believes that the book value of the debt  approximates
     fair market value due to its variable  interest  rate.  The  Partnership is
     prohibited  from incurring any new  indebtedness  when it is in the holding
     phase or liquidation phase.

8.   Concentrations of Credit Risk

     No single lessee accounted for more than 10% of total consolidated revenues
     for the year ended December 31, 1998, 1997, and 1996. However, R & B Falcon
     Drilling,   Inc.  purchased  a  mobile  offshore  drilling  unit  from  the
     Partnership  and the  gain  from  the  sale  accounted  for  16.0% of total
     consolidated  revenues from  wholly-and  partially-owned  equipment  during
     1998.  Aramco Associated Co. purchased an aircraft from the Partnership and
     the gain from the sale accounted for 16.3% of total  consolidated  revenues
     from wholly-and  partially-owned equipment during 1997. Electricite et Eaux
     de  Madagascar  purchased  an entity  that owned a marine  vessel  from the
     Partnership  and the  gain  from  the  sale  accounted  for  17.1% of total
     consolidated  revenues from  wholly-and  partially-owned  equipment  during
     1996.

     As of  December  31,  1998 and  1997,  the  General  Partner  believes  the
     Partnership  had no  significant  concentrations  of credit risk that could
     have a material adverse effect on the Partnership.

9.   Income Taxes

     The  Partnership  is not subject to income taxes,  as any income or loss is
     included in the tax returns of the  individual  partners.  Accordingly,  no
     provision for income taxes has been made in the financial statements of the
     Partnership.

     As of December 31, 1998, there were temporary  differences of approximately
     $33.1 million  between the financial  statement  carrying values of certain
     assets  and  liabilities  and the  income  tax  basis  of such  assets  and
     liabilities,   primarily  due  to  differences  in  depreciation   methods,
     equipment reserves,  provision for bad debt, prepaid deposits,  and the tax
     treatment of underwriting commissions and syndication costs.

10.  Contingencies

     The  Partnership,  together with  affiliates,  has initiated  litigation in
     various official forums in India against a defaulting Indian airline lessee
     to repossess Partnership property and to recover damages for failure to pay
     rent and failure to maintain  such  property in  accordance  with  relevant
     lease  contracts.  The  Partnership  has  repossessed  all of its  property
     previously leased to such airline,  and the airline has ceased  operations.
     In response to the  Partnership's  collection  efforts,  the airline  filed
     counter-claims  against  the  Partnership  in excess  of the  Partnership's
     claims against the airline. The General Partner believes that the airline's
     counterclaims  are completely  without merit,  and the General Partner will
     vigorously defend against such counterclaims.


<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

11.  Subsequent Event

     On January 14, 1999, the General Partner for the Partnership announced that
     it will begin to recognize  transfers  involving  trading of units in 1999.
     The  Partnership  is listed on the OTC  Bulletin  Board  under the  symbols
     GFZPZ.

     In making the announcement,  the General Partner noted that, as in previous
     years, it will continue to monitor the volume of such trades to ensure that
     the Partnership  remain in compliance  with Internal  Revenue Service (IRS)
     Notice 88-75 and IRS Code Section 7704. These IRS regulations  contain safe
     harbor provisions  stipulating the maximum number of partnership units that
     can be traded during a calendar  year in order for a partnership  not to be
     deemed a publicly traded partnership for income tax purposes.

     Should the Partnership  approach the annual safe harbor limitation later on
     in 1999,  the General  Partner will,  at that time,  cease to recognize any
     further  transfers  involving  trading  of  Partnership  units.   Transfers
     specifically excluded from the safe harbor limitations,  referred to in the
     regulations as "transfers not involving  trading," which include  transfers
     at  death,  transfers  between  family  members,  and  transfers  involving
     distributions  from  a  qualified  retirement  plan,  will  continue  to be
     recognized by the General Partner throughout the year.

     During February and March 1999, the  Partnership  sold part of its interest
     in two trusts that owned a total of three stage II commercial aircraft with
     a net  book  value  of $1.7  million  for  proceeds  of $3.0  million.  The
     Partnership  expects to sell its  remaining  interest in the two trust that
     still  own two  stage II  aircraft  engines  and a  portfolio  of  aircraft
     rotables before the end of March 1999.











                      (this space intentionally left blank)


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III

                                INDEX OF EXHIBITS



  Exhibit                                                              Page

    4.     Limited Partnership Agreement of Partnership.                 *    

    4.1    Amendment, dated November 18, 1991, to Limited Partnership    *
           Agreement of Partnership.

   10.1    Management Agreement between Partnership and PLM Investment   *
           Management, Inc.

   10.2    $41,000,000 Credit Agreement dated as of December 13, 1994 with *
           First Union National Bank of North Carolina.

   24.     Powers of Attorney.                                         46-48

 * Incorporated by reference.  See page 26 of this report.