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, 1995.

[  ]         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 900, 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 ______


Class                                            Outstanding at March 14, 1996

Limited Partnership Depositary Units                     9,871,926

General Partnership Units:                                       1

An index of exhibits filed with this Form 10-K is 
located at page 44.

Total number of pages in this report:  47


<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),  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 owning and leasing transportation equipment to be operated by and/or
leased to various shippers and transportation companies.

     The Partnership was formed to engage in the business of owning and managing
a diversified pool of used and new transportation-related  equipment and certain
other items of equipment. The Partnership's primary objectives are:

      (i)to acquire a diversified  portfolio of  long-lived,  low  obsolescence,
high residual value  equipment with the net proceeds of the initial  partnership
offering,  supplemented  by debt financing if deemed  appropriate by the General
Partner.  The  General  Partner  intends to  acquire  the  equipment  at what it
believes to be below  inherent  values and to place the  equipment on lease,  or
under other contractual  agreements with  creditworthy  lessees and operators of
equipment;

     (ii)to generate sufficient net operating cash flow from lease operations to
meet existing  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;

     (iii)  to  selectively  sell and  purchase  other  equipment  to add to the
Partnership's  initial equipment portfolio.  The General Partner intends to sell
equipment  when it believes that,  due to market  conditions,  market prices for
equipment  exceed  inherent  equipment  values or expected  future benefits from
continued  ownership  of a  particular  asset  will not  equal or  exceed  other
equipment  investment  opportunities.  Proceeds from these sales,  together with
excess  net  operating  cash  flow  from   operations  that  remain  after  cash
distributions have been made to the Partners, will be used to acquire additional
equipment   throughout  the  intended  seven  year  reinvestment  phase  of  the
Partnership;

     (iv)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.  On
August 16,  1991,  the Units of the  Partnership  began  trading on the American
Stock  Exchange.  Thereupon,  each  Unitholder  received  a  depositary  receipt
representing  ownership of the number of Units owned by such  Unitholder.  As of
December 31, 1995,  there were 9,899,573  depositary  units  (Depositary  Units)
outstanding.  The General  Partner  contributed  $100 for its 5% general partner
interest in the Partnership.

     During  the first  seven  years of  operations,  a portion of cash flow and
surplus funds will be used to purchase  additional  equipment and a portion will
be distributed to the partners.  Beginning after the Partnership's  seventh year
of operations,  cash flow and surplus funds,  if any, will not be reinvested and
will  be  distributed  to  the  partners.  The  Partnership's  seventh  year  of
operations  ends  on  December  31,  1996.  Beginning  in the  eleventh  year of
operations of the  Partnership,  the General  Partner will commence to liquidate
the assets of the Partnership in an orderly  fashion,  unless the Partnership is
terminated  earlier upon sale of all  Partnership  property or by certain  other
events.



<PAGE>


     Table 1, below,  lists the  equipment  and the cost of the equipment in the
Partnership portfolio as of December 31, 1995 (in thousands):
<TABLE>


                                                      TABLE 1

<CAPTION>
 Units                             Type                                     Manufacturer                   Cost
---------------------------------------------------------------------------------------------------------------------

Equipment held for operating leases:

   <S>                                                          <C>                                     <C>        
   0.56   Bulk carrier marine vessel                            Naikai Zosen, Naikai Shpbldg.           $    7,163<F1>
      1   Bulk carrier marine vessel                            Kanasashi                                    5,421
      1   Bulk carrier marine vessel                            Tsuneishi                                   10,041
      1   727-100QC commercial aircraft                         Boeing                                       5,784
      3   737-200A commercial aircraft                          Boeing                                      39,138
      1   DC-9-32 commercial aircraft                           McDonnell Douglas                           10,028
   0.50   Aircraft engine CFM 56                                General Electric                             1,594<F2>
      2   Commercial aircraft engines                           General Electric                             5,812
   0.17   Two trusts consisting of:
            Three 737-200 stage II commercial aircraft,         Boeing                                       4,706<F3>
            Two aircraft engines and                            Pratt Whitney                                  195<F3>
            portfolio of aircraft rotables                      Various                                        325<F3>
  1,522   Marine containers                                     Various                                     15,015
    120   Coal cars                                             Various                                      4,829
  1,342   Tank cars                                             Various                                     30,932
    129   Dry trailers                                          Stoughton and Strick                           752
     50   Domestic trailers                                     Various                                      1,878
    164   Dry piggyback trailers                                Various                                      2,534
    116   Utility refrigerated trailers                         Various                                      2,460
                                                                                                       --------------

          Equipment held for operating leases                                                              148,607

Equipment held for sale:
   0.45   Mobile offshore drilling unit                         Ingalls Shipbuilding                        12,681<F4>
    110   Coal cars                                             Various                                      1,302
                                                                                                       --------------

          Total equipment                                                                               $  162,590<F5>
                                                                                                       ==============
<FN>

<F1> Jointly owned:  EGF III (56%) and an affiliated partnership.

<F2> Jointly owned:  EGF III (50%) and an affiliated partnership.

<F3> Jointly owned:  EGF III (17%) and three affiliated partnerships (83%).

<F4> Jointly owned:  EGF III (45%) and an affiliated partnership.

<F5> Includes proceeds from capital contributions,  operations,  and Partnership
     borrowings invested in equipment.  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
     time of purchase  except for 50 domestic  containers  and 164 dry  piggback
     trailers.
</FN>

</TABLE>

The equipment is generally  leased under  operating  leases with terms of one to
six years.  Some of the  Partnership's  marine vessels and marine containers 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 sub-lessees,  after deducting  certain direct operating
expenses of the pooled equipment.

     At  December  31,  1995,  approximately  89% 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.   Revenues
collected under  short-term  rental  agreements with the rental yards' customers
are distributed monthly to the owners of the related equipment.  Direct expenses
associated  with the equipment and an allocation of other direct expenses of the
rental yard operations are billed to the Partnership.



<PAGE>


     The lessees of the  equipment  include,  but are not  limited  to:  British
Midland  Airways Ltd., DHL Airways,  Inc.,  Atlantic Bulk Shipping,  Continental
Airlines, Inc., and East West Airlines, Inc. As of December 31, 1995, all of the
equipment was on lease or in rental yards except 53 marine  containers,  18 tank
cars, and two aircraft engines.

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  equipment.  IMI agreed to perform all services  necessary to
manage the transportation  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
Financial Statement notes 1 and 2).

(C)  Competition

(1)  Operating Leases vs. Full Payout Leases

Generally the equipment  owned by the  Partnership is leased out on an operating
lease basis wherein the rents owed 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 the operating  lease need not be  capitalized  on the lessee's
balance sheet.

     The Partnership encounters considerable  competition from lessors utilizing
full payout leases on new equipment,  i.e., leases which have terms equal to the
expected  economic  life of the  equipment.  Full payout  leases are written for
longer terms and for lower rates than the Partnership offers. 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 of the
Partnership may write full payout leases at considerably  lower rates, or larger
competitors  with a lower cost of capital  may offer  operating  leases at lower
rates, and as a result, the Partnership may be at a competitive disadvantage.

(2)  Manufacturers and Equipment Lessors

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

     The  Partnership  competes  with  many  equipment  lessors,  including  ACF
Industries, Inc. (Shippers Car Line Division), General Electric Railcar Services
Corporation,  Greenbrier  Leasing  Company,  Polaris Aircraft Leasing Corp., GPA
Group  Plc,  and  other  limited  partnerships  which  lease  the same  types of
equipment.

(D)  Demand

The  Partnership  invests in  transportation-related  capital  equipment  and in
"relocatable   environments."   "Relocatable   environments"  refer  to  capital
equipment  constructed  to be  self-contained  in  function  but  transportable,
example of which includes a mobile offshore drilling unit. A general distinction
can be  drawn  between  equipment  used  for  the  transport  of  materials  and
commodities  or people.  With the exception of aircraft  leased to passenger air
carriers,  the  Partnership's  equipment is used  primarily for the transport of
materials.

The following describe the markets for the Partnership's equipment:

(1)  Commercial aircraft

International airlines are expected to post an aggregate $5.7 billion profit for
1995,  an  indication  that the world air  transport  industry  made a  dramatic
turnaround  during the year.  While U.S. air traffic  growth slowed during 1995,
capacity levels decreased,  resulting in higher load factors,  lower unit costs,
and improved yields.  Worldwide,  airlines took delivery of 517 commercial jets,
the lowest  number  since 1988.  A  continuing  decrease in 1996  deliveries  is
expected to improve the supply-demand balance.

     Several factors have favorably impacted the market for "second  generation"
commercial  jets,  the type owned by the  Partnership,  including  Boeing  727s,
737-200s,  and DC9-32s.  In addition to fewer deliveries,  the new generation of
narrowbody  aircraft  has as yet failed to produce  any  significant  savings in
carriers' direct  operating  costs,  and there are clear  indications of further
consolidation  within the U.S. and European markets.  These trends,  expected to
continue through 1996, have led to increases in demand, rental rates, and market
values for "second generation" commercial aircraft.

(2)  Aircraft Engines

Most  airlines  maintain  an  inventory  of spare  engines in order to  minimize
aircraft downtime due to engine maintenance and overhaul requirements.

     Although  stage II engines  do not meet  future  U.S.  and  European  noise
regulations,  those  owned by the  Partnership  are the most  advanced  stage II
engines  produced,  compatible  with all  models of  Boeing  727,  737-200,  and
McDonnell  Douglas  DC-9-30  series  aircraft.  The  resurgence  in  demand  for
narrowbody  aircraft in the U.S. and Europe has favorably  impacted  lease rates
and values for these  stage II engines.  The  Partnership's  stage III  engines,
operable  on Boeing  737,  McDonnell  Douglas DC 10-30,  and Airbus  A300 series
aircraft,  meet the most stringent U.S.  Federal Aviation  Administration  (FAA)
regulatory  operating  requirements  and  thus  are not  subject  to  regulatory
obsolescence. Due to diminishing demand for and increased retirement of DC 10-30
and Airbus A300 aircraft,  demand for compatible stage III engines is relatively
weak.  While this trend is expected to continue in the near  future,  demand for
Boeing  737-compatible stage III engines is relatively strong as 737s remain the
most widely-used aircraft in the world fleet.

(3)  Aircraft Rotables

Aircraft  rotables are a predetermined  quantity of replacement spare parts held
by  airlines  as  inventory.  They can be removed  from an  aircraft  or engine,
overhauled,  and then  recertified  and  refitted  to the  aircraft  in "as-new"
condition.  Rotables  carry  specific  identification  numbers  and can  thus be
individually  tracked.  They include  landing gear,  certain engine  components,
avionics,  auxiliary power units,  replacement doors,  control surfaces,  pumps,
valves,  and other  similar  equipment.  The useful life of a rotable is usually
measured in terms of either time in service or number of takeoffs  and  landings
(cycles).  While specific guidelines apply to rotables for the length of time or
number of cycles  between  overhauls,  there is no preset limit to the number of
times a rotable can be overhauled and recertified. In practice, a component will
be overhauled until the cost to do so exceeds its replacement cost. Airlines are
expected  to   continue   utilizing   off-balance   sheet   financing   such  as
sale-leasebacks  and  inventory  pooling  arrangements  to finance  spare  parts
inventories.

(4)  Marine Containers

The container market ended 1994 with expectations that the strengthening  market
experienced  late in the year would continue into 1995. Such was not the case as
the usual  seasonal  slowdown  during the  post-Christmas  time period  extended
longer than expected, and utilization in 1995 did not achieve 1994 levels. While
per diem rates increased somewhat by summertime, they did not fully recover from
the 8-12%  decrease  experienced  during the  preceding  two  years.  Aggressive
pricing by several major leasing companies  attempting to capture greater market
share is expected to put further pressure on refrigerated  container utilization
and per diem rates. On the secondary markets,  there continues to be significant
increases in supply as  primarily  operators  dispose of large  numbers of older
equipment.  Since the Partnership owns predominately  older containers,  it will
continue to be impacted by these industry trends.

     During 1996,  major leasing  companies are expected to reduce  purchases of
new equipment in response to soft market conditions.  This anticipated reduction
in supply should lead to a strengthening in utilization and per diem rates later
in the year as demand catches up to supply.



<PAGE>


(5)  Railcars

Nearly all the major railroads  reported  substantial  revenue  increases during
1995. As additional  industry  consolidation  is expected in 1996, these mergers
should produce further operating  efficiencies leading to continued increases in
revenues  and  profits.  Car  loadings  rose  approximately  3% during 1995 with
chemicals,  metals,  and grain  experiencing  the largest gains.  Car demand for
liquefied petroleum gas and liquid fertilizer service was also strong throughout
the year.

     The Partnership's  fleet experienced  almost 100% utilization  during 1995.
The few cars out of service were undergoing scheduled maintenance or repair. The
General Partner believes rates are at the top of the cycle for all types of cars
owned by the Partnership.  With demand  continuing  high,  rental rates for most
types of cars owned by the Partnership are expected to remain  relatively strong
during 1996.

     On the supply side, industry experts predict  approximately  55,000 new car
builds  and  40,000  retirements  for a net gain of about 1.2% in the total U.S.
fleet during 1996.  While car builders are still busy,  orders are not coming in
as  rapidly  as in the  last  two  years,  so it is  likely  additions  will not
significantly outpace retirements this year.

(6)   Marine Vessels

The  Partnership's  vessels operate  primarily in spot charters or pooled vessel
operations.  In contrast to  longer-term,  fixed-rate  time  charter or bareboat
charters,  this operating  approach provides greater  flexibility in response to
changes in demand and,  the  General  Partner  believes,  has the  potential  to
achieve a higher average return over the period the vessel is owned.

     Over the first half of 1995,  freight rates for small to  medium-sized  dry
bulk vessels, the type owned by the Partnership, continued the improvement begun
in late 1994.  The Baltic  Freight  Index (an  industry  standard  index for dry
freight  rates) hit an  all-time  high in May 1995.  Although  this index  later
declined,  it ended 1995 at a level  slightly  higher than the year  before.  In
1996,  freight  rates  are  expected  to  hold  at  current  levels,  with  some
improvement  possible  over the latter  half of the year.  On the  supply  side,
newbuilding  orders for the classes of vessels owned by the  Partnership  are at
nearly the same levels as in 1995. On a long-term basis, the level of scrappings
and  retirements  will be  influenced  by  market  freight  rates  which are not
expected to grow at more than a moderate level. Another factor which affects the
volume of  newbuilding is government  subsidy  policies,  particularly  in those
countries  which are members of the  Organization  for  Economic  Cooperation  &
Development  (OECD)  While  the OECD  nations  did not come to a firm  agreement
regarding  ship building  subsidies in 1995, it appears that in 1996 and beyond,
subsidies should decline, reducing newbuilding levels.

(7)  Mobile Offshore Drilling Units (Rigs)

Demand for offshore drilling services  utilizing jack-up rigs increased slightly
in 1995 over the prior two years due  principally  to continued  demand for U.S.
natural gas and improved returns from  international  oil drilling.  Utilization
and day rates have been bolstered by a continued  decline in the supply of rigs.
In 1995,  7 of the 264 rigs in service  were  retired  from the active  drilling
fleet and only 1 rig was added. Another factor contributing to stronger contract
day  rates  has  been  the  continued  consolidation  in rig  ownership  through
corporate   mergers  and  rig  acquisitions  by  larger  market  players.   This
consolidation has had a recognizable effect on stabilizing day rates in times of
low  utilization  and  increasing  day  rates  faster  in  times  of  increasing
utilization.

     Demand in the U.S. Gulf of Mexico,  the largest market for jack-up rigs, is
expected to continue at existing levels, while demand in international  markets,
primarily  the North Sea and offshore  India,  should  increase.  On a long-term
basis,  overall  demand is expected to continue at the present  level and supply
should  continue to decline as older rigs are  retired.  The  overall  effect of
these trends should be increased  utilization,  day rates, and rig market values
as demand and supply reach  equilibrium.  Some industry  experts predict that by
the year 2000,  day rates will  increase  to levels  which will  induce  limited
building of new rigs.


<PAGE>



(8)  Intermodal Trailers

After three robust years,  growth in the  intermodal  trailer market was flat in
1995. This lack of growth  resulted from several factors  including a lackluster
domestic economy,  environmental  issues, the peso devaluation,  a new teamsters
agreement  allowing  more  aggressive  pricing,  and  consolidation  among  U.S.
railroads.  Industry  experts  believe  these  factors  may lead to an  improved
balance in supply and demand and encourage  suppliers to retire older,  obsolete
equipment in 1996. The  Partnership's  piggyback  trailer fleet, with an average
age of 7 years  compared to the industry  norm of 10 years,  experienced  better
utilization  than  that of its  competitors,  averaging  near 80%  during  1995.
Expansion and  utilization  levels in the intermodal  market are  anticipated to
improve in 1996 and trailer  loadings  are  expected  to increase  3-4% per year
throughout the rest of the decade.

(9)  Over-the-Road Dry Trailers

The  over-the-road  dry  trailer  market  remained  strong in 1995 due to record
freight  movements  and  equipment  utilization.  The General  Partner  achieved
excellent  utilization  levels in 1995 averaging  over 85%.  Current levels show
some signs of softening  demand in  comparison to the  record-setting  levels of
1994,  when users  encountered  backlogs  of up to 18 months  for new  equipment
delivery.  While new  production is expected to decline over the next few years,
this should not  dramatically  affect  utilization  levels,  as plenty of older,
obsolete equipment needs to be retired.

     The General  Partner  continues to transfer  trailers with  expiring  lease
terms to the short-term trailer rental facilities  operated by PLM Rental,  Inc.
The General  Partner  believes the strong  performance  of units in these rental
facilities reflects the demand for short-term leases mentioned above and expects
this trend to continue as long as the current shortage of trailers exists.

(10)  Over-the-Road Refrigerated Trailers

After a record year in 1994, demand for refrigerated  trailers softened in 1995.
This softened  demand  affected  overall  performance in 1995.  Adverse  weather
conditions  reduced  the  volume  of  fresh  fruit  and  produce  available,  so
refrigerated  equipment operators focused on hauling generic freight,  adding to
the   dry   freight   market   while    reducing    capacity   and   demand   in
temperature-controlled markets.

     Heavy  consolidation in the trucking  industry induced carriers to work off
excess equipment inventory from 1994 levels.  However,  inventory is expected to
return to more normal  levels in 1996 and  continue  throughout  the rest of the
decade, as excess capacity is retired, newer refrigeration  technology standards
become more defined, and environmentally-damaging refrigerants are phased out of
service.

(E)  Government Regulations

The use, maintenance, and ownership of equipment is regulated by federal, state,
local and/or  foreign  governmental  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  action,  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 the removal from service or extensive  modification of such equipment 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,  mobile  offshore  drilling
              units, etc. that create environmental pollution).

     (2)      the U.S. Department of  Transportation's  Aircraft Capacity Act of
              1990 (which  limits or  eliminates  the  operation  of  commercial
              aircraft in the U.S. that do not meet certain  noise,  aging,  and
              corrosion criteria);


<PAGE>



     (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 on
              the  stratospheric  ozone layer and which are used  extensively as
              refrigerants    in   refrigerated    marine   cargo    containers,
              over-the-road trailers, etc.);

     (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 cars).

ITEM 2.       PROPERTIES

     The  Partnership  neither  owns nor  leases any  properties  other than the
equipment it has  purchased  for leasing  purposes.  At December  31, 1995,  the
Partnership owned a portfolio of  transportation  equipment as described in Part
I, Table 1.

     The  Partnership  maintains  its  principal  office at One Market,  Steuart
Street  Tower,  Suite 900,  San  Francisco,  California  94105-1301.  All office
facilities are provided by FSI without reimbursement by the Partnership.

ITEM 3.       LEGAL PROCEEDINGS

     None.

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, 1995.


<PAGE>



                                     PART II

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

The  Partnership's  Depositary Units began trading (under the ticker symbol GFZ)
on August 16, 1991, on the American Stock Exchange (AMEX). As of March 14, 1996,
there were  9,871,926  Depositary  Units  outstanding.  There are  approximately
12,500 Depositary Unitholders of record as of the date of this report. Under the
Internal  Revenue Code (the Code) the  Partnership  is  classified as a Publicly
Traded  Partnership.  The  Code  treats  all  Publicly  Traded  Partnerships  as
corporations if they remain  publicly  traded after December 31, 1997.  Treating
the Partnership as a corporation will mean the Partnership  itself will become a
taxable, rather than a "flow through" entity. As a taxable entity, the income of
the  Partnership  will be subject to federal  taxation  at both the  partnership
level and at the investor  level to the extent that income is  distributed to an
investor.  In addition,  the General Partner  believes that the trading price of
the  Depositary  Units may be distorted  when the  Partnership  begins the final
liquidation of the underlying equipment portfolio. In order to avoid taxation of
the Partnership as a corporation and to prevent  unfairness to Unitholders,  the
General Partner has requested to delist the Partnership's  Depositary Units from
the AMEX prior to March 29,  1996.  The last day for trading on the AMEX will be
March 22,  1996.  While the  Partnership's  Depositary  Units  will no longer be
publicly traded on a national stock exchange,  the General Partner will continue
to manage the equipment of the Partnership and prepare and distribute  quarterly
and annual reports and Forms 10-Q and 10-K in accordance with the Securities and
Exchange Commission requirements. In addition, the General Partner will continue
to provide  pertinent tax reporting forms and  information to  Unitholders.  The
General Partner anticipates that following delisting, an informal market for the
Partnership's  units may develop in the  secondary  marketplace  similar to that
which currently exists for non-publicly traded partnerships.

     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. The General Partner also is entitled to a special allocation
of any gains from the sale of the  Partnership's  assets in an amount sufficient
to eliminate any negative balance in the General Partner's capital account.  The
General Partner is the sole holder of such interests.

     Table  2,  below,  sets  forth  the  high and low  reported  prices  of the
Partnership's  Depositary  Units for 1995 and 1994,  as  reported by the AMEX as
well as cash distributions paid per Depositary Unit.

                                     TABLE 2
<TABLE>
<CAPTION>

                                                                            Cash
                                                                        Distributions
                                                                          Paid Per
                                                   Reported Trade        Depositary
                                                       Prices               Unit
                                              -----------------------------------------

  Calendar Period                                High             Low

  <S>                                          <C>             <C>            <C>     
  1995

  1st Quarter                                  $   8.38        $   7.00       $   0.40
  2nd Quarter                                  $   8.63        $   7.31       $   0.40
  3rd Quarter                                  $   8.13        $   6.63       $   0.40
  4th Quarter                                  $   7.00        $   4.56       $   0.40

  1994

  1st Quarter                                  $  12.00        $  10.25       $   0.40
  2nd Quarter                                  $  11.50        $  10.13       $   0.40
  3rd Quarter                                  $  10.63        $   9.13       $   0.40
  4th Quarter                                  $  10.63        $   7.38       $   0.40

</TABLE>

<PAGE>


     The  Partnership  has  engaged  in a  plan  to  repurchase  up  to  250,000
Depositary Units.  During the period from January 1, 1995, to December 31, 1995,
the  Partnership  repurchased  65,900  Depositary  Units at a total cost of $0.4
million.  From January 1, 1996 to March 14, 1996,  the  Partnership  repurchased
27,647 Depositary Units at a total cost of $0.12 million.

ITEM 6.  SELECTED FINANCIAL DATA

     Table 3, below, lists selected financial data for the Partnership:
<TABLE>

                                     TABLE 3

                               For the years ended
                  December 31, 1995, 1994, 1993, 1992, and 1991
                 (thousands of dollars, except per unit amounts)
<CAPTION>

                                           1995            1994           1993             1992            1991
                                       ------------------------------------------------------------------------------

    <S>                                 <C>             <C>            <C>              <C>             <C>       
    Operating results:
      Total revenues                    $   28,055      $  40,247      $   42,149       $   43,722      $   55,289
      Net gain on disposition
        of equipment                         2,936          2,863           1,707            1,081           5,837
      Loss on revaluation of
        equipment                               --         (1,082)            (92)          (8,292)             --
      Net income (loss)                      2,706            252            (241)         (11,248)            (33)

    At year-end:
      Total assets                      $   84,259      $  98,779      $  117,531       $  132,043      $  158,681
      Total liabilities                     53,922         54,028          56,031           53,232          46,516
      Notes payable                         41,000         41,000          40,866           40,865          40,865

    Cash distributions                  $   16,737      $  16,811      $   16,829       $   22,106      $   21,578

    Cash distributions which
      represent a return of capital     $   14,031      $  15,970      $   15,988       $   21,001      $   20,499

    Per Depositary Unit:

    Net income (loss)                   $     0.19<F1>  $   (0.06)<F2> $    (0.11)<F3>  $    (1.24)<F4> $    (0.33)<F5>


    Cash distributions                  $     1.60      $    1.60      $     1.60       $     2.10      $     2.05

    Cash distributions which
      represent a return of capital     $     1.42      $    1.60      $     1.60       $     2.10      $     2.05

<FN>

<F1> After reduction of $0.7 million ($.07 per 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 financial statements.)

<F2> After reduction of $0.8 million ($.08 per 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 financial statements.)

<F3> After reduction of $0.9 million ($.09 per 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 financial statements.)

<F4> After reduction of $1.2 million ($0.12 per 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 financial statements.)

<F5> After reduction of $3.3 million ($0.33 per 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 financial statements.)

</FN>

</TABLE>


<PAGE>


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

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 various  sectors of the
transportation  industry and its effect on the  Partnership's  overall financial
condition.

     The analysis is organized in the following manner:

-    Results of Operations - Year Over Year Summary and Factors Affecting 
     Performance
-    Financial Condition - Capital Resources, Liquidity, and Distributions
-    Outlook for the Future
-    Results of Operations - Year to Year Detail Comparison

(A)  Results of Operations

(1)  Year Over Year Summary

     The  Partnership's   net  operating   contribution   before   depreciation,
amortization, gain/loss on sales, and loss on revaluation declined approximately
15%  from  1994 to  1995,  primarily  due to the  duration  between  the sale of
equipment and the eventual deployment of the sales proceeds in other assets, the
off-lease  status of certain  equipment  throughout  1995, and the reductions in
lease rates for certain  equipment  re-leased  during the year. These reductions
were  partially  offset by lower  operating  expenses  from the mobile  offshore
drilling unit and the  deployment  of proceeds from the sale of  underperforming
assets.  While lease turnover occurred in the Partnership's rail portfolio,  the
net effect of such re-leases on Partnership performance was relatively small. In
addition,  performance increases in the Partnership's trailer portfolio were due
mainly to the  delivery  of units into  service in late 1994 and 1995.  Indirect
operating  expense  increased due to greater  reserves  required with respect to
potential bad debts offset by lower management fees as a result of lower revenue
production.

(2)  Factors Affecting Performance

   (a) 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.  Factors  influencing  the current market
rate for  transportation  equipment  include  supply and  demand for  similar or
comparable types or kinds of transport  capacity,  desirability of the equipment
in the lease market,  market  conditions for the particular  industry segment in
which the equipment is to be leased,  overall market conditions,  regulations of
many kinds  concerning the use of the  equipment,  and others.  The  Partnership
experienced  repricing exposure in 1995 primarily in its marine vessel, rig, and
marine container portfolios.

     (i) Mobile  Offshore  Drilling Unit (Rig):  In the  beginning of 1994,  the
Partnership's  rig was moved  from the Indian  Ocean to the Gulf of Mexico.  The
primary  lease term expired in February 1995 with options to extend the lease at
the  existing  lease  rates for 4 six-month  periods.  Demand  requirements  for
natural gas  remained  constant  during 1995  causing the lessee to exercise its
option to extend the lease in February and again in August. As a result, the rig
did not experience any adverse effects from the repricing exposure at the end of
the option  periods.  For a more thorough  discussion of market  conditions  and
those factors  impacting  rates for rigs,  see the section in "Demand" on Mobile
Offshore Drilling Units (Rigs).

     (ii)Marine Vessels: One of the Partnership's marine vessels operated in the
"spot" or "voyage  charter"  market  during the first  quarter of 1995.  Spot or
voyage charters are usually of short duration and reflect the short-term  demand
and pricing trends in the marine vessel market.  The General  Partner  concluded
that the repricing exposure in this market outweighed the market benefits.  As a
result,  the vessel was leased on a bareboat charter that is being accounted for
as a "Sales-Type Lease". The lease has a four-year duration without the exposure
of rate  fluctuations  and operating  cost.  For a more  thorough  discussion of
market conditions and those factors impacting rates for marine vessels,  see the
section in "Demand" on marine vessels.

         (iii)  Marine  Containers:  The  majority of the  Partnership's  marine
container portfolio is operated in  utilization-based  leasing pools and as such
is highly exposed to repricing  activity.  Overall,  marine container revenue in
1995  declined  17%  from  1994  levels  (approximately  $2.3  million  in 1994;
approximately  $1.9 million in 1995).  The change is due mainly to the reduction
in marine  containers  in service,  as  approximately  23% of the  Partnership's
marine  container  fleet was  liquidated  or disposed  of during the year.  This
reduction is primarily  associated  with the increasing age of the fleet.  For a
more thorough  discussion of market conditions and those factors impacting rates
for marine containers, see the section in "Demand" on marine containers.

     (iv)Other Equipment: While market conditions and other factors may have had
some  impact  on  lease  rates in  markets  in which  the  Partnership  owns the
remainder  of its  equipment  portfolio,  the  majority  of this  equipment  was
unaffected as their leases did not expire in 1995. See "Demand" for a discussion
of conditions in these equipment areas.

     (b) Reinvestment of Cash Flow and Surplus Funds

During the first seven years of  operations  which ends  December 31, 1996,  the
Partnership  intends to increase its  equipment  portfolio by investing  surplus
cash available in additional equipment after fulfilling  operating  requirements
and payments of  distributions  to the  partners.  Subsequent  to the end of the
reinvestment  period,  the Partnership  will continue to operate for another two
years,  and then  begin an  orderly  liquidation  over an  anticipated  two-year
period.  The  operating  lease income  generated by, and proceeds from sales of,
this equipment, are intended to enhance financial returns to the partners.

     Nonoperating  funds  for  reinvestment  are  generated  from  the  sale  of
equipment prior to the Partnership's  planned  liquidation phase, the receipt of
funds  realized from the payment of stipulated  loss values on equipment lost or
disposed of during the time it is subject to lease  agreements,  or the exercise
of purchase  options  written into certain  lease  agreements.  Equipment  sales
generally  result  from the  determination  by the General  Partner  that either
revenues from continued ownership of certain equipment will not meet Partnership
performance goals, or market conditions, market values, and other considerations
indicate it is the appropriate time to sell certain equipment.

     (c) Reinvestment Risk

Reinvestment  risk occurs when 1) the  Partnership  cannot  generate  sufficient
surplus cash after  fulfillment of operating  obligations and  distributions  to
reinvest in additional  equipment during the investment phase of the Partnership
operations;  2) equipment is sold or liquidated for less than threshold amounts;
3) proceeds  from sales,  losses,  or surplus cash  available  for  reinvestment
cannot be  reinvested  at  threshold  lease  rates;  or 4) proceeds  from sales,
losses,  or surplus  cash  available  for  reinvestment  cannot be deployed in a
timely manner.

     For the year ended December 31, 1995, the Partnership  generated sufficient
funds  to meet  its  operating  obligations  including  interest  expense.  Cash
distributions of $16.7 million included both funds generated from current period
operations and cash available but not distributed in prior periods.

     During the year, the Partnership received proceeds from the disposal of 462
marine  containers  and proceeds  from the sale of 204 railcars and  locomotives
totaling  approximately $3.4 million. The Partnership  reinvested  approximately
$11.4 million:  $1.7 million in 30 tank cars and capital repairs to pressure and
non-pressure  tank cars; $5.2 million to fund the purchase of a partial interest
in two trusts,  comprised of 3 commercial  aircraft,  2 aircraft engines,  and a
package of aircraft rotables;  and $4.5 million for the purchase of 1 commercial
aircraft.  The sales  proceeds of assets sold in the fourth quarter of 1994 were
not deployed into revenue-producing assets until the end of the third quarter of
1995 when suitable assets for the Partnership were identified.

     (d) Equipment Valuation

In March 1995, the Financial  Accounting Standards Board (FASB) issued Statement
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed  Of" (SFAS 121).  This  standard  is  effective  for years
beginning after December 15, 1995. The Partnership adopted SFAS 121 during 1995,
the effect of which was not  material as the method  previously  employed by the
Partnership  was  consistent  with SFAS 121. In  accordance  with SFAS 121,  the
General Partner  reviews the carrying value of its equipment  portfolio at least
annually in relation to expected  future  market  conditions  for the purpose of
assessing the recoverability of the recorded amounts.  If projected future lease
revenue plus residual  values are less than the carrying value of the equipment,
a loss on  revaluation  is recorded.  No  adjustments  to reflect  impairment of
individual  equipment  carrying values were required for the year ended December
31, 1995.

     As of December 31, 1995,  the General  Partner  estimated  the current fair
market value of the Partnership's equipment portfolio to be approximately $110.5
million.

(B)  Financial Condition - Capital Resources, Liquidity, and Distributions

The Partnership  purchased its initial  equipment  portfolio with capital raised
from its initial  equity  offering  and  permanent  debt  financing.  No further
capital  contributions  from original  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.  Therefore  the  Partnership  relies  on  operating  cash flow to meet its
operating obligations and to make cash distributions to the Limited Partners.

     During 1994,  the  Partnership  had two loans  outstanding  totaling  $40.8
million.  One loan was for $5.8  million,  with interest at 11% due in September
1996.  The other loan was for $35 million,  with  interest at 1% over the London
Inter Bank Offering Rate (LIBOR),  and due in twelve quarterly  payments of $2.9
million  starting  December  31,  1994.  To achieve  the  maximum  return to the
Partnership the General Partner  refinanced this debt with a maturity that would
more closely coincide with the liquidation phase of the Partnership. In December
1994, the Partnership  completed the refinancing with a new loan of $41 million,
with interest at 1.5% over LIBOR, and due in eleven  quarterly  payments of $3.7
million  starting  December 31, 1997. To secure this loan the Partnership paid a
placement fee of 339,000 of the loan balance to the lender.

     The  Partnership  is traded on the American Stock Exchange under the symbol
GFZ.  For  the  past  three  years  the  Partnership  has  engaged  in a plan to
repurchase up to 250,000  Depositary  Units.  At the end of 1995 the Partnership
had purchased a total of 100,353  units for $0.8 million,  34,453 of these units
were purchased in 1994,1993, and 1992 at a cost of $0.4 million.

     The General  Partner has entered into a joint $25 million  credit  facility
(the  Committed  Bridge  Facility) on behalf of the  Partnership,  PLM Equipment
Growth Fund II, PLM Equipment  Growth Fund IV, PLM Equipment  Growth Fund V, PLM
Equipment Growth Fund VI, and Professional  Lease Management Income Fund I (Fund
I), all affiliated  investment  programs,  and TEC Acquisub,  Inc.  (TECAI),  an
indirect  wholly-owned  subsidiary of the General Partner,  which may be used to
provide interim financing of up to (i) 70% of the aggregate book value or 50% of
the  aggregate  net  fair  market  value  of  eligible  equipment  owned  by the
Partnership or Fund I, plus (ii) 50% of unrestricted  cash held by the borrower.
The Committed  Bridge Facility became available on December 20, 1993, and became
available  to the  Company on May 8,  1995,  and was  amended  and  restated  on
September  27, 1995,  to expire on  September  30, 1996.  The  Committed  Bridge
Facility  also  provides  for a $5  million  Letter of Credit  Facility  for the
eligible  borrowers.  Outstanding  borrowings by Fund I, TECAI, or PLM Equipment
Growth Funds II through VII reduce the amount  available to each other under the
Committed Bridge Facility.  Individual borrowings may be outstanding for no more
than 179 days,  with all advances  due no later than  September  30,  1996.  The
Committed  Bridge  Facility  prohibits  the General  Partner from  incurring any
additional  indebtedness.  Interest accrues at either the prime rate or adjusted
LIBOR plus 2.5% at the borrower's option and is set at the time of an advance of
funds.  As of  December  31,  1995,  neither the  Partnership,  any of the other
programs, nor TECAI had any outstanding borrowings.



<PAGE>


(C)  Outlook for the Future

Several factors may affect the Partnership's  operating  performance in 1995 and
beyond,  including  changes in the markets for the  Partnership's  equipment and
changes in the regulatory environment in which that equipment operates.

(1)  Repricing and Reinvestment Risk

     Portions of the Partnership's  marine container,  rail, marine vessel,  and
trailer  portfolios  will  be  remarketed  in 1996 as  existing  leases  expire,
exposing   the   Partnership   to   considerable   repricing   risk/opportunity.
Additionally,  the General Partner may select 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 into U.S.  ports
resulting  from  implementation  of the U.S. Oil Pollution Act of 1990.  Ongoing
changes in the  regulatory  environment,  both in the U.S. and  internationally,
cannot be predicted  with any  accuracy,  and preclude the General  Partner from
determining the impact of such changes on Partnership operations,  purchases, or
sale of equipment.

(3)  Additional Capital Resources and Distribution Levels

The Partnership's initial contributed capital was comprised of proceeds from its
initial  offering,  supplemented  later by  permanent  debt in the amount of $41
million.  The General Partner has not planned any expenditures,  nor is it aware
of any contingencies that would cause it to require any additional capital other
than that mentioned above.

     Pursuant to the Limited Partnership  Agreement,  the Partnership will cease
to reinvest in additional  equipment beginning in its seventh year of operations
 .  The  General   Partner  intends  to  continue  its  strategy  of  selectively
redeploying  equipment  to  achieve  competitive  returns.  By  the  end  of the
reinvestment  period, the General Partner intends to have assembled an equipment
portfolio  capable of achieving a level of operating cash flow for the remaining
life of the  Partnership  sufficient  to meet its  obligations  and to sustain a
predictable level of distributions to the partners.

     The General  Partner  believes the current  level of  distributions  to the
partners  cannot be  maintained  throughout  1996  using  cash from  operations,
reserves,  and proceeds from sales or  dispositions.  As of the first quarter of
1996,  the cash  distribution  rate has been  reduced  to more  closely  reflect
current  and  expected  net cash flows from  operations.  Continued  weak market
conditions in certain equipment sectors and equipment sales have reduced overall
lease revenues in the Partnership to the point where  reductions in distribution
levels  are  now  necessary.  In  addition,  with  the  onset  of the  equipment
liquidation  phase of the  Partnership  in 1998,  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 will be reduced, significant asset sales may result
in potential special distributions to Unitholders.


<PAGE>


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

Comparison of the Partnership's Operating Results for the Years Ended 
December 31, 1995 and 1994

(A)  Revenues

Total  revenues  for the years ended  December 31,  1995,  and 1994,  were $28.1
million and $40.2  million,  respectively.  The  decrease in 1995  revenues  was
attributable  primarily to decreases in lease revenue partially offset by higher
interest earned in 1995 compared to 1994. The  Partnership's  ability to acquire
or liquidate  assets,  secure  leases,  and  re-lease  those assets whose leases
expire during the duration of the  Partnership  is subject to many factors,  and
the  Partnership's  performance in 1995 is not necessarily  indicative of future
periods.

     (1) Lease revenue  decreased to $23.4 million in 1995 from $36.2 million in
1994. The decline was due to the following (in thousands):
<TABLE>
<CAPTION>

                                                        For the year ended December 31,
                                                          1995               1994
                                                       ------------------------------
  <S>                                                  <C>                <C>      
  Marine vessels                                       $   4,619          $  15,210
  Rail equipment                                           7,832              7,990
  Aircraft                                                 5,799              7,504
  Trailers and tractors                                    1,944              1,502
  Mobile offshore drilling unit                            1,299              1,727
  Marine containers                                        1,875              2,292
                                                       ==============================
                                                       $  23,368          $  36,225
                                                       ==============================

</TABLE>

     (a) Marine vessel  revenue  decreased by $10.6 million due primarily to the
sale of one vessel in the first  quarter  of 1995 and two  vessels in the fourth
quarter of 1994;

     (b) Aircraft revenue  decreased by $1.7 million due to the off-lease status
of two  aircraft  engines  in 1995 and the  sale of two  aircraft  during  1994,
partially  offset by the revenues  earned on aircraft  and aircraft  spare parts
acquired in 1995;

     (c) Marine container  revenue  decreased by $0.4 million resulting from the
disposal of 462 marine containers during 1995;

     (d) Decline in mobile  offshore  drilling unit revenues of $0.4 million due
to lower daily lease rates when compared to the same period in 1994;

     (e) Rail revenue  decreased by $0.2 million primarily due to lower re-lease
rates  on a fleet  of 297  gondolas  and the  sale of five  locomotives  and 199
coalcars during 1995;

     (f) The revenue  decrease  was  partially  offset by an increase in trailer
revenues due to the acquisition of 164 trailers in 1994 which were placed in the
short-term  intermodal  trailer leasing operation and earned  approximately $0.4
million in 1995.

(2)  Interest and other income  increased  by $0.6 million  primarily  due to an
insurance  recovery on one of the  Partnership  vessels  related to an insurance
claim from 1992 and higher  interest  income earned on 1995 cash balances versus
1994 balances.

(3) Net gain on  disposition  of  equipment  of $2.9 million was realized on the
sale of 204 railcars and locomotives,  1 marine vessel,  and the disposal of 462
marine containers.  These assets had an aggregate net book value of $5.5 million
and were sold or liquidated for proceeds of $8.4 million which included proceeds
of $5 million from a marine vessel related to the sales-type  lease. Net gain on
disposition  of  equipment  totaled $2.9 million in 1994 and was realized on the
sale or  liquidation  of 33  railcars,  2  aircraft,  57  trailers,  811  marine
containers,  and 2 marine vessels.  These assets had an aggregate net book value
of $13.7 million and were sold or liquidated for proceeds of $16.7 million.


<PAGE>


(B)  Expenses

The  Partnership's  total  expenses for the years ended  December 31, 1995,  and
1994,  were $25.3  million and $40.0  million,  respectively.  The  decrease was
primarily  attributable  to  decreases  in  depreciation  expense,  repairs  and
maintenance expense, and marine equipment operating expenses.

(1) Direct operating  expenses  (defined as repairs and maintenance,  insurance,
and marine equipment operating expenses, and repositioning expense) decreased to
$5.6 million in 1995 from $16.0 million in 1994. This change resulted from:

     (a) A decrease of $2.0  million in repairs and  maintenance  expenses  from
1994 levels due to the sale of two marine  vessels  during 1994, and the sale of
one  vessel  in the first  quarter  of 1995,  coupled  with a fleet of coal cars
converting to a net lease, where the lessee pays for the repairs, during 1994;

     (b) A decrease of $6.9 million in marine equipment  operating  expenses due
to the sale of two  vessels  in the  fourth  quarter of 1994 and the sale of one
vessel in the first quarter of 1995;

     (c) A decrease in insurance expense of $0.7 million relating to the sale of
two marine  vessels in 1994 and one vessel in the first quarter of 1995,  offset
partially by the acquisition of one aircraft during 1995.

(2)  Indirect  operating  expenses  (defined as  depreciation  and  amortization
expense,  management  fees,  interest  expense,  and general and  administrative
expenses) decreased to $19.7 million in 1995 from $22.9 million in 1994.
This change resulted primarily from:

     (a) A decrease in  depreciation  expense of $3.6  million  from 1994 levels
reflecting the Partnership's  double-declining  balance  depreciation method and
the sale or disposition of $22.0 million in assets during 1995, offset partially
by the acquisition of $11.4 million in equipment;

     (b) A decrease of $0.7 million in management fee expense  reflecting  lower
lease rates in 1995;

     (c) An  increase  of 0.5  million in  interest  expense  reflecting  higher
interest rates in 1995;

     (d) a decrease of $0.5 million in general and administrative  expenses from
1994 levels  primarily  reflecting less  professional  services  required by the
Partnership relating to leasing or re-leasing equipment during 1995.

(3) Loss on revaluation  of equipment in 1994 was the result of the  write-downs
on 5  locomotives,  77  marine  containers,  and 2  aircraft  engines  to  their
estimated  net  realizable  values.  There  were no  losses  on  revaluation  of
equipment required in 1995.

(C)  Net Income

The  Partnership's  net income  increased  to $2.7  million in 1995,  from a net
income of $0.3 million in 1994. The Partnership's ability to acquire, operate or
liquidate assets,  secure leases,  and re-lease those assets whose leases expire
during the  duration  of the  Partnership,  is subject to many  factors  and the
Partnership's  performance  in  1995 is not  necessarily  indicative  of  future
periods. For the year ended December 31, 1995, the Partnership distributed $15.9
million to the Limited Partners, or $1.60 per Depositary Unit.

Comparison of the Partnership's Operating Results for the Years Ended 
December 31, 1994 and 1993

(A)  Revenues

Total  revenues  for the years ended  December 31,  1994,  and 1993,  were $40.2
million and $42.1  million,  respectively.  The  decrease in 1994  revenues  was
attributable  primarily  to  decreases in lease  revenue  partially  offset by a
larger  gain  on  disposition  of  equipment  in  1994  compared  to  1993.  The
Partnership's  ability  to acquire  or  liquidate  assets,  secure  leases,  and
re-lease those assets whose leases expire during the duration of the Partnership
is subject to many  factors  and the  Partnership's  performance  in 1994 is not
necessarily indicative of future periods.


<PAGE>


     (1) Lease revenue  decreased to $36.2 million in 1994 from $39.5 million in
1993. The decline was due to the following (in thousands):
<TABLE>
<CAPTION>

                                                        For the year ended December 31,
                                                          1994               1993
                                                       ------------------------------
  <S>                                                  <C>                <C>      
  Marine vessels                                       $  15,210          $  16,996
  Rail equipment                                           7,990              8,770
  Aircraft                                                 7,504              8,361
  Trailers and tractors                                    1,502                670
  Mobile offshore drilling unit                            1,727              1,725
  Marine containers                                        2,292              3,010
                                                       ==============================
                                                       $  36,225          $  39,532
                                                       ==============================
</TABLE>

     (a) Marine  vessel  revenue  decreased by $1.8 million due primarily to the
sale of one vessel in  September  1993 and two vessels in the fourth  quarter of
1994,  offset  partially by the  acquisition  of a 56% interest in one vessel in
December  1993,  and one vessel  earning  higher  daily  rates while on a voyage
charter.  A voyage  charter is a  short-term  lease  lasting  the  duration of a
specific voyage,  typically 30-45 days,  wherein the charter  receives  revenues
associated with the direct movement of cargo;

     (b)  Aircraft  revenue  decreased  by $0.9  million  due to the sale of two
aircraft in 1994, the lower re-lease rates on another  aircraft and one aircraft
engine and the off-lease status of one of the aircraft engines;

     (c) Rail revenue  decreased by $0.8 million primarily due to a fleet of 120
coal cars converting  from full service to net leases.  Full service leases earn
higher revenues than net leases because repair and maintenance  expenses are the
responsibility  of the lessor and not the lessee.  Additional  revenue decreases
were due to a Canadian  dollar  exchange rate difference on tank car revenue and
the sale of 33 railcars during 1994;

     (d) Marine  container  revenue  decreased by $0.7 million  resulting from a
reduction in utilization-based revenue and the disposal of 811 marine containers
during 1994;

     (e) The revenue  decrease  was  partially  offset by an increase in trailer
revenues due to the  acquisition  of trailers in 1993 and the fourth  quarter of
1994.

(2)  Interest and other income  increased  by $0.2 million  primarily  due to an
insurance  recovery on one of the  Partnership  vessels  related to an insurance
claim from 1992 and higher cash balances during 1994.

(3) Net gain on  disposition  of  equipment  of $2.9 million was realized on the
sale of 33 railcars, 2 aircraft,  57 trailers, 2 marine vessels and the disposal
of 811 marine containers.  These assets had an aggregate net book value of $13.7
million and were sold or liquidated for proceeds of $16.7  million.  Net gain on
disposition  of equipment  totaled $1.7 million in 1993  realized on the sale or
liquidation  of 184 railcars,  5  locomotives,  798 marine  containers,  and one
marine vessel.  These assets had an aggregate net book value of $9.1 million and
were sold or liquidated for proceeds of $10.8 million.

(B)  Expenses

The Partnership's total expenses for the years ended December 31, 1994 and 1993,
were $40.0 million and $42.4 million,  respectively.  The decrease was primarily
attributable  to  decreases in  depreciation  expense,  repairs and  maintenance
expense, and insurance expense.

(1) Direct operating  expenses  (defined as repairs and maintenance,  insurance,
marine equipment  operating  expenses,  and repositioning  expense) decreased to
$16.0 million in 1994 from $17.3 million in 1993. This change resulted from:

     (a) A decrease of $0.9  million in repairs and  maintenance  expenses  from
1993 levels due to the sale of two marine  vessels  during 1994, and the sale of
one vessel in September 1993,  coupled with a fleet of coal cars converting to a
net lease during 1994,  offset partially by upgrades required to operate the rig
in the Gulf of Mexico;

     (b) A decrease in insurance expense of $1.1 million relating to the sale of
two marine vessels in 1994 and one vessel in September 1993, offset partially by
the acquisition of one vessel in December 1993;

     (c) A decrease of $0.1 million in marine equipment  operating  expenses due
to the sale of two vessels in the fourth quarter of 1994, the sale of one vessel
in September 1993, partially offset by the acquisition of one vessel in December
1993 and two of the Partnership's  marine vessels operating on short-term voyage
charters.  Voyage  charters are  short-term  leases  lasting the duration of one
voyage,  typically 30-45 days. Under a voyage charter lease the Partnership pays
for certain costs,  such as bunkers and port costs,  that were formerly borne by
the lessee under previous Partnership charter agreements.

(2)  Indirect  operating  expenses  (defined as  depreciation  and  amortization
expense,  management  fees,  interest  expense,  and general and  administrative
expenses) decreased to $22.9 million in 1994 from $25.0 million in 1993.
This change resulted primarily from:

     (a) A decrease in  depreciation  expense of $2.3  million  from 1993 levels
reflecting the Partnership's  double-declining  depreciation method and the sale
or disposition of $41.0 million in assets during 1994,  offset  partially by the
acquisition of $4.4 million in equipment and capitalized repairs;

     (b) A decrease of $0.2 million in management fee expense due to lower lease
rates and utilization rates,  coupled with the sale of two marine vessels in the
fourth quarter;

     (c) An increase of $0.1 million in general and administrative expenses from
1993 levels primarily  reflecting higher  professional  services required by the
Partnership relating to leasing or re-leasing equipment during 1994.

(3) Loss on  revaluation  of  equipment  increased  by $1.1  million  reflecting
write-downs on 5  locomotives,  77 marine  containers and 2 aircraft  engines to
their  estimated net realizable  values.  In 1993, the  Partnership  reduced the
carrying value of 5 locomotives to their then estimated net realizable values.

(C)  Net Income (Loss)

     The  Partnership's net income increased to $0.3 million in 1994, from a net
loss of $0.2 million in 1993. The Partnership's  ability to acquire,  operate or
liquidate assets,  secure leases,  and re-lease those assets whose leases expire
during the  duration  of the  Partnership,  is subject to many  factors  and the
Partnership's  performance  in  1994 is not  necessarily  indicative  of  future
periods. For the year ended December 31, 1994, the Partnership distributed $16.0
million to the Limited Partners, or $1.60 per Depositary Unit.

Geographic Information

The Partnership  operates its equipment in international  markets.  As such, the
Partnership is exposed to a variety of currency, political, credit, and economic
risks. Currency risks are at a minimum because all invoicing, with the exception
of a small number of railcars operating in Canada, is conducted in U.S. dollars.
Political risks are minimized  generally  through the avoidance of 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 the notes to the Financial  statements for
information on the revenues, income, and assets in various geographic regions.

Inflation

There was no significant  impact on the Partnership's  operations as a result of
inflation during 1995, 1994, or 1993.


<PAGE>



Trends

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.  In 1995, market conditions,  supply and demand  equilibrium,
and other factors varied in several  markets.  In the container and refrigerated
over-the-road trailer markets,  oversupply conditions,  industry consolidations,
and other  factors  resulted  in  falling  rates and lower  returns.  In the dry
over-the-road  trailer  markets,  strong  demand and a backlog of new  equipment
deliveries produced high utilization and returns.  The marine vessel,  rail, and
mobile  offshore  drilling  unit  markets  could  be  generally  categorized  by
increasing  rates as the demand for  equipment  is  increasing  faster  than new
additions net of retirements.  Finally, demand for narrowbody stage II aircraft,
such as those owned by the  Partnership,  has increased as expected savings from
newer  narrowbody  aircraft have not  materialized  and  deliveries of the newer
aircraft have slowed down. These different  markets have had individual  effects
on the  performance  of  Partnership  equipment  - in some  cases  resulting  in
declining performance, and in others, in improved performance.

     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,
governmental or other regulations,  and others. The  unpredictability of some 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 continuously 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  equipment  markets in which it  determines  that it cannot  operate
equipment and achieve  acceptable  rates of return.  Alternatively,  the General
Partner  may  make a  determination  to  enter  equipment  markets  in  which it
perceives  opportunities  to profit from  supply-demand  instabilities  or other
market imperfections.

     The  Partnership  intends to use excess cash flow, if any, after payment of
expenses, loan principal, and cash distributions to acquire additional equipment
during the first  seven years of  Partnership  operations.  The General  Partner
believes these  acquisitions  may cause the  Partnership to generate  additional
earnings and cash flow for the Partnership.


<PAGE>


ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  financial  statements  for the  Partnership  are  listed  in the  Index  to
Financial  Statements and Financial  Statement  Schedules included in Item 14 of
this Annual Report. Table 4, below, is a summary of the results of operations on
a quarterly  basis for the Partnership for the years ended December 31, 1995 and
1994:
<TABLE>
<CAPTION>

                                                      TABLE 4
                                                Three months ended:
                                    (thousands of dollars, except unit amounts)

  1995                                           March 31           June 30           Sept. 30           Dec. 31
  --------------------------------------------------------------------------------------------------------------------

  <S>                                          <C>               <C>                <C>               <C>          
  Total revenues                               $      8,522      $       5,724      $      7,055      $       6,754

  Net (loss) gain on disposition
    of equipment                               $      2,055<F1>  $         (41)     $        874      $          48

  Net income (loss)                            $      1,659      $          84      $      1,143      $        (180)

  Net income (loss) per Depositary Unit        $       0.15      $       (0.01)     $       0.09      $       (0.04)

  Cash distributions                           $      4,196      $       4,188      $      4,176      $       4,177

  Cash distributions per Depositary Unit       $       0.40      $        0.40      $       0.40      $        0.40

  Number of Depositary Units at end
    of quarter                                    9,946,773          9,918,826         9,918,773          9,899,573

<FN>

<F1> Includes a gain from the sale of one marine  vessel  which had an aggregate
     net book value of $3.7  million and sold for  proceeds of $5.0  million and
     sale of 199 railcars  and 5  locomotives  which had an  aggregate  net book
     value of $1.1 million and sold for proceeds of $2.5 million.

</FN>

</TABLE>

<PAGE>

<TABLE>


                                                      TABLE 4
                                                Three months ended:
                                    (thousands of dollars, except unit amounts)

<CAPTION>
  1994                                           March 31           June 30           Sept. 30           Dec. 31
  --------------------------------------------------------------------------------------------------------------------

  <S>                                          <C>               <C>                <C>               <C>          
  Total revenues                               $      9,413      $       9,681      $      9,797      $      11,356

  Net (loss) gain on disposition
    of equipment                               $        (18)     $         178      $        (56)     $       2,759<F1>

  Loss on revaluation of equipment             $         --      $          --      $       (334)     $        (748)<F2>

  Net income (loss)                            $        821      $        (448)     $        (38)     $         (83)

  Net income (loss) per Depositary Unit        $       0.06      $       (0.07)     $      (0.01)     $       (0.03)

  Cash distributions                           $      4,200      $       4,203      $      4,207      $       4,201

  Cash distributions per Depositary Unit       $        .40      $         .40      $        .40      $         .40

  Number of Depositary Units at end
    of quarter                                    9,981,126          9,981,126         9,981,126          9,965,473

<FN>

<F1> Includes a gain from the sale of two marine  vessels which had an aggregate
     net book value of $8.3  million  and sold for  proceeds  of $12.1  million,
     partially  offset  by a loss on sale of one  aircraft  which had a net book
     value of $3.3 million and was sold for proceeds of $2.2 million.

<F2> During the quarter ended  December 31, 1994,  the  Partnership  reduced the
     carrying value of two aircraft  engines by $0.7 million to their  estimated
     net realizable values.

</FN>

</TABLE>

<PAGE>



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





                      (This space left intentionally blank)


<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP

        As of the  date of this  Annual  Report,  the  directors  and  executive
officers of PLM International  (and key executive  officers of its subsidiaries)
are as follows:
<TABLE>
<CAPTION>

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

<S>                                    <C>                 <C>                                                   
J. Alec Merriam                        60                  Director, Chairman of the Board, PLM International,
                                                           Inc.; Director, PLM Financial Services, Inc.

Allen V. Hirsch                        42                  Director, Vice Chairman of the Board, Executive Vice
                                                           President of PLM International, Inc.; Director and
                                                           President, PLM Financial Services, Inc.; President,
                                                           PLM Securities Corp., and PLM Transportation
                                                           Equipment Corporation.

Walter E. Hoadley                      79                  Director, PLM International, Inc.

Robert L. Pagel                        59                  Director, Chairman of the Executive Committee, PLM
                                                           International, Inc.; Director, PLM Financial
                                                           Services, Inc.

Harold R. Somerset                     61                  Director, PLM International, Inc.

Robert N. Tidball                      57                  Director, President and Chief Executive Officer, PLM
                                                           International, Inc.

J. Michael Allgood                     47                  Vice President and Chief Financial Officer, PLM
                                                           International, Inc. and PLM Financial Services, Inc.

Stephen M. Bess                        49                  President, PLM Investment Management, Inc.; Vice
                                                           President, PLM Financial Services, Inc.

David J. Davis                         39                  Vice President and Corporate Controller, PLM
                                                           International and PLM Financial Services, Inc.

Frank Diodati                          41                  President, PLM Railcar Management Services Canada
                                                           Limited.

Douglas P. Goodrich                    49                  Senior Vice President, PLM International,
                                                           PLM Transportation Equipment Corporation;
                                                           President PLM Railcar Management Services, Inc.

Steven O. Layne                        41                  Vice President, PLM Transportation Equipment
                                                           Corporation.

Stephen Peary                          47                  Senior Vice President, General Counsel and Secretary,
                                                           PLM International, Inc. and PLM Financial Services, Inc.; 
                                                           Vice President, PLM Investment Management, Inc., PLM Transportation
                                                           Equipment Corporation, PLM Securities, Corp.

Thomas L. Wilmore                      53                  Vice President, PLM Transportation Equipment
                                                           Corporation; Vice President, PLM Railcar Management
                                                           Services, Inc.
</TABLE>

     J. Alec  Merriam was  appointed  Chairman of the Board of  Directors of PLM
International  in September  1990,  having served as a director  since  February
1988. In October 1988 he became a member of the Executive Committee of the Board
of Directors of PLM  International.  From 1972 to 1988 Mr. Merriam was Executive
Vice President and Chief Financial  Officer of Crowley Maritime  Corporation,  a
San Francisco area-based company engaged in maritime shipping and transportation
services.  Previously,  he  was  Chairman  of the  Board  and  Treasurer  of LOA
Corporation of Omaha,  Nebraska and served in various  financial  positions with
Northern Natural Gas Company, also of Omaha.

     Allen V.  Hirsch  became  Vice  Chairman of the Board and a Director of PLM
International  in  April  1989.  He  is  an  Executive  Vice  President  of  PLM
International  and  President of PLM  Securities  Corp.  Mr.  Hirsch  became the
President of PLM Financial  Services,  Inc. in January 1986 and President of PLM
Investment  Management,  Inc. and PLM  Transportation  Equipment  Corporation in
August 1985, having served as a Vice President of PLM Financial  Services,  Inc.
and Senior Vice President of PLM Transportation  Equipment Corporation beginning
in  August  1984,  and  as a Vice  President  of  PLM  Transportation  Equipment
Corporation beginning in July 1982 and of PLM Securities Corp. from July 1982 to
October 1, 1987. He joined PLM, Inc. in July 1981, as Assistant to the Chairman.
Prior to joining PLM, Inc.,  Mr. Hirsch was a Research  Associate at the Harvard
Business  School.  From January 1977 through  September  1978,  Mr. Hirsch was a
consultant with the Booz, Allen and Hamilton Transportation Consulting Division,
leaving   that   employment   to  obtain  his   master's   degree  in   business
administration.

     Dr. Hoadley joined PLM International's Board of Directors and its Executive
Committee in September, 1989. He served as a Director of PLM, Inc. from November
1982 to June 1984 and PLM  Companies,  Inc. from October 1985 to February  1988.
Dr.  Hoadley has been a Senior  Research  Fellow at the Hoover  Institute  since
1981.  He was  Executive  Vice  President  and Chief  Economist  for the Bank of
America  from  1968  to  1981  and  Chairman  of the  Federal  Reserve  Bank  of
Philadelphia  from  1962 to 1966.  Dr.  Hoadley  had  served  as a  Director  of
Transcisco Industries, Inc. from February 1988 through August 1995.

     Robert L. Pagel was appointed  Chairman of the  Executive  Committee of the
Board of Directors of PLM  International  in September 1990,  having served as a
director  since  February  1988.  In  October  1988 he  became a  member  of the
Executive  Committee of the Board of Directors of PLM  International.  From June
1990 to April 1991 Mr. Pagel was President and Co-Chief Executive Officer of The
Diana Corporation,  a holding company traded on the New York Stock Exchange.  He
is the former President and Chief Executive Officer of FanFair Corporation which
specializes  in sports fans' gift shops.  He previously  served as President and
Chief  Executive  Officer of Super Sky  International,  Inc., a publicly  traded
company,  located in Mequon,  Wisconsin,  engaged in the manufacture of skylight
systems.  He was formerly Chairman and Chief Executive Officer of Blunt, Ellis &
Loewi,  Inc., a  Milwaukee-based  investment firm. Mr. Pagel retired from Blunt,
Ellis & Loewi in 1985  after a career  spanning  20 years in all  phases  of the
brokerage  and financial  industries.  Mr. Pagel has also served on the Board of
Governors of the Midwest Stock Exchange.

     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), a recently-acquired  subsidiary of Alexander & Baldwin,  Inc.
Mr.  Somerset joined C&H in 1984 as Executive Vice President and Chief Operating
Officer, having served on its Board of Directors since 1978, a position in which
he continues to serve.  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 -
Agricultures,  Vice President,  General Counsel and Secretary.  In addition to a
law degree from Harvard Law School,  Mr.  Somerset  also holds  degrees in civil
engineering from the Rensselaer  Polytechnic Institute and 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 headquartered in Maryland.

     Robert N. Tidball was appointed  President and Chief  Executive  Officer of
PLM  International  in  March  1989.  At the  time  of his  appointment,  he was
Executive Vice President of PLM International.  Mr. Tidball became a director of
PLM International in April, 1989 and a member of the Executive  Committee of the
Board of  Directors of PLM  International  in September  1990.  Mr.  Tidball was
elected President of PLM Railcar Management Services,  Inc. in January 1986. 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,
Inc., he was Vice President,  a General Manager and a Director of North American
Car  Corporation,  and a Director  of the  American  Railcar  Institute  and the
Railway Supply Association.

     J. Michael Allgood was appointed Vice President and Chief Financial Officer
of PLM  International  in October 1992.  Between July 1991 and October 1992, Mr.
Allgood was a consultant  to various  private and public  sector  companies  and
institutions  specializing  in financial  operational  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.

     Stephen M. 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 Corp., a manufacturer of computer  peripheral
equipment, from October 1975 to November 1978.

     David  J.  Davis  was  appointed  Vice  President  and  Controller  of  PLM
International  in January 1994.  From March 1993 through January 1994, Mr. Davis
was engaged as a consultant for various firms,  including PLM. Prior to that Mr.
Davis was Chief Financial Officer of LB Credit Corporation in San Francisco from
July  1991 to March  1993.  From  April  1989 to May  1991,  Mr.  Davis was Vice
President and Controller for ITEL Containers International Corporation which was
located  in San  Francisco.  Between  May 1978 and April  1989,  Mr.  Davis held
various positions with Transamerica Leasing Inc., in New York, including that of
Assistant Controller for their rail leasing division.

     Frank Diodati was appointed  President of PLM Railcar  Management  Services
Canada  Limited in 1986.  Previously,  Mr.  Diodati was Manager of Marketing and
Sales for G.E. Railcar Services Canada Limited.

     Douglas  P.   Goodrich  was   appointed   Senior  Vice   President  of  PLM
International  in March  1994.  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,  a subsidiary of Guardian
Industries Corp. of Chicago, Illinois from December 1980 to September 1985.

     Steven O. Layne was appointed Vice President,  PLM Transportation Equipment
Corporation's  Air Group in November  1992.  Mr.  Layne was its Vice  President,
Commuter and Corporate  Aircraft  beginning in July 1990.  Prior to joining PLM,
Mr.  Layne  was  the  Director,   Commercial   Marketing  for  Bromon   Aircraft
Corporation,  a joint venture of General Electric Corporation and the Government
Development  Bank of Puerto Rico.  Mr. Layne is a major in the United States Air
Force Reserves and senior pilot with 13 years of accumulated service.

     Stephen Peary became Vice President,  Secretary, and General Counsel of PLM
International  in February  1988 and Senior Vice  President  in March 1994.  Mr.
Peary was Assistant General Counsel of PLM Financial Services,  Inc. from August
1987  through  January  1988.  Previously,  Mr. Peary was engaged in the private
practice of law in San  Francisco.  Mr. Peary is a graduate of the University of
Illinois,  Georgetown  University Law Center, and Boston University  (Masters of
Taxation Program).

     Thomas L. Wilmore was appointed Vice  President - Rail, PLM  Transportation
Equipment Corporation, in March 1994 and has served as Vice President, Marketing
for PLM Railcar Management Services,  Inc. since May 1988. Prior to joining PLM,
Mr. Wilmore was Assistant Vice President  Regional Manager for MNC Leasing Corp.
in Towson, Maryland from February 1987 to April 1988. From July 1985 to February
1987,  he was  President  and Co-Owner of Guardian  Industries  Corp.,  Chicago,
Illinois and between  December 1980 and July 1985,  Mr. Wilmore was an Executive
Vice President for its subsidiary,  G.I.C.  Financial Services Corporation.  Mr.
Wilmore  also served as Vice  President  of Sales for Gould  Financial  Services
located in Rolling Meadows, Illinois from June 1978 to December 1980.

     The  directors  of the General  Partner are elected for a one-year  term or
until  their  successors  are  elected  and  qualified.   There  are  no  family
relationships  between  any  director  or any  executive  officer of the General
Partner.

ITEM 11. EXECUTIVE COMPENSATION

The Partnership has no directors, officers, or employees. The Partnership has no
pension,  profit-sharing,  retirement,  or similar  benefit plan in effect as of
December 31, 1995.

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 distribution of the Partnership. At December 31,
         1995, 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

         Neither  the  General  Partner  and its  affiliates  nor any officer or
         director of the General Partner and its affiliates own any Units of the
         Partnership as of December 31, 1995.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     (a) Transactions with Management and Others

         During 1995,  management  fees to IMI were $1.1 million.  In 1995,  the
         Partnership paid or accrued lease negotiation and equipment acquisition
         fees of $0.5 million to PLM Transportation  Equipment Corporation.  The
         General  Partner and its affiliates  were  reimbursed  $0.8 million for
         administrative and data processing  services performed on behalf of the
         Partnership  in 1995. The  Partnership  paid  Transportation  Equipment
         Indemnity Company Ltd. (TEI), a wholly owned,  Bermuda-based subsidiary
         of PLM International,  $0.3 million for insurance coverages during 1995
         substantially  all  of  which  was  paid  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.

     (b) Certain Business Relationships

         None.

     (c) Indebtedness of Management

         None.

     (d) Transactions With Promoters

         None.


<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.

     (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.
                    Incorporated by reference to the Partnership's Annual Report
                    on Form 10-K to the Securities and Exchange Commission dated
                    March 24, 1995.

         10.3      Amended  and  Restated  Warehousing  Credit  Agreement  dated
                   September  27, 1995 with First Union  National  Bank of North
                   Carolina.  Incorporated  by  reference  to the  Partnership's
                   Quarterly  Report on Form 10-Q to the Securities and Exchange
                   Commission dated November 10, 1995.

         25.        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 20, 1996                     PLM EQUIPMENT GROWTH FUND III
                                          PARTNERSHIP

                                          By:      PLM Financial Services, Inc.
                                                   General Partner



                                          By:      *
                                                   ------------------------ 
                                                   Allen V. Hirsch
                                                   President



                                          By:      /s/ David J. Davis
                                                   ------------------------
                                                   David J. Davis
                                                   Vice President and
                                                   Corporate Controller


* Stephen Peary,  by signing his 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/ Stephen Peary
                                                   -----------------------
                                                   Stephen Peary
                                                   Attorney-in-Fact


<PAGE>


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


*
-----------------
Allen V. Hirsch       Director - FSI                   March 20, 1996


*
-----------------
J. Alec Merriam       Director - FSI                   March 20, 1996


*
-----------------
Robert L. Pagel       Director - FSI                   March 20, 1996







* Stephen Peary,  by signing his 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/ Stephen Peary
----------------------
Stephen Peary
Attorney-in-Fact



<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)

                          INDEX TO FINANCIAL STATEMENTS


                                  (Item 14(a))

 
                                                                  Page

Report of Independent Auditors                                     30

Balance sheets as of December 31, 1995 and 1994                    31

Statements of operations for the years ended December 31,
     1995, 1994, and 1993                                          32

Statements of changes in partners' capital for
     the years ended December 31, 1995, 1994, and
     1993                                                          33

Statements of cash flows for the years ended December 31,
     1995, 1994, and 1993                                          34

Notes to financial statements                                     35-43

All other  financial  statement  schedules  have been  omitted  as 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>


                         REPORT OF INDEPENDENT AUDITORS


The Partners
PLM Equipment Growth Fund III:



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

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the 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.

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, 1995 and 1994 and the results of its  operations and its cash
flows for each of the years in the three-year  period ended December 31, 1995 in
conformity with generally accepted accounting principles.


/S/ KPMG PEAT MARWICK

SAN FRANCISCO, CALIFORNIA
March 14, 1996


<PAGE>

<TABLE>


                                        PLM EQUIPMENT GROWTH FUND III
                                           (A Limited Partnership)

                                                BALANCE SHEETS
                                                 December 31,
                              (in thousands of dollars except per unit amounts)

<CAPTION>


                                                   ASSETS

                                                                            1995                 1994
                                                                        -----------------------------------

  <S>                                                                    <C>                  <C>       
  Equipment held for operating leases, at cost                           $  148,607           $  173,195
    Less accumulated depreciation                                           (88,354)             (98,657)
                                                                        -----------------------------------
                                                                             60,253               74,538
  Equipment held for sale                                                     6,902                   --
                                                                        -----------------------------------
    Net equipment                                                            67,155               74,538

  Cash and cash equivalents                                                   3,445               14,885
  Restricted cash and marketable securities                                   5,660                5,353
  Accounts and note receivable, net of allowance for doubtful
    accounts of $569 in 1995 and $227 in 1994                                 2,925                3,276
  Net investment in sales-type lease                                          4,518                   --
  Prepaid expenses                                                               89                  199
  Deferred charges, net of accumulated amortization
    of $2,319 in 1995 and $2,812 in 1994                                        467                  528
                                                                        -----------------------------------
      Total assets                                                       $   84,259           $   98,779
                                                                        ===================================

                                     LIABILITIES AND PARTNERS' CAPITAL

  Liabilities:

  Accounts payable and accrued expenses                                  $    1,803           $    1,706
  Due to affiliates                                                           1,585                  536
  Notes payable                                                              41,000               41,000
  Prepaid deposits and reserves for repairs                                   9,271               10,539
  Security deposits                                                             263                  247
                                                                        -----------------------------------
      Total liabilities                                                      53,922               54,028

  Partners' capital:

  Limited Partners (9,899,573 and 9,965,473
    Depositary Units at December 31, 1995 and 1994)                          30,337               44,751
  General Partner                                                                --                   --
                                                                        -----------------------------------
      Total partners' capital                                                30,337               44,751
                                                                        -----------------------------------
        Total liabilities and partners' capital                          $   84,259           $   98,779
                                                                        ===================================
</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>

<TABLE>


                                        PLM EQUIPMENT GROWTH FUND III
                                           (A Limited Partnership)

                                           STATEMENTS OF OPERATIONS
                                       For the years ended December 31,
                              (in thousands of dollars except per unit amounts)

<CAPTION>


                                                                            1995            1994           1993
                                                                        --------------------------------------------
  <S>                                                                    <C>             <C>            <C>      
  Revenues:

    Lease revenue                                                        $  23,368       $  36,225      $  39,532
    Interest and other income                                                1,751           1,159            910
    Net gain on disposition of equipment                                     2,936           2,863          1,707
                                                                        --------------------------------------------
      Total revenues                                                        28,055          40,247         42,149

  Expenses:

    Depreciation and amortization                                           12,757          16,318         18,591
    Management fees to affiliate                                             1,137           1,788          1,989
    Repairs and maintenance                                                  4,063           6,077          6,931
    Interest expense                                                         3,474           2,938          2,493
    Insurance expense to affiliate                                             268             555            321
    Other insurance expense                                                    390             789          2,143
    Repositioning expense                                                      (18)            733             12
    Marine equipment operating expenses                                        902           7,835          7,885
    General and administrative expenses
      to affiliates                                                            816             654            501
    Other general and administrative expenses                                1,560           1,226          1,432
    Loss on revaluation of equipment                                            --           1,082             92
                                                                        --------------------------------------------
      Total expenses                                                        25,349          39,995         42,390
                                                                        --------------------------------------------

      Net income (loss)                                                  $   2,706       $     252      $    (241)
                                                                        ============================================

  Partners' share of net income (loss):

    Limited Partners                                                     $   1,869       $    (589)     $  (1,082)
    General Partner                                                            837             841            841
                                                                        ============================================
      Total                                                              $   2,706       $     252      $    (241)
                                                                        ============================================

  Net income (loss) per Depositary  Unit  (9,899,573  Units - 1995,  
   9,965,473 -  1994,  9,983,626 - 1993)                                 $    0.19       $   (0.06)     $   (0.11)
                                                                        ============================================

  Cash distributions                                                     $  16,737       $  16,811      $  16,829
                                                                        ============================================

  Cash distribution per Depositary Unit                                  $    1.60       $    1.60      $    1.60
                                                                        ============================================
</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>


<TABLE>


                                        PLM EQUIPMENT GROWTH FUND III
                                           (A Limited Partnership)

                                  STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                            For the years ended December 31, 1995, 1994, and 1993
                                                (in thousands)



<CAPTION>


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

  <S>                                                  <C>                 <C>             <C>   
  Partners' capital at December 31, 1992               $   78,811          $   --          $  78,811

  Net income (loss)                                        (1,082)            841               (241)

  Repurchase of Units                                        (241)             --               (241)

  Cash distributions                                      (15,988)           (841)           (16,829)
                                                       ------------------------------------------------

  Partners' capital at December 31, 1993                   61,500              --             61,500

  Net income (loss)                                          (589)            841                252

  Repurchase of Units                                        (190)             --               (190)

  Cash distributions                                      (15,970)           (841)           (16,811)
                                                       ------------------------------------------------

  Partners' capital at December 31, 1994                   44,751              --             44,751

  Net income                                                1,869             837              2,706

  Repurchase of Units                                        (383)             --               (383)

  Cash distributions                                      (15,900)           (837)           (16,737)
                                                       ------------------------------------------------

  Partners' capital at December 31, 1995               $   30,337          $   --          $  30,337
                                                       ================================================

</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>


<TABLE>


                                        PLM EQUIPMENT GROWTH FUND III
                                           (A Limited Partnership)

                                           STATEMENTS OF CASH FLOWS
                                       for the years ended December 31,
                                            (thousands of dollars)
<CAPTION>


                                                                            1995            1994            1993
                                                                        ---------------------------------------------
  <S>                                                                    <C>             <C>             <C>        
  Operating activities:
    Net income (loss)                                                    $    2,706      $      252      $     (241)
    Adjustments to reconcile net loss
        to net cash provided by operating activities:
      Depreciation and amortization                                          12,757          16,318          18,591
      Net gain on disposition of equipment                                   (2,936)         (2,863)         (1,707)
      Loss on revaluation of equipment                                           --           1,082              92
      Changes in operating assets and liabilities:
        Accounts and notes receivable, net                                      202           1,031             511
        Prepaid expenses                                                        111              13             449
        Restricted cash and marketable securities                              (307)           (272)            (19)
        Accounts payable and accrued expenses                                    43             375            (803)
        Due (to) from affiliates                                              1,050            (324)            (90)
        Prepaid deposits and reserves for repairs                              (302)         (1,892)           (175)
                                                                        ---------------------------------------------
  Cash provided by operating activities                                      13,324          13,720          16,608
                                                                        ---------------------------------------------

  Investing activities:
    Payments for purchase of equipment                                       (9,961)         (2,417)        (15,542)
    Payment of capitalized repairs                                           (1,008)         (1,564)         (1,091)
    Payments of acquisition fees to affiliate                                  (447)           (129)           (739)
    Payments received on sales-type lease                                       482              --              --
    Purchase of restricted marketable securities                                 --              --          (4,602)
    Proceeds from disposition of equipment                                    3,389          16,748          10,808
    Payments of lease negotiation fees to affiliate                             (99)            (30)           (164)
                                                                        ---------------------------------------------
  Net cash provided by (used in) investing activities                        (7,644)         12,608         (11,330)
                                                                        ---------------------------------------------

  Financing activities:
    Increase in prepaid deposits and reserve for repairs                         --              --           4,603
    Payments for debt placement fees                                             --            (339)             --
    Proceeds from notes payable                                                  --          41,000              --
    Principal payments on notes payable                                          --         (40,866)             --
    Repurchase of Depositary Units                                             (383)           (190)           (241)
    Cash distributions paid to partners                                     (16,737)        (16,811)        (16,829)
                                                                        ---------------------------------------------
  Net cash used in financing activities                                     (17,120)        (17,206)        (12,467)
                                                                        ---------------------------------------------

  Net increase (decrease) in cash and cash
      equivalents                                                           (11,440)          9,122          (7,189)

  Cash and cash equivalents at beginning of year                             14,885           5,763          12,952
                                                                        ---------------------------------------------

  Cash and cash equivalents at end of year                               $    3,445      $   14,885      $    5,763
                                                                        =============================================

  Supplemental information:
  Interest paid                                                          $    2,611      $    2,587      $    2,539
                                                                        =============================================
</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995

1.       Basis of Presentation

         Organization

         PLM Equipment  Growth Fund III, a California  limited  partnership (the
         Partnership),  was formed on October 15, 1987. The Partnership  engages
         in the  business of owning and leasing  primarily  used  transportation
         equipment. The Partnership offering became effective on March 25, 1988.
         The  Partnership  commenced  significant  operations in September 1988.
         Depositary Units evidencing Limited Partner ownership  interests in the
         Partnership are listed for trading on the American Stock Exchange under
         the symbol "GFZ".  PLM Financial  Services,  Inc.  (FSI) is the General
         Partner.  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 after the Partnership's seventh year of operations ,
         the General  Partner will stop  reinvesting  excess cash, all of which,
         less  reasonable  reserves,   will  be  distributed  to  the  Partners.
         Beginning in the Partnership's eleventh year of operations, the General
         Partner  intends to begin an orderly  liquidation of the  Partnership's
         assets.

              FSI manages the affairs of the Partnership.  The net income (loss)
         and distributions of the Partnership are generally allocated 95% to the
         Limited  Partners and 5% to the General Partner (see, Net Income (Loss)
         per  Depositary  Unit,  below).  The  General  Partner is entitled to a
         subordinated incentive fee equal to 7.5% of "Surplus Distributions", as
         defined  in the  Partnership  Agreement,  remaining  after the  Limited
         Partners have received a certain minimum rate of return.

              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  and
         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  of 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,  syndicates  investment  programs,
         sells transportation  equipment to investor programs and third parties,
         manages pools of  transportation  equipment  under  agreements with the
         investor   programs,   and  is  a  General  Partner  of  other  Limited
         Partnerships.

         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 are capitalized and amortized over the term of
         the lease.


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995


1.       Basis of Presentation (continued)

         Translation of Foreign Currency Transactions

         The Partnership is a domestic partnership, however, a limited number of
         the  Partnership's  transactions are denominated in a foreign currency.
         The Partnership's asset and liability accounts denominated in a foreign
         currency were  translated  into U.S.  dollars at the rates in effect at
         the balance sheet dates,  and revenue and expense items were translated
         at  average  rates  during  the year.  Gains or losses  resulting  from
         foreign currency transactions are included in the results of operations
         and are not material.

         Depreciation and Amortization

         Depreciation of equipment held for operating  leases is computed on the
         200% declining balance method taking a full month's depreciation in the
         month of acquisition, based upon estimated useful lives of 12 years for
         aircraft,  marine  containers,  and  marine  vessels,  and 15 years for
         railcars.  The  depreciation  method is changed to  straight  line when
         annual depreciation expense using the straight line method exceeds that
         calculated by the 200% declining balance method.  Acquisition fees have
         been  capitalized  as part of the cost of the  equipment.  Organization
         costs are amortized over a 60 month period.  Lease negotiation fees are
         amortized over the initial  equipment  lease term.  Debt placement fees
         and issuance  costs are  amortized  over the term of the loan for which
         they were paid.  Major  expenditures  which are  expected to extend the
         useful  lives or reduce  future  operating  expenses of  equipment  are
         capitalized.

         Transportation Equipment

         In March 1995, the Financial  Accounting  Standards Board (FASB) issued
         Statement No. 121,  "Accounting for the Impairment of Long-Lived Assets
         to be Disposed Of" (SFAS 121).  This  standard is  effective  for years
         beginning  after  December 15, 1995. The  Partnership  adopted SFAS 121
         during  1995,  the  effect  of which  was not  material  as the  method
         previously employed by the Partnership was consistent with SFAS 121. In
         accordance  with SFAS 121,  the General  Partner  reviews the  carrying
         value of its  equipment  portfolio  at least  annually  in  relation to
         expected  future  market   conditions  for  the  purpose  of  assessing
         recoverability  of the  recorded  amounts.  If  projected  future lease
         revenue plus  residual  values are less than the carrying  value of the
         equipment, a loss on revaluation is recorded.

              Equipment held for operating  leases is stated at cost.  Equipment
         held for sale is  stated at the  lower of the  equipment's  depreciated
         cost or  estimated  net  realizable  value and is  subject to a pending
         contract for sale.

         Repairs and Maintenance

         Maintenance costs are usually the obligation of the lessee. If they are
         not  covered by the  lessee  they are  charged  against  operations  as
         incurred.  To meet the  maintenance  obligations  of  certain  aircraft
         airframes  and engines,  escrow  accounts are prefunded by the lessees.
         Estimated costs  associated with marine vessel  drydockings are accrued
         and charged to income ratably over the period prior to such drydocking.
         The reserve  accounts  are  included  in the  balance  sheet as prepaid
         deposits and reserve for repairs. The prefunded amounts are included in
         the balance sheet as restricted cash.

         Net Income (Loss) and Distributions per Depositary Unit

         The  net  income  (loss)  and  distributions  of  the  Partnership  are
         generally  allocated 95% to the Limited  Partners and 5% to the General
         Partner.  Gross  gain on  disposition  of  equipment  in  each  year is
         specially  allocated  to the  General  Partner to the  extent,  if any,
         necessary to cause the

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995

1.       Basis of Presentation (continued)

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

         capital  account  balance of the  General  Partner to be zero as of the
         close of such year. No special  allocation  was received by the General
         Partner in 1995. The General Partner  received a special  allocation in
         the amount of $0.7  million,  $0.8  million,  and $0.9 million from the
         gross gain on disposition of equipment for the years ended December 31,
         1995, 1994, and 1993,  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.

              Cash  distributions are recorded when paid. Cash  distributions to
         limited  partners  of $4.0  million  ($0.40 per  Depositary  Unit) were
         declared on December  15, 1995 and paid on February  15,  1996,  to the
         unit holders of record as of December 31, 1995. Cash  distributions  to
         investors in excess of net income are  considered to represent a return
         of capital on a Generally Accepted Accounting  Principles (GAAP) basis.
         In  1995,  distributions  of $14.0  million  were  deemed  a return  of
         capital.  All cash  distributions to Limited Partners in 1994 and 1993,
         were deemed to be a return of capital.

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

         Reclassifications

         Certain  amounts in the 1994 and 1993  financial  statements  have been
         reclassified to conform with the 1995 presentation.

2.       General Partner and Transactions with Affiliates

         An  officer  of  FSI  contributed  $100  of the  Partnership's  initial
         capital.  Under the  equipment  management  agreement,  IMI  receives a
         monthly  fee equal to the lesser of (i) the fees which would be charged
         by  an  independent  third  party  for  similar  services  for  similar
         equipment  or (ii) the sum of (A) 5% of the Gross  Lease  Revenues  (as
         defined in the agreement) attributable to equipment which is subject to
         operating leases and (B) 2% of the Gross Lease Revenues attributable to
         equipment  which is subject to full payout leases.  Management  fees of
         $1.6  million and $0.45  million and were payable to IMI as of December
         31, 1995, and 1994, respectively.

              Additionally,  the  Partnership  reimbursed FSI and its affiliates
         $0.8 million,  $0.7 million,  and $0.5 million for  administrative  and
         data  processing  services  performed on behalf of the  Partnership  in
         1995, 1994, and 1993, respectively.

              The  Partnership  paid or accrued lease  negotiation and equipment
         acquisition fees of $0.5 million, $0.2 million, and $0.9 million to PLM
         Transportation  Equipment Corporation (TEC) during 1995, 1994 and 1993,
         respectively.

              The Partnership paid $0.3 million,  $0.6 million, and $1.1 million
         to Transportation  Equipment  Indemnity Company Ltd. (TEI) during 1995,
         1994, and 1993,  respectively.  TEI provides marine insurance  coverage
         for Partnership equipment and other insurance brokerage services to the
         Partnership.  TEI is an affiliate of the General Partner. A substantial
         portion  of  these  amounts  were  paid  to  third  party   reinsurance
         underwriters  or  placed  in risk  pools  managed  by TEI on  behalf of
         affiliated partnerships and PLM International which provide threshold

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995

2.       General Partner and Transactions with Affiliates (continued)

         coverages on marine vessel loss of hire and hull and machinery  damage.
         All pooling  management  funds are either paid out to cover  applicable
         losses or refunded pro rata by TEI.

         The net balance due to FSI and its affiliates was $1.6 million and $0.5
         million at December 31, 1995 and 1994, respectively.

3.       Equipment

         The  components  of  equipment  at  December  31,  1995 and 1994 are as
follows (in thousands):
<TABLE>
<CAPTION>

  Equipment held for operating leases:                     1995              1994
                                                       --------------------------------

  <S>                                                  <C>                <C>       
  Rail equipment                                       $    35,761        $   38,863
  Marine containers                                         15,015            16,797
  Marine vessels                                            22,625            39,422
  Aircraft                                                  67,582            57,863
  Trailers                                                   7,624             7,568
  Mobile offshore drilling unit                                 --            12,682
                                                       --------------------------------
                                                           148,607           173,195
  Less accumulated depreciation                            (88,354)          (98,657)
                                                       --------------------------------
                                                            60,253            74,538
  Equipment held for sale:                                   6,902                --
                                                       --------------------------------
  Net equipment                                        $    67,155        $   74,538
                                                       ================================
</TABLE>

              Revenues  are  earned by placing  the  equipment  under  operating
         leases which are billed monthly or quarterly. Some of the Partnership's
         marine   vessels   and   containers   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 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,  1995,  all  equipment  in  the  Partnership
         portfolio was on lease, except 53 marine containers,  18 tank cars, and
         2 aircraft engines. The aggregate net book value of equipment off-lease
         was $3.1  million  and $4.3  million  at  December  31,  1995 and 1994,
         respectively.

              One commercial  aircraft is on lease to Continental  Airlines Inc.
         (Continental). Continental filed for protection under Chapter 11 of the
         U.S.  Bankruptcy  code in December 1990.  Unpaid past due rent payments
         totaling $1.4 million were converted  into two promissory  notes by the
         Bankruptcy  Court with  interest  accruing at the rate of 8.64% and 12%
         per annum over 42 and 48 equal monthly installments. As of December 31,
         1995,  $324,000 was  outstanding on these  promissory  notes  ($765,000
         outstanding  at December 31, 1994).  As of February  1996,  Continental
         remains  current on all payments due under the  promissory  notes.  The
         General  Partner  believes  that the  carrying  value of these notes at
         December 31, 1995, exceeded their fair market value, however the actual
         market value cannot be reasonably estimated.

              During  1995,  the  Partnership  sold or  disposed  of 462  marine
         containers with a net book value of $0.7 million for $0.8 million.  The
         Partnership  also sold one vessel with a net book value of $3.7 million
         for $5 million related to a sales-type lease. In addition, 199 railcars
         and 5  locomotives  were sold with a net book value of $1.1 million for
         $2.5 million.


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995

3.       Equipment (continued)

              During  1994,  the  Partnership  sold or  disposed  of 811  marine
         containers  with a net book value of $1.14  million for $1.23  million.
         The Partnership  also sold two aircraft during 1994 with a combined net
         book  value  of  $3.9  million  for  $2.7  million.  In  addition,   57
         over-the-road  trailers and 33 railcars  with a combined net book value
         of $0.5 million were sold for $0.6  million.  In the fourth  quarter of
         1994,  two marine  vessels  were sold with a combined net book value of
         $8.3 million for $12.1 million.  During  December 1994, the Partnership
         reduced the carrying value of 5 locomotives by $0.2 million,  77 marine
         containers by $0.1 million, and 2 aircraft engines by $0.8 million.

              During 1995, the Partnership  purchased a 17% beneficial  interest
         in two trusts,  comprised of three  commercial  aircraft,  two aircraft
         engines,  and a package of aircraft rotables for $5.0 million, and paid
         acquisition  fees of  $0.23  million  to an  affiliate  of the  General
         Partner. The remaining interest is
         owned by affiliated  partnerships.  Also, the Partnership purchased one
         aircraft  for $4.3  million,  30 tank  cars for $.63  million  and paid
         acquisition fees of $0.19 million and $0.03 million respectively to PLM
         Transportation Equipment Corporation,  a wholly-owned subsidiary of the
         General Partner.

         At December 31,  1995,  the  Partnership  had no  outstanding  purchase
         commitments.

              All leases are being accounted for as operating  leases except one
         finance  lease on a  vessel,  (see  note  4).  Future  minimum  rentals
         receivable under  noncancelable  operating leases at December 31, 1995,
         during each of the next five years are  approximately  $15.8  million -
         1996; $11.7 million - 1997; $6.4 million in 1998; $4.6 million in 1999,
         and $2.2 million in 2000.  Contingent  rentals  based upon  utilization
         were $4.8 million,  $12.4 million,  and $8.6 million in 1995, 1994, and
         1993, respectively.

              The  Partnership  owns  certain  equipment  which  is  leased  and
         operated  internationally.  All leases  relating to this equipment were
         denominated in U.S. dollars.

              The  Partnership  leases its aircraft,  railcars,  mobile offshore
         drilling  unit,  and trailers to lessees  domiciled in five  geographic
         regions:  North America,  Europe,  South Asia, Southeast Asia and Asia.
         The marine vessels and marine containers are leased to multiple lessees
         in  different  regions  who  operate  the  marine  vessels  and  marine
         containers worldwide. The tables below set forth geographic information
         about the Partnership's  equipment grouped by domicile of the lessee as
         of and for the  years  ended  December  31,  1995,  1994,  and 1993 (in
         thousands):
<TABLE>
<CAPTION>

                                                       Region               1995           1994            1993
                                                                        --------------------------------------------
         <S>                                           <C>               <C>             <C>            <C>      
         Revenues:
           Marine vessels                              Various           $   4,619       $ 15,210       $  16,996
           Marine containers                           Various               1,875          2,292           3,010
           Mobile offshore drilling unit               South Asia               --            584           1,725
                                                       North America         1,299          1,144              --
           Railcars                                    North America         7,832          7,990           8,770
           Trailers                                    North America         1,944          1,501             670
           Aircraft                                    Various                 504            973           1,500
                                                       Europe                  531          1,320           1,440
                                                       South Asia            1,512          1,512           1,512
                                                       Asia                  1,200          1,200           1,150
                                                       North America         1,565          1,320           1,310
           Aircraft components                         Europe                   35             --              --
           Aircraft engines                            Europe                  260            238             238
                                                       Southeast Asia          192            941           1,211
                                                                          ------------------------------------------
                                                                        ===
           Total lease revenues                                             23,368         36,225          39,532
                                                                        ============================================
</TABLE>


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995

3.       Equipment (continued)

              The following  table below sets forth  identifiable  income (loss)
         information by equipment type by region (in thousands):
<TABLE>
<CAPTION>

                                                       Region               1995           1994            1993
                                                                        --------------------------------------------
         <S>                                           <C>               <C>             <C>            <C>      
         Net income (loss)
           Marine vessels                              Various           $   2,260       $  2,986       $     476
           Marine containers                           Various                 781            691           1,147
           Mobile offshore drilling unit               South Asia               --           (500)            (80)
                                                       North America           (47)          (700)             --
           Railcars                                    North America         3,153          1,975             707
           Trailers                                    North America           275            212             193
           Aircraft                                    Various                 152            424             988
                                                       Europe                    7         (1,106)            673
                                                       South Asia              (71)           219              33)
                                                       Asia                     69           (181)           (389)
                                                       North America           306            556             545
           Aircraft components                         Europe                   10             --              --
           Aircraft engines                            Europe                   90             45              40
                                                       Southeast Asia         (474)          (772)            269
                                                                        --------------------------------------------
         Total identifiable net income                                       6,511          3,849           4,602
           Administrative and other net loss           North America        (3,805)        (3,597)         (4,843)
                                                                          ----------------------------------------
                                                                        ===
         Total net income (loss)                                             2,706            252            (241)
                                                                        ============================================
</TABLE>

              The net book value of these assets at December 31, 1995 ,1994, and
         1993, are as follows (in thousands):
<TABLE>
<CAPTION>

                                                       Region               1995            1994            1993
                                                                          --------------------------------------------

           <S>                                         <C>               <C>             <C>             <C>       
           Marine vessels                              Various           $   9,321       $  15,714       $   28,355
           Marine containers                           Various               5,121           6,937            9,653
           Mobile offshore drilling unit               South Asia               --              --            8,351
                                                       North America            --           7,769               --
           Railcars                                    North America        13,714          16,045           18,846
           Trailers                                    North America         5,270           6,285            4,763
           Aircraft                                    Various               1,501           1,824            2,802
                                                       Europe                4,216              --            3,965
                                                       South Asia            4,653           5,585            6,699
                                                       Asia                  5,349           6,419            7,703
                                                       North America         7,186           3,836            4,612
           Aircraft components                         Europe                  303              --               --
           Aircraft engines                            Europe                  907             871            1,045
                                                       Southeast Asia        2,712           3,253            4,833
                                                                         ---------------------------------------------
           Total equipment held for operating
              leases                                                        60,253          74,538          101,627
           Railcars held for sale                                              475              --               --
           Mobile offshore drilling unit held for sale                       6,427              --               --
                                                                          --------------------------------------------
           Marine containers held for sale                                      --              --               80
                                                                          --------------------------------------------
                                                                         ==
           Total Equipment                                                  67,155          74,538          101,707
                                                                         =============================================
</TABLE>

         No lessees  comprised more than 10% of total revenues in 1995, 1994, or
         1993.

<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995

4.       Notes Payable

         In December 1994, the Partnership  refinanced its two existing loans of
         $35 million and $5.8 million into one of $41 million. The loan is a two
         year unsecured  revolving  line of credit,  converting to a three year,
         nine month term loan,  with mandatory  amortization  beginning one year
         after  conversion  date.  Prior to  conversion,  the  terms of the loan
         provide for interest only payable monthly in arrears  computed at LIBOR
         plus 1.5% per annum (7.355% at December 31, 1995 and 7.625% at December
         31, 1994).  During the first year following  conversion to a term loan,
         beginning September 30, 1996, quarterly principal payments equal to 75%
         of net proceeds from asset sales will be due. Beginning the second year
         commencing  December 31, 1997,  quarterly  principal  payments  will be
         equal to 75% of net proceeds from asset sales from  September 30, 1997,
         or payments  equal to 9.0% of the  facility  balance at  September  30,
         1997.

              The  General  Partner  believes  that the book  value of the notes
         payable approximates fair value due to its variable interest rate.

5.       Debt

         The  General  Partner  has  entered  into a joint  $25  million  credit
         facility (the Committed  Bridge Facility) on behalf of the Partnership,
         PLM  Equipment  Growth  Fund II,  PLM  Equipment  Growth  Fund IV,  PLM
         Equipment  Growth  Fund  V,  PLM  Equipment  Growth  Fund  VI,  and PLM
         Equipment Growth and Income Fund VII, and Professional Lease Management
         Income Fund I (Fund I), all  affiliated  investment  programs,  and TEC
         Acquisub,  Inc.  (TECAI),  an indirect  wholly-owned  subsidiary of the
         General Partner,  which may be used to provide interim  financing of up
         to (i) 70% of the aggregate book value or 50% of the aggregate net fair
         market value of eligible  equipment  owned by the Partnership or Fund I
         plus (ii) 50% of unrestricted  cash held bythe borrower.  The Committed
         Bridge  Facility  became  available  on  December  20,  1993 and became
         available  to the Company on May 8, 1995,  and was amended and restated
         on September  27, 1995 to expire on September  30, 1996.  The Committed
         Bridge  Facility  also  provides  for a $5  million  Letter  of  Credit
         Facility for the eligible borrowers.  Outstanding borrowings by Fund I,
         TECAI,  or PLM Equipment  Growth Funds II through VII reduce the amount
         available to each other under the Committed Bridge Facility. Individual
         borrowings  may be  outstanding  for no more  than 179  days,  with all
         advances due no later than  September 30, 1996.  The  Committed  Bridge
         Facility  prohibits  the  Partnership  from  incurring  any  additional
         indebtedness.  Interest  accrues at either  the prime rate or  adjusted
         LIBOR plus 2.5% at the  borrower's  option and is set at the time of an
         advance of funds. As of December 31, 1995, neither the Partnership, any
         of the programs, nor TECAI had any outstanding borrowings.

6.       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,  1995,   there  were  temporary   differences  of
         approximately  $23.6 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 and equipment reserves.



<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995

7.       Repurchase of Depositary Units

         On  December  28,  1992,  the  Partnership  engaged  in  a  program  to
         repurchase  up to  250,000  Depository  Units.  In the 12 months  ended
         December 31, 1995, the Partnership  repurchased 65,900 Depositary Units
         at a cost of $0.4 million.

8.       Future Delisting of Partnership Units

         The  Partnership's  Depositary  Units began  trading  (under the ticker
         symbol GFZ) on August 16, 1991, on the American Stock Exchange  (AMEX).
         As  of  March  14,  1996,   there  were  9,871,926   Depositary   Units
         outstanding.  There are approximately 12,500 Depositary  Unitholders of
         record as of the date of this report.  Under the Internal  Revenue Code
         (the  Code)  the   Partnership  is  classified  as  a  Publicly  Traded
         Partnership.  The Code  treats  all  Publicly  Traded  Partnerships  as
         corporations  if they remain  publicly  traded after December 31, 1997.
         Treating the  Partnership  as a corporation  will mean the  Partnership
         itself will become a taxable, rather than a "flow through" entity. As a
         taxable  entity,  the  income of the  Partnership  will be  subject  to
         federal  taxation  at both the  partnership  level and at the  investor
         level to the extent  that  income is  distributed  to an  investor.  In
         addition,  the General  Partner  believes that the trading price of the
         Depositary Units may be distorted when the Partnership begins the final
         liquidation of the underlying  equipment  portfolio.  In order to avoid
         taxation of the Partnership as a corporation and to prevent  unfairness
         to  Unitholders,  the  General  Partner  has  requested  to delist  the
         Partnership's  Depositary  Units from the AMEX prior to March 29, 1996.
         The last day for trading on the AMEX will be March 22, 1996.  While the
         Partnership's  Depositary  Units will no longer be publicly traded on a
         national stock  exchange,  the General  Partner will continue to manage
         the equipment of the Partnership  and prepare and distribute  quarterly
         and  annual  reports  and Forms  10-Q and 10-K in  accordance  with the
         Securities  and Exchange  Commission  requirements.  In  addition,  the
         General Partner will continue to provide  pertinent tax reporting forms
         and information to Unitholders.  The General Partner  anticipates  that
         following delisting, an informal market for the Partnership's units may
         develop in the secondary  marketplace  similar to that which  currently
         exists for non-publicly traded partnerships

9.       Net Investment in Sales-type Lease

         On February 27, 1995, the Partnership  entered into a sales-type  lease
         for the  purpose of selling a marine  vessel.  The lease is  structured
         with a four-year  term which  commenced in March of 1995. The vessel is
         leased on a standard  bareboat  charter lease and the lessee is to make
         monthly  payments.  Gross  lease  payments  of $5.9  million  are to be
         received  over a four-year  period,  which  commenced in March of 1995,
         with an  additional  balloon  payment of $1.7 million due at the end of
         the lease term. The lessee has the option to purchase the vessel at any
         time  during  the  four-year  term  at  a  predetermined  buyout  price
         stipulated in the charter agreement.

         The  components of the net  investment in sales-type  lease at December
         31, 1995 is as follows (in thousands):


  Total minimum lease payments                         $     6,403
  Less: Unearned income                                      1,885
                                                       -------------
                                                             4,518
                                                       =============


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995



10.      Subsequent Event

         On March 11, 1996, the Partnership declared quarterly  distributions of
         $0.25  per  outstanding  depositary  unit,  payable  May  15,  1996  to
         Unitholders of record as of March 29, 1996.

         On March 5, 1996, the Partnership has received proceeds of $1.2 million
         for the 110 coal cars which were  reclassed  as assets held for sale at
         the end of December 31, 1995.

         As of  February  21,  1996,  the  Partnership  entered  into  a  signed
         Memorandum of Agreement to sell its 45%-owned mobile offshore  drilling
         unit (rig) for $14.2  million.  The net book value of the 45%-owned rig
         at December 31, 1995 was $6.4  million.  The rig was included in assets
         held for sale at December 31, 1995.



<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

   10.3    Amended and Restated Warehousing Credit Agreement dated September 27,
           1995, First Union National Bank of North Carolina.              *

   25.     Powers of Attorney.                                         45-47




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