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, 1996.

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

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

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

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

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


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

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,  and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

     Aggregate market value of voting stock: N/A

An index of exhibits filed with this Form 10-K is located at page 41.

Total number of pages in this report:  44


<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  acquires 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 sells 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,  are 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 (AMEX).  Thereupon, each Unitholder received a depositary receipt
representing  ownership  of the number of Units  owned by such  Unitholder.  The
General Partner delisted the Partnership's  Depositary units from the AMEX under
the symbol GFZ on April 8, 1996.  The last day for trading on the AMEX was March
22,  1996.  As of December  31,  1996,  there were  9,871,073  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,  which ended on December  31,
1996,  a  portion  of cash flow and  surplus  funds  have been 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.  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  cost  of the  equipment  in the  Partnership
portfolio,  and the  cost  of  investments  in  unconsolidated  special  purpose
entities as of December 31, 1996 (in thousands):
<TABLE>

                                     TABLE 1
<CAPTION>

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

Equipment held for operating leases:

  <S>      <C>                                                   <C>                                    <C>       
      1    727-100QC commercial aircraft                         Boeing                                 $    5,784
      1    Dash 8-300                                            Dehavilland                                 5,748
      4    737-200 commercial aircraft                           Boeing                                     49,055
      1    DC-9-32 commercial aircraft                           McDonnell Douglas                          10,028
      1    Mobile offshore drilling unit                         Falcon Drilling Company                     9,666
  1,124    Marine containers                                     Various                                    13,145
    119    Coal cars                                             Various                                     4,788
  1,310    Tank cars                                             Various                                    30,945
    122    Over-the road dry trailers                            Stoughton and Strick                          716
     50    Refrigerated trailers                                 Various                                     1,878
    164    Intermodal trailers                                   Various                                     2,534
    112    Over-the roadrefrigerated trailers                    Various                                     2,383
                                                                                                        --------------

           Total equipment                                                                              $  136,670<F1>
                                                                                                        ==============

Investments in unconsolidated special purpose entities:

   0.56    Bulk carrier marine vessel                            Naikai Zosen, Naikai Shpbldg.          $    7,163<F2>
   0.17    Two trusts comprised 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>
   0.17    Trust comprised of:
             Six 737-200 stage II commercial aircraft            Boeing                                      4,494<F4>

                                                                                                        --------------
           Total investments                                                                            $   16,883<F1>
                                                                                                        ==============
<FN>

<F1> 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 marine  containers  and 164 dry  piggyback
     trailers.

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

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

<F4> Jointly owned: EGF III (17%) and three affiliated partnerships.

</FN>

</TABLE>

The equipment is generally  leased under  operating  leases with terms of one to
seven years. Some of the Partnership's  marine vessels and marine containers are
leased  to  operators  of  utilization-type  leasing  pools  which  may  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,  1996,  all 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 credited
to the owners of the related equipment as received.  Direct expenses  associated
with the equipment  are charged  directly to the  Partnership.  An allocation of
other  direct  expenses  of  the  rental  yard  operations  are  billed  to  the
Partnership monthly.



<PAGE>


     The lessees of the equipment include,  but are not limited to: DHL Airways,
Inc., Continental Airlines, Inc., Canadian Airlines International, and Time Air,
Inc. As of December 31,  1996,  all of the  equipment  was on lease or in rental
yards except 32 marine containers and 67 tank cars.

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,  General  Electric  Capital Aviation
Services Corporation,  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"  refers  to  capital
equipment  constructed to be  self-contained in function but  transportable,  an
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 describes the markets for the Partnership's equipment:

(1)   Commercial aircraft

The market for commercial aircraft continued to improve in 1996 representing two
consecutive  years of growth  and  profits  in the  airline  industry.  The $5.7
billion in net profits  recorded by the World's top 100 airlines in 1995 grew to
over $6 billion in 1996.  The profits are a result of the  continued  management
emphasis on costs.  The demand for ever lower unit costs by airline  managements
has  caused a  significant  reduction  of  surplus  used  Stage II and Stage III
commercial aircraft. The result is a return to supply/demand equilibrium. On the
demand side,  passenger  traffic is  improving,  cargo  movement is up, and load
factors are generally higher across the major markets.

         These changes are reflected in the  performance of the world's 62 major
airlines  that  operate 60% of the world  airline  fleet but handle 78% of world
passenger traffic. Focusing on the supply/demand for Partnership-type narrowbody
commercial  aircraft,  there were 213 used narrowbody aircraft available at year
end 1995.  In the  first ten  months of 1996  this  supply  was  reduced  to 119
narrowbody  aircraft  available  for  sale or  lease.  Forecasts  for 1997 see a
continuing  supply/demand  equilibrium  due to air travel  growth  and  balanced
aircraft supply.

         The Partnership's  narrowbody fleet is primarily late-model (post 1974)
Boeing  737-200  Advanced  aircraft.  There  are a total of 939  Boeing  737-200
aircraft  in  service,  with 219  built  prior to  1974.  Independent  forecasts
estimate that 250 total  737-200's will be retired,  leaving  approximately  700
aircraft in service after 2003. The forecasts  regarding  hushkits estimate that
half of the 700 Boeing  737-200s  will be hushed to meet Stage III noise levels.
The Partnership's aircraft are all prospects for Stage III hushkits due to their
age, hours, cycles, engine configurations, and operating weights.

         Independent projections for the Boeing 727 aircraft indicate that there
are 1,050 in service,  with 299 built  prior to 1974.  The  Partnership  has one
pre-1974  model  727-100,  which is  expected to be retired  prior to 2003.  The
current  strategy is to optimize its remaining  value based on the present value
of lease cash flows and projected residuals.

         The  Partnership's  DC-9-32  is a  late-model  aircraft.  There are 663
DC-9-30/40/50   series  aircraft  in  service  and  437  built  prior  to  1974.
Independent  forecasts  estimate that 300 older DC-9 aircraft will be retired by
the year 2003. The remaining fleet will total  approximately  350 aircraft,  and
most of these  aircraft will be hushed to Stage III. The aircraft will remain in
active  airline  service.  The  lessees  are  likely  to be  secondary  airlines
operating in markets outside the United States.

(2)   Aircraft Engines

The  demand  for spare  engines  has  increased  as a result  of the air  travel
industry's  expansion  over the last two  years.  The most  significant  area of
increase is in the Pratt & Whitney Stage II JT8D engine which powers many of the
Partnership's Stage II commercial  aircraft.  Today there are over 3000 Stage II
commercial jets in service.  In December 1993 there were 288 Stage II narrowbody
aircraft  available  for sale or  lease.  As of  October  1996,  the  number  of
available Stage II narrowbodies was only 107 aircraft. The increase in the Stage
II fleet has placed over 450 engines back into service. This level of demand has
placed a premium on spare JT8D engines and resulted in a good leasing market for
available engines. The Partnership's spare engines will all be re-leased or sold
over the next two years during this market cycle.

(3)   Aircraft Rotables

Aircraft  rotables are replacement  spare parts held in inventory by an airline.
These parts are components that are removed from an aircraft or engine,  undergo
overhaul,  and  are  recertified  and  refit  to the  aircraft  in an  "as  new"
condition.  Components,  or  rotables,  carry  specific  identification  numbers
allowing each part to be individually  tracked.  The types of rotables owned and
leased by the  Partnership  include  landing gear,  certain  engine  components,
avionics,  auxiliary power units (APUs),  replacement  doors,  control surfaces,
pumps, valves, and other comparable equipment.  Generally a rotable has a useful
life that is either  measured  in terms of time in  service  or number of cycles
(takeoffs and landings).  While there are no specific  guidelines  that apply to
the  time or  cycles  between  overhauls  for  rotable  equipment,  there  is no
limitation on the number of times a rotable may be overhauled  and  recertified.
The  component  will be  overhauled  until  the  cost of such  overhaul  becomes
uneconomic relative to the unit's replacement cost.

         The Partnership's  rotable parts will be available for sale or lease in
1997.  Rotables  generally  reflect the market  conditions  of the aircraft they
support which for the  Partnership,  are Boeing  737-300/400/500  and the Boeing
737-200   Advanced   aircraft.   Independent   forecasts  for  1997  indicate  a
supply/demand equilibrium for these aircraft types.



<PAGE>


(4)   Marine Containers

At the end of 1995,  the  consensus of industry  sources was that 1996 would see
both higher  container  utilization and  strengthening  of per diem lease rates.
Such was not the case, as there was no appreciable  cyclical  improvement in the
container market following the traditional winter slowdown. Industry utilization
continues to be under pressure, with per diem rates being impacted as well.

     A  substantial  portion of the  Partnership's  containers  are on long-term
utilization  leases which were entered into with Trans Ocean  Leasing as lessee.
The industry has seen a major consolidation,  as Transamerica  Leasing,  late in
the fourth quarter of 1996, acquired Trans Ocean Leasing.  Transamerica  Leasing
is the second  largest  container  leasing  company  in the world.  Transamerica
Leasing  is the  substitute  lessee for Trans  Ocean  Leasing.  Long term,  such
industry  consolidation  should  bring  more  rationalization  to the market and
result in higher utilization and per diem rates.

(5)   Pressurized Tank Cars

These cars are used primarily in the  petrochemical  and fertilizer  industries.
They  transport  liquefied  petroleum  gas  (LPG)  and  anhydrous  ammonia.  The
utilization  rate on the  Partnership's  fleet of pressurized tank cars was over
98% during 1996.  Independent  forecasts show the demand for natural gas growing
during 1997 to 1999, as the developing world, former Communist countries and the
industrialized  world all  increase  their  demand for  energy.  The  fertilizer
industry  was  undergoing a rapid  restructuring  toward the end of 1996 after a
string of major mergers, which began in 1995. These mergers reduce the number of
companies that use pressurized tank cars for fertilizer service.  Whether or not
the economies of the mergers allow the total fleet size to be reduced remains to
be seen.

(6)   General Purpose Tank Cars

General  purpose,  or  nonpressurized,  tank cars are used to  transport  a wide
variety of bulk liquid  commodities such as petroleum fuels,  lubricating  oils,
vegetable oils, molten sulphur,  corn syrup,  asphalt,  and specialty chemicals.
Demand for  general  purpose  tank cars in the  Partnership  fleet has  remained
healthy  over  the  last  two  years,  with  utilization  remaining  above  98%.
Independent  projections  show the demand for petroleum  growing  during 1997 to
1999,  as  the  developing   world,   former   Communist   countries,   and  the
industrialized world all increase their demand for energy.  Chemical carloadings
for the  first 40 weeks of 1996  were up one  tenth  of one  percent  (0.1%)  as
compared to the same period in 1995.

(7)   Coal Cars

The 120  aluminum-bodied  coal cars are  leased to the  Chicago & North  Western
Transportation  Company (now the Union  Pacific) on a net lease through the year
2001.

(8)  Marine Vessels

The  Partnership  owns a 56%  interest in an entity that owns a dry bulk vessel,
which is traded in worldwide markets and carries commodity cargoes.

The freight rates in the dry bulk  shipping  market are dependent on the balance
of supply and demand for shipping  commodities and trading patterns for such dry
bulk  commodities.  In 1995, dry bulk shipping  demand was robust (growing at 5%
over  1994),  and  there  was a  significant  infusion  of new  vessel  tonnage,
especially late in the year,  causing some decline in freight rates after a peak
in midyear.  The slide in freight rates  continued in the first half of 1996, as
new tonnage was delivered and shipping demand slipped from the high growth rates
of 1995. In the third quarter of 1996,  there was a significant  acceleration in
the drop of freight rates,  primarily  caused by the lack of  significant  grain
shipment volumes and the infusion of new tonnage.  The low freight rates induced
many  ship  owners to scrap  older  tonnage  and to defer or cancel  newbuilding
orders. In the fourth quarter,  a strong grain harvest worldwide gave the market
new strength,  and freight rates  recovered to the levels  experienced  in early
1996, but not to 1995 levels.  Overall, 1996 was a soft year for shipping,  with
dry bulk demand  growing only 1.8% and the dry bulk fleet growing 3% in tonnage.
The  outlook for 1997 shows an expected  improvement  in demand,  with growth at
2.4%, but a high orderbook remains.  Even so, 1997 is expected to be a soft year
with relatively low freight rates; however, prospects may be strengthened by the
continued scrapping of older vessels in the face of soft rates and the deferment
or canceling of orders.

Independent  forecasts show that the long-term  outlook (past 1997) should bring
improvement  in freight rates earned by vessels;  however,  this is dependent on
the  supply/demand  balance and  stability  in growth  levels.  The  newbuilding
orderbook  currently  is  slightly  lower  than at the  end of 1995 in  tonnage.
Shipyard  capacity is booked through late 1998;  however,  it remains to be seen
how many of these orders will  actually be fulfilled.  Historically,  demand has
averaged approximatley 3% annual growth,  fluctuating between flat growth and 6%
annually.  With  predictable  long-term  demand  growth,  the long-term  outlook
depends on the supply  side,  which is affected by  interest  rates,  government
shipbuilding  subsidy programs,  and prospects for reasonable capital returns in
shipping.

(9)   Mobile Offshore Drilling Unit (Rig)

Worldwide  demand for rigs in 1996 increased in all sectors of the business over
the demand levels  experienced in 1995 and 1994.  This increase in demand spread
over all geographic regions of offshore drilling; it also affected all equipment
types in the offshore  drilling  sector (both  jack-up rigs and floating  rigs).
This increase in demand,  without any increase in supply of rigs, gave increased
utilization and higher contract day rates in the market.  The improvement in the
market  can be  attributed  to a number  of  factors,  but  primarily  it can be
associated with continued growth worldwide in the use of oil and natural gas for
energy.  Stable prices at moderate  levels have  encouraged  such growth,  while
providing  adequate  margins for oil and natural gas  exploration and production
development.

         The jack-up rig sector,  in which the General Partner has  participated
for several years, comprises  approximately 70% of the offshore drilling market.
Overall,  demand for jack-up rigs increased approximately 4%, from 264 rig-years
in 1995 to 274 rig-years in 1996; the Gulf of Mexico accounted for approximately
123 rig-years.  As measured by utilization,  demand for jack-ups  increased from
81% in 1995 to 89% in 1996. Higher utilization  provided the impetus for jack-up
contract  day rates to double for most  jack-up  types,  which led to  increased
asset values. Three jack-ups were on order at the end of 1996; however, there is
not a general trend toward ordering.  The majority of capital in the industry is
being directed to upgrading existing equipment.

         The most significant  trend in 1996 was the continued  consolidation of
the  offshore  drilling  industry.  Five  major  mergers  of  offshore  drilling
contractors  occurred in 1996, leading to a more controlled and stable market in
which higher levels of day rates may be  maintained.  The  consolidation  of rig
ownership into fewer hands has a recognizable effect on stabilizing day rates in
times of lower  utilization  and on quicker  improvement  in times of increasing
utilization.

         Demand for  jack-up  rigs is  projected  by  industry  participants  to
continue to increase through 1997, with no significant  increases in rig supply.
Day rates are not yet at levels  sufficiently  high to  justify  the  widespread
ordering of new equipment.

(10)  Intermodal Trailers

The robust  intermodal  trailer market that began four years ago began to soften
in 1995 and reduced demand continued in 1996.  Intermodal  trailer loadings were
flat in 1996 from  1995's  depressed  levels.  This lack of growth  has been the
result of many factors,  ranging from truckload firms  aggressively  recapturing
market share from the railroads  through  aggressive  pricing to the  continuing
consolidation  activities and asset  efficiency  improvements  of the major U.S.
railroads.

         All of these factors  helped make 1996 a year of  equalizing  equipment
supply,  as  railroads  and  lessors  were  pressured  to retire  older and less
efficient  trailers.  The two largest suppliers of railroad trailers reduced the
available  fleet  in  1996 by  over  15%.  Overall  utilization  for  intermodal
trailers,  including the Partnership's fleet, was lower in 1996 than in previous
years.

(11)  Over-The-Road Dry Trailers

The  over-the-road  dry trailer market was weak in 1996, with  utilization  down
15%. The trailer industry  experienced a record year in 1994 for new production,
and 1995  production  levels were similar to 1994.  However,  in 1996, the truck
freight recession,  along with an overbuilding situation,  contributed to 1996's
poor  performance.  The year 1996 had too little  freight and too much equipment
industrywide.




<PAGE>


(12)  Over-The-Road Refrigerated Trailers

The  Partnership  experienced  fairly  strong  demand  levels  in  1996  for its
refrigerated trailers.  With over 25% of the fleet in refrigerated trailers, the
Partnership,  PLM, and other  Partnerships  combined are the largest supplier of
short-term rental refrigerated trailers in the United States.

(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);

     (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, 1996,  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 800,  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, 1996.


<PAGE>



                                     PART II

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

The  General  Partner  delisted  the  Partnership's  depositary  units  from the
American Stock  Exchange  (AMEX) under the symbol GFZ on April 8, 1996. The last
day for trading on the AMEX was March 22, 1996.  Under the Internal Revenue Code
(the Code), the Partnership was classified as a Publicly Traded Partnership.  As
of February 28, 1997 there were 9,871,073  Depositary Units  outstanding.  There
are approximately 12,500 Depositary Unitholders of record as of the date of this
report. The Code treats all Publicly Traded Partnerships as corporations if they
remain  publicly  traded after December 31, 1997.  Treating the Partnership as a
corporation  would mean the  Partnership  itself would become a taxable,  rather
than a "flow through" entity. As a taxable entity, the income of the Partnership
would have become subject to federal taxation at both the partnership  level and
at the investor level to the extent that income would have become distributed to
an investor. In addition, the General Partner believed that the trading price of
the Depositary  Units would have been distorted when the  Partnership  began 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  delisted the  Partnership's  Depositary Units
from the AMEX. While the  Partnership's  Depositary Units are no longer publicly
traded on a national stock exchange, the General Partner continues 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 continues to provide
pertinent  tax  reporting  forms and  information  to  Unitholders.  The General
Partner  anticipates 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.


                      (This space intentionally left blank)


<PAGE>


     Table  2,  below,  sets  forth  the  high and low  reported  prices  of the
Partnership's  Depositary  Units for 1996 and 1995,  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

   1996

   <S>                                         <C>             <C>            <C>         
   1st Quarter<F1>                             $   5.25        $  3.88        $   0.40    
   2nd Quarter                                 $     --        $    --        $   0.25    
   3rd Quarter                                 $     --        $    --        $   0.25   
   4th Quarter                                 $     --        $    --        $   0.25   

   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   


<FN>

<F1> The General Partner  delisted the  Partnership's  depositary units from the
     American Stock  Exchange  (AMEX) under the symbol GFZ on April 8, 1996. The
     last day for trading on the AMEX was March 22, 1996.

</FN>

</TABLE>


     The  Partnership  has  engaged  in a  plan  to  repurchase  up  to  250,000
Depositary Units.  During the period from January 1, 1996, to December 31, 1996,
the Partnership  repurchased  28,500  Depositary  Units at a total cost of $0.12
million.


<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

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

                                     TABLE 3

                               For the years ended
                  December 31, 1996, 1995, 1994, 1993, and 1992
                 (thousands of dollars, except per unit amounts)
<TABLE>
<CAPTION>

                                                     1996            1995            1994             1993            1992
                                                 -------------------------------------------------------------------------------

     <S>                                         <C>             <C>             <C>              <C>               <C>        
     Operating results:
       Total revenues                            $   25,886      $   28,055      $   40,247       $   42,149        $  43,722  
       Net gain on disposition
         of equipment                                 6,450           2,936           2,863            1,707            1,081
       Loss on revaluation of
         equipment                                       --              --          (1,082 )            (92 )         (8,292 )
       Equity in net income of unconsolidated
          special purpose entities                    6,864              --              --               --               --
       Net income (loss)                              9,760           2,706             252             (241 )        (11,248 )

     At year-end:
       Total assets                              $   78,651      $   83,317      $   98,779       $  117,531        $ 132,043  
       Total liabilities                             50,638          52,980          54,028           56,031           53,232
       Notes payable                                 40,284          41,000          41,000           40,866           40,865

     Cash distributions                          $   11,964      $   16,737      $   16,811       $   16,829        $  22,106  

     Cash distributions which
       represent a return of capital             $    2,204      $   14,031      $   15,970       $   15,988        $  21,001   

     Per weighted average Depositary Unit:

     Net income (loss)                           $     0.93<F1>  $     0.19<F2>  $    (0.06 )<F3> $    (0.11 )<F4>  $   (1.24 )<F5> 


     Cash distributions                          $     1.15      $     1.60      $     1.60       $     1.60        $    2.10    

     Cash distributions which
       represent a return of capital             $     0.22      $     1.41      $     1.60       $     1.60        $    2.10  

<FN>

<F1> After reduction of $0.1 million ($.01 per weighted average Depositary Unit)
     resulting from a special  allocation to the General Partner relating to the
     gross gain on the sale of assets. (See Note 1 to the financial statements.)

<F2> After reduction of $0.7 million ($.07 per weighted average Depositary Unit)
     resulting from a special  allocation to the General Partner relating to the
     gross gain on the sale of assets. (See Note 1 to the financial statements.)

<F3> After reduction of $0.8 million ($.08 per weighted average Depositary Unit)
     resulting from a special  allocation to the General Partner relating to the
     gross gain on the sale of assets. (See Note 1 to the financial statements.)

<F4> After reduction of $0.9 million ($.09 per weighted average Depositary Unit)
     resulting from a special  allocation to the General Partner relating to the
     gross gain on the sale of assets. (See Note 1 to the financial statements.)

<F5> After  reduction of $1.2 million  ($0.12 per  weighted  average  Depositary
     Unit) resulting from a special  allocation to the General Partner  relating
     to the  gross  gain on the sale of  assets.  (See  Note 1 to the  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 and risks
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.

Results of Operations - Factors Affecting Performance

(A) Re-leasing and Repricing Activity

     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.  Equipment that is
idle or out of service between the expiration of one lease and the assumption of
a subsequent one can result in a reduction of contribution  to the  Partnership.
The Partnership  experienced  re-leasing or repricing exposure in 1996 primarily
in its aircraft, marine vessels, marine container, trailer-, and railcar.

     (1) Aircraft:  Aircraft contribution decreased from 1995 to 1996 due to the
off-lease  status of a Boeing  737-200  aircraft that is being  remarketed.  All
other aircraft investments were on lease for the entire year.

     (2) Marine  vessels:  The  Partnership's  partially  owned marine vessel is
operated in a pooled  operation.  Effective  in the third  quarter of 1996,  the
lease of this marine vessel  reached the end of that period of the lease term in
which  rents were paid on a fixed  daily  rate,  and began a new  portion of the
lease term in which the fixed daily rate was reduced by approximately 14%.

         (3)  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.  The  Partnership's  marine  container
contributions  declined from 1995 to 1996,  due to soft market  conditions  that
caused a decline in re-leasing activity.

     (4)  Trailers:  All of the  Partnership's  trailer  portfolio  operates  in
short-term  rental  facilities or short-line  railroad  systems.  The relatively
short  duration  of most  leases in these  operations  exposes  the  trailers to
considerable  re-leasing activity.  Contribution from the Partnership's trailers
operated in short-term  rental  facilities  and the short-line  railroad  system
declined from 1995 to 1996, due to soft market  conditions that caused a decline
in re-leasing activity.

     (5) Railcars:  The majority of the Partnership's railcar equipment remained
on-lease  throughout the year, and thus was not adversely affected by re-leasing
and repricing exposure.

(B)  Equipment Liquidations and Nonperforming Lessees

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

     (1) Liquidations:  During 1996, the Partnership sold its 45% interest in an
entity that owns a mobile  offshore  drilling  unit, 50% investment in an entity
that owns an aircraft engine, 397 marine containers,  two aircraft eingines, two
vessels, 143 railcars,  and 11 trailers. A portion of the proceeds from the sale
of  this  equipment  was  used  to  repay  part  of the  Partnership's  original
outstanding  debt of $41 million.  The other portion of the proceeds was used to
purchase three aircraft and one mobile offshore drilling unit.

     (2)  Nonperforming  Lessees:  In 1996, the General  Partner  repossessed an
aircraft, due to the lessee's inability to pay for outstanding receivables.  The
Partnership  established reserves of approximately $1.3 million against invoices
due to the General Partner's determination that ultimate collection of this rent
is uncertain.  Other  equipment,  such as trailers and  containers,  experienced
minor nonperforming  lessees, which had no significant impact on the performance
of the Partnership.

(C)  Reinvestment Risk

During the first seven years of operations,  the  Partnership  invested  surplus
cash in additional equipment after fulfilling operating  requirements and paying
distributions  to the  partners.  Pursuant  to the  Partnership  agreement,  the
Partnership  may no longer reinvest in additional  equipment  beginning in 1997.
Subsequent to the end of the reinvestment period which concluded on December 31,
1996, the  Partnership  will continue to operate for an additional  three years,
then begin an orderly liquidation over an anticipated two-year period.

     During the year, the Partnership received proceeds from equipment disposals
of approximately $13.8 million. In addition,  the Partnership  received proceeds
of  approximately  $16.5 million from the sale of investments in special purpose
entities which own equipment.  The Partnership  reinvested  approximately  $20.2
million in three aircraft,  $9.7 million in one mobile  offshore  drilling unit,
and $0.7 million in capital repairs to pressure and  non-pressure  tank cars and
trailers.

(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, 1996.

     As of December 31, 1996,  the General  Partner  estimated  the current fair
market value of the Partnership's equipment portfolio, including equipment owned
by unconsolidated special purpose entities to be approximately $106.2 million.

Financial Condition - Capital Resources, and Liquidity

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.

     For the year ended December 31, 1996, the Partnership  generated sufficient
funds to meet its operating obligations,  but used undistributed  available cash
from prior periods of  approximately  $4.1 million to maintain the current level
of distributions (total of $12 million in 1996) to the partners.

     The Partnership has notes  outstanding  with a face amount of $40.3 million
with interest at 1.5% over LIBOR. The loan allowed the pay down and borrowing of
funds in conjunction with the sale and subsequent  purchase of assets during the
reinvestment  phase of the  Partnership.  During  the first 15 months  following
conversion  to a term  loan,  which  began  on  September  30,  1996,  quarterly
principal  payments  equal to 75% of net proceeds  from asset sales will be due.
Beginning the 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.  During
1996, the Partnership paid down $19.9 million of the outstanding loan balance as
a result of asset sales and redrew $19.1 million to purchase other equipment.

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

Results of Operations - Year to Year Detail Comparison

Comparison of the Partnership's Operating Results for the Years Ended 
December 31, 1996 and 1995

(A) Owned equipment operations

Lease revenues less direct expenses  (repairs and maintenance,  marine equipment
operating expense,  and asset specific  insurance) on owned equipment  decreased
for the year ended 1996 when compared to the same period of 1995.  The following
table presents results by owned equipment type (in thousands):

                                                      For the year ended
                                                         December 31,
                                               --------------------------------
                                                    1996              1995
                                               --------------------------------
   Aircraft and aircraft engines               $         3,688   $         4,809
   Marine vessels                                          926             1,465
   Trailers                                              1,748             1,666
   Rail equipment                                        4,976             4,745
   Marine containers                                     1,482             1,848
   Mobile offshore drilling unit                           701                --

Aircraft: Aircraft lease revenues and direct expenses were $5.0 million and $1.3
million,  respectively,  for the year ended December 31, 1996,  compared to $4.7
million  and $0.1  million,  respectively  during the same  period of 1995.  The
decrease in net  contribution was due to $1.1 million in repairs on one aircraft
to prepare it for re-lease and the off-lease  status of this aircraft during the
third quarter of 1996;

Marine  vessels:  Marine  vessel lease  revenues and direct  expenses  were $1.4
million and $0.4 million,  respectively,  for the year ended  December 31, 1996,
compared to $2.7 million and $1.2 million,  respectively  during the same period
of 1995.  The  decrease  of net  contribution  was due to the sale of one marine
vessel  during  the second  quarter  of 1995 and the sale of two marine  vessels
during the third quarter of 1996;

Trailers:  Trailer lease revenues and direct expenses were $2.1 million and $0.4
million,  respectively,  for the year ended December 31, 1996,  compared to $1.9
million  and $0.2  million,  respectively  during the same  period of 1995.  The
trailer fleet decreased as of the year ended December 31, 1996,  compared to the
same period of 1995 due to the  disposition  of trailers  during 1996.  However,
over the past  twelve  months  the  number  of  trailers  in the PLM  affiliated
short-term  rental yards has increased due to term leases which  expired.  These
trailers are now earning a higher lease rate while in the rental yards  compared
to the fixed term leases thus increasing net contribution;

Rail equipment: Railcar lease revenues and direct expenses were $7.8 million and
$2.8 million,  respectively,  for the twelve months ended 1996, compared to $7.8
million and $3.1  million,  respectively  during the same  quarter of 1995.  The
increase in railcar  contribution  resulted  from  running  repairs  required on
certain railcars in the fleet during 1995 which were not needed during 1996;

Marine containers: Marine container lease revenues and direct expenses were $1.5
million and $12,144,  respectively,  for the twelve  months  ended  December 31,
1996, compared to $1.9 million and $27,185, respectively during the same quarter
of 1995.  The  number of marine  containers  owned by the  Partnership  has been
declining due to sales and dispositions. The result of this declining fleet is a
decrease in marine container net contribution.

Mobile offshore  drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.7 million and $18,606,  respectively, for the year ended
December 31, 1996.  The  Partnership  acquired and placed into lease service one
mobile offshore drilling unit in the third quarter of 1996.



<PAGE>


(B)  Indirect operating expenses related to owned equipment operations

Total  indirect  expenses of $18.1 million for the twelve months ended  December
31, 1996, increased from $16.1 million for the same period of 1995. The variance
is explained as follows:

     (a) an increase of $1.8 million in depreciation  and  amortization  expense
from 1995 levels  reflecting the  Partnership's  depreciation on the purchase of
$28.5 million of new  equipment,  offset by the sale or  disposition  of certain
Partnership assets during 1995 and 1996;

     (b) an  increase  of $0.4  million  in bad debt  expense  from 1995  levels
primarily  reflecting the Partnership's  evaluation of collectibility of certain
receivable balances;

     (c) an  increase  of $0.1  million in  aircraft  inspection  expense on one
aircraft before it can be re-leased;

     (d) a decrease of $0.4  million in  interest  expense due to the paydown of
debt principal due to the sale of assets.

(C) Net gain on  disposition  of  equipment  was $6.5 million for the year ended
December 31, 1996,  from the  disposition  of two aircraft  engines,  two marine
vessels, 397 marine containers,  11 trailers, and 143 railcars. These assets had
an  aggregate  net book  value of $8  million  and were sold or  liquidated  for
proceeds of $14.5 million.  Net gain on  disposition  of equipment  totaled $2.9
million  in the  same  period  of  1995  from  the  disposition  of  462  marine
containers, 204 railcars, and 1 marine vessel. 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.

(D)  Interest  and other  income  decreased  by $0.8  million for the year ended
December  31,  1996  compared  to 1995  due  primarily  to lower  cash  balances
available for investments when compared to the same period of 1995.

(E) Equity in net income (loss) of unconsolidated special purpose entities

Equity  in  net  income  (loss)  of  unconsolidated   special  purpose  entities
represents  the net income  (loss)  generated  from  operation of  jointly-owned
assets  accounted  for  under  the  equity  method  (see  Note  3  to  financial
statements)(in thousands).
<TABLE>
<CAPTION>

                                                     For the twelve months
                                                      ended December 31,
                                               ----------------------------------
                                                    1996              1995
                                               ----------------------------------
   <S>                                         <C>               <C>              
   Aircraft and aircraft engines               $           901   $          (154 )
   Marine vessels                                         (611 )              13
   Mobile offshore drilling unit                         6,574                 1

</TABLE>

Aircraft and aircraft engines:  The Partnership's share of aircraft revenues and
expenses were $3.6 million and $2.7 million, respectively, for 1996, compared to
$1.1 million and $1.2  million,  respectively,  during 1995.  As of December 31,
1996, the  Partnership has a partial  beneficial  interest in three trusts which
hold nine commercial  aircraft,  two aircraft engines, and a package of aircraft
rotables. The increase in income to $0.9 million for the year ended December 31,
1996 compared to a loss of $0.15  million for the year ended  December 31, 1995,
was due to the Partnership's  sale of its 50% investment in an entity which owns
an aircraft  engine in the third  quarter of 1996,  resulting in $0.7 million in
net gains, and $0.7 million of net income. In addition,  the Partnership's share
of revenue was higher in the year ended  December 31, 1996,  as compared to 1995
levels due to the three trusts having been acquired in September of 1995.

Marine  vessels:  The  Partnership's  share of revenues  and  expenses of marine
vessels was $1.4  million  and $2.0  million,  respectively,  for the year ended
December 31, 1996, compared to $1.9 million and $1.9 million,  respectively, for
the same period in 1995. The loss of $0.6 milion for the year ended December 31,
1996,  related to marine  vessels was caused by lower revenue for the year ended
December 31, 1996,  due to lower  charter rates when compared to 1995 levels and
higher  marine  operating  expenses for the year ended  December 31, 1996,  when
compared to 1995 levels.

Mobile offshore drilling unit: The Partnership's  share of revenues and expenses
of the  mobile  offshore  drilling  unit was  $7.2  million  and  $0.6  million,
respectively, for the year ended December 31, 1996, compared to $1.3 million and
$1.3 million,  respectively, for the same period of 1995. The increase in income
to $6.6  million for the twelve  months  ended  December 31, 1996 was due to the
sale of the  Partnership's  investment in an entity which owns a mobile offshore
drilling unit in the third quarter of 1996 for a gain of which the Partnership's
share was $6.5 million.

(F) Net Income

The  Partnership's  net income of $9.8  million for the year ended  December 31,
1996,  increased from net income of $2.7 million in the same period in 1995. 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. Therefore, the Partnership's performance
in the year ended  December 31, 1996,  is not  necessarily  indicative of future
periods. The Partnership  distributed $11.4 million to the Limited Partners,  or
$1.15 per weighted  average  Depositary Unit in the twelve months ended December
31, 1996.

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) Trailer  revenues  increased 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.

(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 is  responsible  for payment of 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 weighted average Depositary Unit.

Geographic Information

The Partnership operates its equipment in international markets.  Although these
operations  expose the Partnership to certain  currency,  political,  credit and
economic  risks,  the General  Partner  believes  these risks are minimal or has
implemented strategies to control the risks as follows:  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 Financial  Statements,  Note 4 for information on the revenues,  income, and
assets in various geographic regions.

     Revenues and net operating income by geographic  region are impacted by the
time  period the asset is owned and  on/off-lease  status  and the  useful  life
ascribed  to the  asset  for  depreciation  purposes.  Net  income  (loss)  from
equipment is significantly  impacted by depreciation  charges which are greatest
in the  early  years  due to the  General  Partner's  decision  to use the  200%
declining  balance  method of  depreciation.  The  relationships  of  geographic
revenues,  net income  (loss) and net book value are  expected to  significantly
change in the future as  equipment  is sold in  equipment  in various  equipment
markets and geographic  areas.  An explanation of the current  relationships  is
presented below:

     The Partnership's  equipment leased to Canadian  domiciled lessees consists
of railcars,  and an aircraft owned by an entity in which the Partnership has an
interest.  Revenues in Canada  accounted for 19% of total  revenues  while these
operations  accounted  for $2.3 million of the $9.8 million of the net operating
income for the entire Partnership.  The net operating income generated in Canada
was created by the railcar  operations  due to high  utilization  throughout the
year of 1996.  The net operating  income was  partially  offset by net operating
loss  from  the  aircraft  leased  in  Canada  due to the use of an  accelerated
depreciation method. As the depreciation recorded by the Partnership declines in
future periods the aircraft is expected to generate net operating income for the
Partnership.

     The  Partnership's  equipment on lease to U.S.  domiciled lessees accounted
for 33% of the revenues  generated by owned and partially  owned equipment while
net operating  income accounted for $1.64 million in profits versus $9.8 million
for the entire Partnership. The primary reason for this relationship is the fact
that the  Partnership  depreciates its rail equipment over a fifteen year period
versus  twelve  years  for  other  equipment  types  owned  and  leased in other
geographic regions. Since railcars make up 23% of the equipment,  on an original
cost  basis,  and 56% of the  revenues  generated  in the United  States,  it is
expected that this relationship of revenue to net operating income will continue
into the near future for this geographic region, as long as additional equipment
types are not added to the equipment mix. The trailers leased to U.S.  domiciled
lessees are expected to become  profitable  in the near  future,  as the revenue
from the trailers exceeds the operating costs, and the depreciation  recorded by
the Partnership declines in future periods.

     European  operations consist of three owned aircraft and an interest in two
trusts that own three aircraft,  two aircraft engines and aircraft rotables that
are generating revenues, which accounted for 13% of combined equipment revenues.
The net loss generated by this equipment  accounted for $0.5 million in 1996 due
to shorter  depreciation  life. As the depreciation  recorded by the Partnership
declines in future  periods the aircraft is expected to generate  net  operating
income for the Partnership.

     Asian operations  consist of two aircraft at the end of 1996.  During 1996,
revenues of these aircraft and the two sold aircraft engines accounted for 9% of
total revenues while these  operations  accounted for $2.8 million net operating
loss versus $9.8 million of the net operating income for the entire Partnership.
The net operating  loss incurred was due to one aircraft being  off-lease  since
the third  quarter of 1996 and the  establishment  of reserves of  approximately
$1.3 million  against  invoices for this  aircraft due to the General  Partner's
determination  that  ultimate   collection  of  this  rent  is  uncertain.   The
Partnership  is in the  process of  repossessing  this  aircraft  and it will be
marketed for re-lease.  In addition,  two aircraft engines were sold during 1996
for a loss of $0.1 million to the Partnership.

     The partially  owned marine vessel and the two sold marine  vessels,  which
were leased in various regions  accounted for 12% of the revenues and 57% of the
net operating income for 1996. During 1996, the Partnership sold two vessels and
generated gains of $5.3 million.  The  Partnership's 56% investment in an entity
which owns a marine vessel earned revenues of $1.4 million in 1996 and generated
$0.6 million in net loss.

     The mobile offshore drilling units, which were leased in various regions in
1996  accounted  for 6% of the revenues  and $6.4  million of the net  operating
income. The net operating income generated was due to the partially owned mobile
offshore drilling unit being sold during the third quarter of 1996 for a gain of
$6.5 million.  The owned mobile offshore  drilling unit earned revenues of $0.72
million and  generated  $0.2 million in net loss  primarily due to the use of an
accelerated depreciation method.

Inflation

There was no significant  impact on the Partnership's  operations as a result of
inflation during 1996, 1995, or 1994.

Forward Looking Information

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

Outlook for the Future

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

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

(A)  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.  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.

(B) Distributions

Pursuant to the Limited  Partnership  Agreement,  the Partnership  will cease to
reinvest in additional equipment beginning 1997. The General Partner will pursue
a strategy of selectively  re-leasing  equipment to achieve competitive returns,
or  selling  equipment  that  is  underperforming  or  whose  operation  becomes
prohibitively  expensive,  in the period prior to the final  liquidation  of the
Partnership.  During this time, the Partnership will use operating cash flow and
proceeds from the sale of equipment to meet its operating  obligations  and make
distributions to the partners.  Although the General Partner intends to maintain
a  sustainable  level  of  distributions  prior  to  final  liquidation  of  the
Partnership, actual Partnership performance and other considerations may require
adjustments to then-existing  distribution  levels.  In the long term,  changing
market  conditions and  used-equipment  values may preclude the General  Partner
from  accurately  determining  the  impact of  future  re-leasing  activity  and
equipment sales on Partnership performance and liquidity.

     As of the first quarter of 1996, the cash  distribution rate was 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  were  necessary.  In  addition,  with  the
Partnership  expected to enter the active  liquidation phase in the near future,
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.

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.

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

         None.





                      (This space intentionally left 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                        61                  Director, Chairman of the Board, PLM International,
                                                           Inc.; Director, PLM Financial Services, Inc.

Douglas P. Goodrich                    50                  Director and Senior Vice President, PLM
                                                           International; Director and President, PLM Financial
                                                           Services, Inc.; Senior Vice President PLM
                                                           Transportation Equipment Corporation; President, PLM
                                                           Railcar Management Services, Inc.

Walter E. Hoadley                      80                  Director, PLM International, Inc.

Robert L. Pagel                        60                  Director, Chairman of the Executive Committee, PLM
                                                           International, Inc.; Director, PLM Financial
                                                           Services, Inc.

Harold R. Somerset                     62                  Director, PLM International, Inc.

Robert N. Tidball                      58                  Director, President and Chief Executive Officer, PLM
                                                           International, Inc.

J. Michael Allgood                     48                  Vice President and Chief Financial Officer, PLM
                                                           International, Inc. and PLM Financial Services, Inc.

Stephen M. Bess                        50                  President, PLM Investment Management, Inc.; and PLM
                                                           Securities Corp.; Vice President, PLM Financial
                                                           Services, Inc.

David J. Davis                         40                  Vice President and Corporate Controller, PLM
                                                           International and PLM Financial Services, Inc.

Frank Diodati                          42                  President, PLM Railcar Management Services Canada
                                                           Limited.

Steven O. Layne                        42                  Vice President, PLM Transportation Equipment
                                                           Corporation; Vice President and Director, PLM
                                                           Worldwide Management Services, Ltd.

Stephen Peary                          48                  Senior Vice President, General Counsel and Secretary,
                                                           PLM International, Inc.; Vice President, General
                                                           Counsel and Secretary, PLM Financial Services, Inc.,
                                                           PLM Investment Management, Inc., PLM Transportation
                                                           Equipment Corporation; Vice President, PLM
                                                           Securities, Corp.

Thomas L. Wilmore                      54                  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.

     Douglas P.  Goodrich  was elected to the Board of  Directors  in July 1996,
appointed  Director and President of PLM Financial  Services in June,  1996, and
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.

     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.

     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 Securities,  Corp. in June,
1996 and 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.

     Steven O. Layne was appointed Vice President,  PLM Transportation Equipment
Corporation's  Air Group in November  1992, and was appointed Vice President and
Director of PLM Worldwide  Management  Services,  Ltd. in September,  1995.  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, 1996.


<PAGE>


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,
         1996, 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, 1996.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     (a) Transactions with Management and Others

         During 1996,  management  fees to IMI were $1.0 million.  In 1996,  the
         Partnership paid or accrued lease negotiation and equipment acquisition
         fees of $1.6 million to PLM Transportation  Equipment Corporation.  The
         General  Partner and its affiliates  were  reimbursed  $0.7 million for
         administrative and data processing  services performed on behalf of the
         Partnership in 1996.

              During 1996, the unconsolidated  special purpose entities (USPE's)
         paid or accrued the following fees to FSI or its  affiliates  (based on
         the  Partnership's  proportional  share of ownership):  management fees
         -$0.2  million;  administrative  and data  processing  services  - $0.1
         million. The unconsolidated special purpose entities also paid TEI $0.1
         million for insurance coverages during 1996.

     (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.

         24.        Powers of Attorney.


<PAGE>


                                   SIGNATURES

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

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


Date:  February 28, 1997                PLM EQUIPMENT GROWTH FUND III
                                        PARTNERSHIP

                                        By:      PLM Financial Services, Inc.
                                                 General Partner



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



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



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


Name                                Capacity                        Date


*___________________
J. Alec Merriam                  Director - FSI                   March 4, 1997


*___________________
Robert L. Pagel                  Director - FSI                   March 4, 1997







* 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                                           27

Balance sheets as of December 31, 1996 and 1995                          28

Statements of income for the years ended December 31,
     1996, 1995, and 1994                                                29

Statements of changes in partners' capital for
     the years ended December 31, 1996, 1995, and
     1994                                                                30

Statements of cash flows for the years ended December 31,
     1996, 1995, and 1994                                                31

Notes to financial statements                                         32-40


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 accompanying balance sheets of PLM Equipment Growth Fund III
as of December 31, 1996 and 1995, and the related statements of income,  changes
in  partners'  capital,  and cash flows for each of the years in the  three-year
period  ended   December  31,  1996.   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, 1996 and 1995 and the results of its  operations and its cash
flows for each of the years in the three-year  period ended December 31, 1996 in
conformity with generally accepted accounting principles.


/S/ KPMG PEAT MARWICK LLP
----------------------------

SAN FRANCISCO, CALIFORNIA
February 28, 1997


<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)

                                 BALANCE SHEETS
                                  December 31,
                            (in thousands of dollars)

<TABLE>


                                     ASSETS
<CAPTION>

                                                                            1996                 1995
                                                                        -----------------------------------

   <S>                                                                   <C>                   <C>        
   Equipment held for operating leases, at cost                          $  136,670            $ 130,132  
     Less accumulated depreciation                                          (78,607 )            (84,207 )
                                                                         ---------------------------------
                                                                             58,063               45,925
   Equipment held for sale                                                       --                  475
                                                                         ---------------------------------
     Net equipment                                                           58,063               46,400

   Cash and cash equivalents                                                  1,414                3,243
   Restricted cash and marketable securities                                  5,966                5,660
   Investments in unconsolidated special purpose entities                    11,138               20,820
   Accounts and notes receivable, net of allowance for doubtful
     accounts of $1,381 in 1996 and $569 in 1995                              1,515                2,242
   Net investment in sales-type lease                                            --                4,518
   Prepaid expenses                                                              64                   74
   Deferred charges, net of accumulated amortization
     of $800 in 1996 and $2,159 in 1995                                         491                  360
                                                                         ---------------------------------
       Total assets                                                      $   78,651            $  83,317 
                                                                         =================================

                        LIABILITIES AND PARTNERS' CAPITAL

   Liabilities:

   Accounts payable and accrued expenses                                 $    1,505            $   1,355  
   Due to affiliates                                                          1,297                1,499
   Note payable                                                              40,284               41,000
   Lessee deposits and reserves for repairs                                   7,552                9,126
                                                                         ---------------------------------
       Total liabilities                                                     50,638               52,980

   Partners' capital:

   Limited Partners (9,871,073 and 9,899,573
     Depositary Units at December 31, 1996 and 1995)                         28,013               30,337
   General Partner                                                               --                   --
                                                                         ---------------------------------
       Total partners' capital                                               28,013               30,337
                                                                         ---------------------------------
         Total liabilities and partners' capital                         $   78,651            $  83,317   
                                                                         =================================
</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)

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

<TABLE>
<CAPTION>


                                                                            1996            1995           1994
                                                                        --------------------------------------------
   Revenues:

     <S>                                                                 <C>              <C>           <C>         
     Lease revenue                                                       $  18,459        $ 23,368      $  36,225   
     Interest and other income                                                 977           1,751          1,159
     Net gain on disposition of equipment                                    6,450           2,936          2,863
                                                                         -------------------------------------------
       Total revenues                                                       25,886          28,055         40,247

   Expenses:

     Depreciation and amortization                                          11,047          12,757         16,318
     Management fees to affiliate                                            1,004           1,137          1,788
     Repairs and maintenance                                                 4,475           4,063          6,077
     Interest expense                                                        3,078           3,474          2,938
     Insurance expense to affiliate                                             --             268            555
     Other insurance expense                                                   359             390            789
     Repositioning expense                                                      13             (18 )          733
     Marine equipment operating expenses                                       176             902          7,835
     General and administrative expenses
       to affiliates                                                           747             816            654
     Other general and administrative expenses                               1,263           1,166          1,210
     Bad debt expense                                                          828             394             16
     Loss on revaluation of equipment                                           --              --          1,082
                                                                         -------------------------------------------
       Total expenses                                                       22,990          25,349         39,995

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

       Net income                                                        $   9,760        $  2,706      $     252   
                                                                         ===========================================

   Partners' share of net income (loss):

     Limited Partners                                                    $   9,162        $  1,869      $    (589 )  
     General Partner                                                           598             837            841
                                                                         ===========================================
       Total                                                             $   9,760        $  2,706      $     252    
                                                                         ===========================================

   Net income (loss) per weighted  average  Depositary Unit  (9,873,821  Units -
     1996, 9,927,458 Units - 1995,
      9,979,199 - 1994)                                                  $    0.93        $   0.19      $   (0.06 ) 
                                                                         ===========================================

   Cash distributions                                                    $  11,964        $ 16,737      $  16,811  
                                                                         ===========================================

   Cash distribution per weighted average Depositary Unit                $    1.15        $   1.60      $    1.60  
                                                                         ===========================================
</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>




                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
              For the years ended December 31, 1996, 1995, and 1994
                                 (in thousands)


<TABLE>
<CAPTION>



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

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

   Net income                                               9,162             598               9,760

   Repurchase of Units                                       (120 )            --                (120 )

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

   Partners' capital at December 31, 1996              $   28,013          $   --          $   28,013
                                                       ================================================

</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>




                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)

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


                                                                            1996            1995            1994
                                                                        ---------------------------------------------
   <S>                                                                   <C>             <C>             <C>       
   Operating activities:
   Net income                                                            $    9,760      $    2,706      $      252
     Adjustments to reconcile net income
         to net cash provided by operating activities:
       Depreciation and amortization                                         11,047          12,757          16,318
       Net gain on disposition of equipment                                  (6,450 )        (2,936 )        (2,863 )
       Loss on revaluation of equipment                                          --              --           1,082
       Equity in net income from unconsolidated special
         purpose entities                                                    (6,864 )            --              --
       Sales-type lease income                                               (1,885 )            --              --
       Changes in operating assets and liabilities:
         Accounts and notes receivable, net                                     727             202           1,031
         Prepaid expenses                                                        10             111              13
         Restricted cash and marketable securities                             (306 )          (307 )          (272 )
         Accounts payable and accrued expenses                                  150              43             375
         Due (to) from affiliates                                              (202 )         1,050            (324 )
         Prepaid deposits and reserves for repairs                             (914 )          (302 )        (1,892 )
                                                                         --------------------------------------------
   Cash provided by operating activities                                      5,073          13,324          13,720
                                                                         --------------------------------------------

   Investing activities:
     Payments for purchase of equipment                                     (28,540 )        (9,961 )        (2,417 )
     Payment of capitalized repairs                                            (728 )        (1,008 )        (1,564 )
     Payments of acquisition fees to affiliate                               (1,284 )          (447 )          (129 )
     Payments received on sales-type lease                                    6,403             482              --
     Proceeds from disposition of equipment                                  13,786           3,389          16,748
     Liquidation distributions from unconsolidated
       special purpose entities                                              13,711              --              --
     Distributions from unconsolidated
       special purpose entities                                               2,835              --              --
     Payments of lease negotiation fees to affiliate                           (285 )           (99 )           (30 )
                                                                         --------------------------------------------
   Net cash provided by (used in) investing activities                        5,898          (7,644 )        12,608
                                                                         --------------------------------------------

   Financing activities:
     Payments for debt placement fees                                            --              --            (339 )
     Proceeds from notes payable                                             19,148              --          41,000
     Principal payments on notes payable                                    (19,864 )            --         (40,866 )
     Repurchase of Depositary Units                                            (120 )          (383 )          (190 )
     Cash distributions paid to limited partners                            (11,366 )       (15,900 )       (15,970 )
     Cash distributions paid to general partner                                (598 )          (837 )          (841 )
                                                                         --------------------------------------------
   Net cash used in financing activities                                    (12,800 )       (17,120 )       (17,206 )
                                                                         --------------------------------------------

   Net (decrease) increase in cash and cash equivalents                      (1,829 )       (11,440 )         9,122

   Cash and cash equivalents at beginning of year( See note 3)                3,243          14,885           5,763
                                                                         --------------------------------------------

   Cash and cash equivalents at end of year                              $    1,414      $    3,445      $   14,885
                                                                         ============================================

   Supplemental information:
   Interest paid                                                         $    3,078      $    2,611      $    2,587
                                                                         ============================================
</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1996

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. 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,  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, 1996


1.       Basis of Presentation (continued)

         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.  Certain aircraft are depreciated under the  double-declining
         balance depreciation method based over the lease term. 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 fair  value  less  cost to sell  and is  subject  to a  pending
         contract for sale.

         Investments in Unconsolidated Special Purpose Entities

         The  Partnership  has interests in special  purpose  entities which own
         transportation  equipment.  These interests are accounted for using the
         equity method.

              The  Partnership's  investment in  unconsolidated  special purpose
         entities  includes  acquisition and lease  negotiation fees paid by the
         Partnership to TEC. The Partnership's  equity interest in net income of
         unconsolidated  special purpose entities is reflected net of management
         fees paid or payable to IMI and the  amortization  of  acquisition  and
         lease negotiation fees paid to TEC.

         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 lessee
         deposits and reserve for repairs. The prefunded amounts are included in
         the balance sheet as restricted cash.



<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1996

1.       Basis of Presentation (continued)

         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 capital  account  balance of the General Partner
         to be zero as of the close of such year. The General Partner received a
         special  allocation  in the amount of $0.1 million,  $0.7 million,  and
         $0.8 million from the gross gain on  disposition  of equipment  for the
         years ended  December  31,  1996,  1995,  and 1994,  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 of $12.0 million, $16.7 million,
         and $16.8  million were declared on December 31, 1996,  1995,  and 1994
         and paid on February 15, 1997,  1996,  and 1995,  respectively,  to the
         unitholders  of  record  as of  December  31,  1996,  1995,  and  1994,
         respectively.  Cash  distributions to investors in excess of net income
         are considered to represent a return of capital.  Distributions of $2.2
         million  and $14  million  were  deemed a return of capital in 1996 and
         1995, respectively.  All cash distributions to Limited Partners in 1993
         were deemed to be a return of capital.

         On January 29 1997, the Partnership declared quarterly distributions of
         $0.25 per  outstanding  depositary  unit,  payable  Febuary 15, 1997 to
         Unitholders of record as of December 31, 1996.

         Marketable Securities

         Marketable  Securities  include a $6 million zero coupon bond  maturing
         November 15, 1997,  which is reflected at its discounted  value,  which
         approximates market value.

         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.

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  attributable  to either  owned  equipment  or interests in
         equipment owned by the USPE's 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.
         Partnership's management fees of $1.3 million and $1.6 million and were
         payable to IMI as of December 31,  1996,  and 1995,  respectively.  The
         Partnership's  proportional  share of USPE's  management fees of $0.02,
         and $0 were payable as of December 31, 1996,  1995,  respectively.  The
         Partnership's  proportional  share of USPE's  management  fees  expense
         during 1996 was $0.2 million.  Additionally, the Partnership reimbursed
         FSI and its affiliates $0.7 million, $0.8 million, and $0.7 million for
         administrative and data processing  services performed on behalf of the
         Partnership in 1996, 1995, and 1994,  respectively.  The  Partnership's
         proportional  share  of  USPE's   administrative  and  data  processing
         services was $0.1 million during 1996.

              The  Partnership  and  unconsolidated  special  entities  paid  or
         accrued  lease  negotiation  and  equipment  acquisition  fees  of $1.6
         million, $0.5 million, and $0.2 million to PLM Transportation Equipment
         Corporation (TEC) and WMS during 1996, 1995 and 1994, respectively. TEC
         is a

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1996

2.       General Partner and Transactions with Affiliates (continued)

         wholly-owned  subsidiary of the General Partner. WMS is a wholly -owned
         subsidiary of PLM international. The Partnership paid $0.3 million, and
         $0.6 million to Transportation  Equipment  Indemnity Company Ltd. (TEI)
         during  1995 and 1994,  respectively.  TEI  provides  marine  insurance
         coverage and other insurance  brokerage  services.  The Partnership did
         not  pay  any  marine  insurance  coverage  paid  to TEI in  1996.  The
         Partnership's  proportional  share of  unconsolidated  special  purpose
         entities' marine insurance coverage paid to TEI was $0.1 million during
         1996. 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 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.

              At December 31, 1996, all 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  credited  to the  owners of the  related  equipment  as
         received.  Direct  expenses  associated  with the equipment are charged
         directly to the Partnership.  An allocation of other direct expenses of
         the rental yard operations are billed to the Partnership monthly.

              The  Partnership  has interests in certain  equipment for lease in
         conjunction  with  affiliated   partnerships   which  are  included  in
         unconsolidated  special  purpose  entities.  In  1996,  this  equipment
         included a marine  vessel (56%),  two trusts that own three  commercial
         aircraft,  two aircraft  engines,  and  portfolio of aircraft  rotables
         (17%), and a trust that owns six commercial aircraft (17%).

              The net balance due to FSI and its affiliates was $1.3 million and
         $1.6 million at December 31, 1996 and 1995, respectively.

3.       Investments in Unconsolidated Special Purpose Entities

         During the second half of 1995, the  Partnership  began to increase the
         level  of  its   participation   in  the   ownership  of   large-ticket
         transportation  assets to be owned and operated jointly with affiliated
         programs.  Prior to  1996,  the  Partnership  accounted  for  operating
         activities  associated  with joint  ownership  of rental  equipment  as
         undivided  interests,  including its proportionate  share of each asset
         with similar  wholly-owned  assets in its financial  statements.  Under
         generally  accepted   accounting   principles,   the  effects  of  such
         activities,  if material, should be reported using the equity method of
         accounting.  Therefore,  effective  January  1, 1996,  the  Partnership
         adopted  the  equity  method  to  account  for its  investment  in such
         jointly-held assets.

              The principle  differences  between the previous accounting method
         and the equity method relate to the presentation of activities relating
         to these assets in the statement of operations.  Whereas,  under equity
         accounting  the  Partnership's  proportionate  share is  presented as a
         single  net  amount,  "equity in net  income  (loss) of  unconsolidated
         special purpose entities", under the previous method, the Partnership's
         income statement  reflected its proportionate  share of each individual
         item of revenue and  expense.  Accordingly,  the effect of adopting the
         equity  method of  accounting  has no  cumulative  effect on previously
         reported  partner's  capital or on the  Partnership's net income (loss)
         for the period of adoption.  Because the effects on  previously  issued
         financial  statements  of applying the equity  method of  accounting to
         investments in  jointly-owned  assets are not considered to be material
         to such  financial  statements  taken  as a  whole,  previously  issued
         financial  statements  have not been restated.  However,  certain items
         have  been  reclassified  in the  previously  issued  balance  sheet to
         conform to the current period presentation. The beginning cash and cash
         equivalents  for  1996 is  different  from  the  ending  cash  and cash
         equivalents   for  1995  on   statements  of  cash  flows  due  to  the
         reclassification.



<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1996


3.       Investments in Unconsolidated Special Purpose Entities (continued)

              The  following  summarizes  the  financial   information  for  the
         unconsolidated  special purpose  entities (USPE) and the  Partnership's
         interests  therein as of and for the year ended  December  31, 1996 (in
         thousands):

                                                           Net Interest
                                         Total USPE       of Partnership
                                       ------------------------------------

    Net Assets                       $          49,985  $          11,138
    Revenues                                    22,146              5,065
    Net Income                                  15,930              6,864

              The net investment in USPE's includes the following  jointly-owned
         equipment (and related assets and liabilities) (in thousands):
<TABLE>
<CAPTION>

             %                                                                         December 31,    December 31,
         Ownership                               Equipment                                 1996            1995
         ------------------------------------------------------------------------------------------------------------
            <S>       <C>                                                             <C>                 <C>         
            56%       Marine vessel                                                   $       3,999       $   4,821   
            45%       Mobile offshore drilling unit                                              --           6,093
            50%       Aircraft engine                                                            --             656
            17%       Two trusts that own three commercial aircraft, two aircraft
                      engines, and portfolio of aircraft rotables                             4,564           5,302
            14%       Trust that owns seven commercial aircraft                                  --           3,948
            17%       Trust that owns six commercial aircraft                                 2,575              --
                                                                                      -------------------------------

                        Investments in unconsolidated special purpose entities        $      11,138       $  20,820   
                                                                                      ===============================
</TABLE>


              During the twelve months ended December 31, 1996, the  Partnership
         sold its 45%  investment  in an  entity  which  owns a mobile  offshore
         drilling  unit,  and its 50%  investment  in an  entity  which  owns an
         aircraft engine for $13.7 million.

              The Partnership has a beneficial interest in a certain USPE's that
         owns multiple  aircraft (the Trust).  This Trust  contains  provisions,
         under certain  circumstances,  for allocating  specific aircraft to the
         beneficial owners.  During September 1996, PLM Equipment Growth Fund V,
         an affiliated  partnership which also has a beneficial  interest in the
         Trust,  renegotiated  its senior loan  agreement and was required,  for
         loan  collateral  purposes,  to withdraw the aircraft  designated to it
         from the Trust.  The result was to restate the percentage  ownership of
         the remaining  beneficial  owners of the Trust beginning  September 30,
         1996. This change has no effect on the income or loss recognized in the
         third quarter 1996.

4.       Equipment

         Owned 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  fair  value  less cost to sell and is  subject to a
         pending contract for sale.



<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1996


4.       Equipment (continued)

              The  components  of owned  equipment at December 31, 1996 and 1995
are as follows (in thousands):
<TABLE>
<CAPTION>

  Equipment held for operating leases:                     1996              1995
                                                       --------------------------------

   <S>                                                 <C>                <C>       
   Rail equipment                                      $   35,733         $   35,761
   Marine containers                                       13,146             15,015
   Marine vessels                                              --             15,463
   Aircraft and aircraft engines                           70,615             56,269
   Trailers                                                 7,510              7,624
   Mobile offshore drilling unit                            9,666                 --
                                                       --------------------------------
                                                          136,670            130,132
   Less accumulated depreciation                          (78,607 )          (84,207 )
                                                       --------------------------------
                                                           58,063             45,925
   Equipment held for sale:                                    --                475
                                                       --------------------------------
   Net equipment                                       $   58,063         $   46,400
                                                       ================================
</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,  1996,  all  equipment  in  the  Partnership
         portfolio was on lease,  except one aircraft,  32 marine containers and
         67 railcars.  The aggregate  net book value of equipment  off-lease was
         $4.3   million  and  $3.1  million  at  December  31,  1996  and  1995,
         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,
         1996  and  1995,   $28,545  and  $324,000  were  outstanding  on  these
         promissory  notes,  respectively.  Continental  remains  current on all
         payments due under the promissory notes.

              During  1996,  the  Partnership  sold or  disposed  of 397  marine
         containers,  two aircraft engines,  two vessels,  11 trailers,  and 143
         railcars  with  aggregate  net book value of $8.0 million for aggregate
         proceeds of $14.5 million.

              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.

              During 1996, the Partnership  purchased three commercial  aircraft
         and a  mobile  offshore  drilling  unit  for  $28.5  million,  and paid
         acquisition  fees  of  $1.3  million  to PLM  Transportation  Equipment
         Corporation, a wholly-owned subsidiary of the General Partner.

              At December 31, 1996, the Partnership had no outstanding  purchase
         commitments.


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1996

         4.   Equipment (continued)

              All  leases  for owned and  partially  owned  equipment  are being
         accounted  for  as  operating  leases.  Future  minimum  rentals  under
         noncancelable  leases  for  owned  and  partially  owned  equipment  at
         December 31, 1996, during each of the next five years are approximately
         $19.5  million - 1997;  $14.0  million in 1998;  $10.8 million in 1999,
         $7.6 million in 2000 and $5.3 million - 2001.  Contingent rentals based
         upon utilization were $1.5 million,  $1.9 million,  and $2.3 million in
         1996, 1995, and 1994, respectively.

              The  Partnership  owns  certain  equipment  which  is  leased  and
         operated  internationally.   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.

              The  Partnership  leases its aircraft,  railcars,  mobile offshore
         drilling  unit,  and trailers to lessees  domiciled  in six  geographic
         regions: Canada, United States, Europe, Asia, South Asia, and Southeast
         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  owned and partially owned equipment grouped by
         domicile of the lessee as of and for the years ended December 31, 1996,
         1995, and 1994 (in thousands):

         Revenues:
<TABLE>
<CAPTION>

                               Investments in          Owned
                                    USPE             Equipment            Total equipment
     Region                         1996               1996             1995          1994
   -------------------------------------------------------------------------------------------

      <S>                        <C>         <C>                 <C>           <C>        
      Various                    $    2,113  $        4,087      $   6,998     $  18,475  
      Canada                          1,083           3,434          5,098         5,515
      United States                      --           7,749          7,542         6,440
      Europe                          1,869           1,120            826         1,558
      Asia                               --           1,200          1,200         1,200
      South Asia                         --             869          1,512         2,096
      Southeast Asia                     --              --            192           941
                             =============================================================
    Total lease revenues         $    5,065  $       18,459      $  23,368     $  36,225  
                             =============================================================
</TABLE>

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

                                              Investments in USPE     Owned
                                                                    equipment           Total equipment
                                                     1996            1996           1995            1994
                                              --------------------------------------------------------------
       <S>                                  <C>               <C>              <C>            <C>     
       Net income (loss):
         Various                            $        5,962    $     6,858      $  3,193       $  4,101
         Canada                                       (307 )        2,591         1,869          2,830
         United States                                  --          1,639         1,818           (787 )
         Europe                                      1,209         (1,728 )         107         (1,061 )
         Asia                                           --             93            69           (181 )
         South Asia                                     --         (2,739 )         (71 )         (281 )
         Southeast Asia                                 --           (175 )        (474 )         (772 )
                                            -------------------------------------------------------------
       Total identifiable net income                 6,864          6,539         6,511          3,849
       Administrative and other net loss                --         (3,643 )      (3,805 )       (3,597 )
                                            -------------------------------------------------------------
       Total net income (loss)              $        6,864    $     2,896      $  2,706       $    252
                                            =============================================================

</TABLE>


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1996

4.       Equipment (continued)

              The net book value of these assets at December 31, 1996 ,1995, and
         1994, are as follows (in thousands):
<TABLE>
<CAPTION>


                                              Investments in USPE               Owned Equipment

                          Region                1996        1995        1996          1995         1994
         ----------------------------------------------------------------------------------------------------

         <S>                                 <C>            <C>        <C>          <C>           <C>        
         Various                             $    3,999     $  4,821   $   13,599   $    11,035   $   24,475 
         Canada                                   2,575        3,948        8,136        10,019       10,069
         United States                               --        6,093       10,862        12,157       23,866
         Europe                                   4,564        5,958       17,399            --          871
         Asia                                        --           --        4,314         5,349        6,419
         South Asia                                  --           --        3,753         4,653        5,585
         Southeast Asia                              --           --           --         2,712        3,253

                                             ------------------------------------------------------------------
         Total equipment held for
           operating leases                      11,138       20,820       58,063        45,925       74,538
           Railcars held for sale                    --           --           --           475           --
                                             ==================================================================
           Total Equipment                   $   11,138     $ 20,820   $   58,063   $    46,400   $   74,538  
                                             ==================================================================

</TABLE>

              No  lessees  comprised  more than 10% of total  revenues  in 1996,
         1995, or 1994.


5.       Notes Payable

         The  Partnership  has  notes  outstanding  with a face  amount of $40.3
         million with interest  computed at LIBOR plus 1.5% per annum. The notes
         have three  tranches  with  different  maturities  based on the General
         Partner's  ability to select various LIBOR  maturities (one month,  two
         months or six months ) for  tranches  of the notes.  Rates are set when
         the  tranches  mature and are re-set.  (7%, 7.1 % and 7.25% at December
         31, 1996 and 7%, 7.3% and 7.375% at December 31, 1995) During the first
         15 months following  conversion to a term loan, beginning September 30,
         1996,  quarterly  principal  payments equal to 75% of net proceeds from
         asset sales was 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.   During  1996,  the
         Partnership  paid down $19.9 million of the outstanding loan balance as
         a result of asset  sales and redrew  $19.1  million to  purchase  other
         equipment.

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

         In  October  1996,  the  General  Partner  revised  its short term loan
         facility (the  "Committed  Bridge  Facility") and PLM Equipment  Growth
         Fund III is no longer included as a borrower.




<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1996


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,  1996,   there  were  temporary   differences  of
         approximately  $20.7 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.

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, 1996, the Partnership  repurchased 28,500 Depositary Units
         at a cost of $0.12 million.  As of December 31, 1996,  the  Partnership
         has  repurchased a cumulative  total of 128,853  Depositary  Units at a
         total cost of $0.92 million.

8.       Delisting of Partnership Units

         The General Partner  delisted the  Partnership's  depositary units from
         the  American  Stock  Exchange  (AMEX) under the symbol GFZ on April 8,
         1996.  The last day for trading on the AMEX was March 22,  1996.  Under
         the Internal Revenue Code (the Code), the Partnership was 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 would mean
         the  Partnership  itself  would  become a taxable,  rather than a "flow
         through"  entity.  As a taxable  entity,  the income of the Partnership
         would have become subject to federal  taxation at both the  partnership
         level and at the  investor  level to the extent that income  would have
         become  distributed to an investor.  In addition,  the General  Partner
         believed that the trading price of the Depositary Units would have been
         distorted  when the  Partnership  began  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  delisted the  Partnership's  Depositary Units from
         the  AMEX.  While  the  Partnership's  Depositary  Units  are no longer
         publicly  traded on a national  stock  exchange,  the  General  Partner
         continues 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  continues  to provide  pertinent  tax
         reporting  forms and  information to  Unitholders.  The General Partner
         anticipates 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

         In the third quarter of 1996, the charterer exercised his option to buy
         the marine vessel for $4.2 million.



<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                        *

   25.     Powers of Attorney.                                            42-44


* Incorporated by reference. See page 24 of this report.