Page 1 of 14


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    ---------

                                    FORM 10-Q

  X    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
-----  ACT OF 1934

                For the quarterly period ended September 30, 1996

                                       OR

       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 0-16615
                                                -------


                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP
--------------------------------------------------------------------------------
                                   Registrant

     California                                          68-0062480
---------------------                         ----------------------------------
State of Jurisdiction                         I.R.S. Employer Identification No.



2401 Kerner Boulevard, San Rafael, California               94901-5527
--------------------------------------------------------------------------------
    Address of Principal Executive Offices                   Zip Code

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


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
preceding requirements for the past 90 days.

                                 Yes _X_ No ___


<PAGE>


                                                                    Page 2 of 14
                          Part I. Financial Information
                          -----------------------------
                          Item 1. Financial Statements
                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (Amounts in Thousands Except for Unit Amounts)
                                   (Unaudited)
                                                    September 30,  December 31,
                                                         1996          1995
                                                         ----          ----
ASSETS
Cash and cash equivalents                             $ 14,605       $  3,619

Accounts receivable (net of allowance
  for losses on accounts receivable of $83
  and $63 at September 30, 1996 and
  December 31, 1995, respectively)                         375            254

Notes receivable (net of allowance for losses
  on notes receivable of $679 and $3,880 at
  September 30, 1996 and December 31, 1995,
  respectively)                                            417         13,153

Equipment on operating leases and held for lease
  (net of accumulated depreciation of $13,967
  and $17,004 at September 30, 1996 and
  December 31, 1995, respectively)                           4             79

Net investment in financing  leases (net of
  allowance for early  terminations of $0 and
  $81 at September 30, 1996 and December 31,
  1995, respectively)                                     --              227

Cable systems, property and equipment (net of
  accumulated depreciation of $174 and $548 at
  September 30, 1996 and December 31, 1995,
  respectively)                                          3,217          1,449

Cable subscriber lists (net of accumulated
  amortization of  $138 and $0 at September 30,
  1996 and December 31, 1995, respectively)              1,515           --

Investment in joint ventures                               782            742

Capitalized acquisition fees (net of accumulated
  amortization of $8,272 and $7,994 at
  September 30, 1996 and December 31, 1995,
  respectively)                                              4            283

Other assets                                                22            575
                                                      --------       --------
    Total Assets                                      $ 20,941       $ 20,381
                                                      ========       ========

LIABILITIES AND PARTNERS' CAPITAL
Liabilities

  Accounts payable and accrued expenses               $  3,688       $  3,637

  Notes payable                                           --              329

  Minority interest in subsidiary                           19            311
                                                      --------       --------
    Total Liabilities                                    3,707          4,277
                                                      --------       --------

Partners' Capital
  General Partner                                          (35)           (71)

  Limited Partners, 600,000 units authorized,
    528,151 units issued and 516,716 units
    outstanding at September 30, 1996 and
    December 31, 1995                                   17,269         15,618

  Unrealized gains on available-for-sale securities       --              557
                                                      --------       --------
    Total Partners' Capital                             17,234         16,104
                                                      --------       --------
    Total Liabilities and Partners' Capital           $ 20,941       $ 20,381
                                                      ========       ========

        The accompanying notes are an integral part of these statements.

<PAGE>


                                                                    Page 3 of 14


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

                                        Three Months Ended    Nine Months Ended
                                          September 30,         September 30,
                                         1996       1995       1996       1995
                                         ----       ----       ----       ----
INCOME
  Rental income                        $   197    $   469    $   785    $ 1,657
  Gain on sale of cable systems            333       --        1,535       --
  Cable subscriber revenue                 977        166      2,709        509
  Interest income, notes receivable         11         71         73        773
  Equity in earnings from joint
    ventures, net                           68         75        196        204
  Other income                             224        153        431        393
                                       -------    -------    -------    -------
    Total Income                         1,810        934      5,729      3,536
                                       -------    -------    -------    -------

EXPENSES
  Depreciation and amortization            308        228      1,482        971
  Lease related operating expenses          10         64         82        214
  Program service, cable system            270         48        781        135
  Management fees to General Partner
    and affiliate                          410         68        655        418
  Reimbursed administrative costs
    to General Partner                      42         74        130        255
  Provision for (recovery of) losses
    on receivables                        (124)        27     (2,223)    (1,819)
  Legal expense                             22        128        222        511
  General and administrative expenses      267        100        754        358
                                       -------    -------    -------    -------
    Total Expenses                       1,205        737      1,883      1,043
                                       -------    -------    -------    -------

NET INCOME BEFORE MINORITY INTEREST        605        197      3,846      2,493

Minority interest in earnings of
  subsidiary                                (2)        (6)      (205)       (18)
                                       -------    -------    -------    -------

NET INCOME                             $   603    $   191    $ 3,641    $ 2,475
                                       =======    =======    =======    =======


NET INCOME PER LIMITED
PARTNERSHIP UNIT                       $  1.16    $   .36    $  6.98    $  4.74
                                       =======    =======    =======    =======

DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT                       $  --      $  3.74    $  3.78    $ 11.22
                                       =======    =======    =======    =======

ALLOCATION OF NET INCOME:
    General Partner                    $     6    $     2    $    37    $    25
    Limited Partners                       597        189      3,604      2,450
                                       -------    -------    -------    -------
                                       $   603    $   191    $ 3,641    $ 2,475
                                       =======    =======    =======    =======

        The accompanying notes are an integral part of these statements.

<PAGE>


                                                                    Page 4 of 14


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

                                                          Nine Months Ended
                                                            September 30,
                                                         1996           1995
                                                         ----           ----
Operating Activities:
  Net income                                           $  3,641       $  2,475
  Adjustments to reconcile net income to net
    cash provided  by operating activities:
      Depreciation and amortization                       1,482            971
      Gain on sale of cable systems                      (1,535)          --
      Gain on sale of equipment                             (51)          (235)
      Equity in earnings from joint ventures, net          (196)          (204)
      Recovery of losses on notes receivable             (2,185)        (2,000)
      Provision for losses on accounts receivable            43            181
      Recovery of early termination, financing leases       (81)          --
      Gain on sale of securities                           (125)          --
      Decrease (increase) in accounts receivable           (222)           371
      Decrease in accounts payable and accrued expenses    (184)          (473)
      Decrease (increase) in other assets                    (4)            49
      Minority interest in earnings of subsidiary           205             18
      Other                                                 374           --
                                                       --------       --------

      Net cash provided by operating activities           1,162          1,153
                                                       --------       --------

Investing Activities:
  Principal payments, financing leases                     --              661
  Principal payments, notes receivable                    1,585          7,567
  Proceeds from sale of cable systems                    11,483           --
  Proceeds from sale of equipment                            62            560
  Proceeds from sale of securities                          125           --
  Distributions from joint ventures                         156            310
  Investment in notes receivable                           --           (6,146)
  Cable systems, property and equipment                    (272)           (46)
                                                       --------       --------

Net cash provided by investing activities                13,139          2,906
                                                       --------       --------

Financing Activities:
  Proceeds from notes payable                              --            2,000
  Payments of principal, notes payable                     (729)          --
  Distributions to partners                              (1,954)        (5,798)
  Distributions to minority partners                       (632)           (24)
                                                       --------       --------

Net cash used by financing activities                    (3,315)        (3,822)
                                                       --------       --------

Increase in cash and cash equivalents                    10,986            237

Cash and cash equivalents, beginning of period            3,619          4,636
                                                       --------       --------

Cash and cash equivalents, end of period               $ 14,605       $  4,873
                                                       ========       ========

Supplemental Cash Flow Information:
  Cash paid for interest expense                       $     26       $   --

        The accompanying notes are an integral part of these statements.

<PAGE>


                                                                    Page 5 of 14


                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                A CALIFORNIA LIMITED PARTNERSHIP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 1.    General.

        The  accompanying  unaudited  condensed  financial  statements have been
prepared by the  Partnership in accordance  with generally  accepted  accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of Management,  all adjustments (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included. Although management believes that the disclosures are adequate to make
the information  presented not misleading,  it is suggested that these condensed
financial  statements be read in conjunction  with the financial  statements and
the notes included in the Partnership's  Financial Statement,  as filed with the
SEC in the latest annual report on Form 10-K.

        Non-Cash Investing Activities. The Partnership foreclosed upon two cable
television systems during the nine months ended September 30, 1996, as discussed
in Note 2 in the consolidated financial statements.


Note 2.    Summary of Significant Accounting Policies.

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

        Sale of Cable  Television  Systems.  On January 17, 1996,  Phoenix Black
Rock Cable J.V., a majority owned subsidiary of the Partnership,  sold its cable
television  systems  receiving  net  proceeds  of  approximately  $2.6  million,
recognizing a gain on sale of this cable system of $1,205,000.

        On August 30, 1996, Phoenix Grassroots Cable Systems, L.L.C., a majority
owned subsidiary of the Partnership, sold its cable television systems receiving
net proceeds of approximately  $8.9 million,  recognizing a gain on sale of this
cable system of $330,000.

        Foreclosures of Cable Television  Systems.  On February 2, 1996, Phoenix
Leasing Cash Distribution  Fund III and Phoenix Concept  Cablevision of Indiana,
L.L.C.  entered into a Commercial Code Section 9505 Agreement (the  "Agreement")
with Concept  Cablevision of Indiana,  Inc., a cable television company that the
Partnership had extended credit. Phoenix Concept Cablevision of Indiana,  L.L.C.
is a newly  formed  limited  liability  company and wholly owned  subsidiary  of
Phoenix  Leasing Cash  Distribution  Fund III. The closing date of the Agreement
was February 2, 1996.  This Agreement  allowed the Partnership to foreclose upon
the cable television system (the collateral for the note) of Concept Cablevision
of Indiana,  Inc. The Partnership's net carrying value for this outstanding note
receivable was $4,321,000 at February 2, 1996, for which the  Partnership had no
related  allowance.  In  addition,  the  Partnership  is required to make a cash
payment of  $200,000,  assume  certain  liabilities  including a note payable of
$600,000 and certain other  miscellaneous  accounts  payable as specified in the
agreement.



<PAGE>


                                                                    Page 6 of 14


        The cable  television  system owned by Phoenix  Concept  Cablevision  of
Indiana, L.L.C. is located in the counties of Benton, Parke, Greene, Montgomery,
Putnam, Boone, Hendricks, Clinton, Hamilton and Madison in the state of Indiana.
The cable television systems consist of headend equipment and 166 miles of plant
passing  approximately  9,449 homes with approximately  5,648  subscribers.  The
Subsidiary  operates under  non-exclusive  franchise  agreements with several of
these counties and with communities located within these counties.

        On February 14, 1996,  Phoenix  Leasing Cash  Distribution  Fund III and
Phoenix Grassroots Cable Systems, L.L.C. entered into a Settlement Agreement and
Releases  (the  "Agreement")  with  Grassroots  Cable  Systems,  Inc.,  a  cable
television company that the Partnership had extended credit.  Phoenix Grassroots
Cable Systems,  L.L.C. is a newly formed limited  liability company and majority
owned (98.5%)  subsidiary  of Phoenix  Leasing Cash  Distribution  Fund III. The
closing date of the Agreement was February 14, 1996. This Agreement  allowed the
Partnership to foreclose upon the cable  television  system (the  collateral for
the note) of Grassroots Cable Systems, Inc. The Partnership's net carrying value
for this  outstanding  note  receivable was $9,014,000 at February 14, 1996, for
which the  Partnership  had an allowance for losses on notes of  $2,035,000.  In
addition, the Partnership assumed certain liabilities and miscellaneous payables
as specified in the agreement.

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

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

Note 3.    Reclassification.

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

Note 4.    Income Taxes.

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

Note 5.    Notes Receivable.

        Impaired  Notes   Receivable.   At  September  30,  1996,  the  recorded
investment in notes that are considered to be impaired  under  Statement 114 was
$468,000 for which the related  allowance  for losses is  $403,000.  The average
recorded investment in impaired loans during the nine months ended September 30,
1996 was approximately $1,820,000.

        During the quarter ended September 30, 1996, the Partnership  received a
settlement  on one of its  notes  receivable  from  a  cable  television  system
operator  which was  considered  to be impaired  under  Statement  No. 114.  The
Partnership  received a partial recovery of $1,008,000 as a settlement which was
applied  towards  the  $1,781,000   outstanding  note  receivable  balance.  The
remaining balance of $773,000 was written-off  through its related allowance for


<PAGE>


                                                                    Page 7 of 14


loan losses  provided for in a previous year.  Upon receipt of the settlement of
this note receivable,  the Partnership  reduced the remaining allowance for loan
losses for this note by $150,000  during the quarter  ended  September 30, 1996.
This  reduction in the allowance for loan losses was recognized as income during
the period.

        The Partnership also wrote-off the outstanding  note receivable  balance
of  $243,000  during  the  quarter  ended  September  30,  1996 from a  security
monitoring  system company  which was  considered  to  be  impaired.  This  note
receivable had been fully reserved for in a previous year.

        The  Partnership  also  foreclosed  on two notes  receivable  form cable
television system operators as discussed in Note 2.

        The activity in the allowance for losses on notes receivable  during the
nine months ended September 30, is as follows:

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

              Beginning balance            $ 3,880       $ 8,357
                 Provision for losses       (2,185)       (2,000)
                 Write downs                (1,016)       (2,010)
                                           -------       -------
              Ending balance               $   679       $ 4,347
                                           =======       =======

Note 6.    Net Income (Loss) and Distributions Per Limited Partnership Unit.

        Net income and distributions per limited  partnership unit were based on
the limited  partners' share of net income and  distributions,  and the weighted
average  number  of units  outstanding  of  516,716  for the nine  months  ended
September 30, 1996 and 1995.  For purposes of  allocating  net income (loss) and
distributions to each individual limited partner, the Partnership  allocates net
income (loss) and distributions based upon each respective limited partner's net
capital contributions.

Note 7.    Investment in Joint Ventures.

Equipment Joint Ventures

        The aggregate  combined  statements of operations of the equipment joint
ventures are presented below:

                        COMBINED STATEMENTS OF OPERATIONS
                             (Amounts in Thousands)

                                    Three Months Ended        Nine Months Ended
                                      September 30,             September 30,
                                    1996         1995         1996         1995
                                    ----         ----         ----         ----
INCOME
Rental income                      $  568       $1,013       $1,838       $2,968
Gain on sale of equipment             159          359          702        1,164
Other income                           30          569          104          674
                                   ------       ------       ------       ------
        Total income                  757        1,941        2,644        4,806
                                   ------       ------       ------       ------



<PAGE>


                                                                    Page 8 of 14

EXPENSES
Depreciation                           81         628          254       1,086
Lease related  operating expenses     267         726        1,110       2,142
Management fees to General Partner     33          94          100         221
General and administrative expenses     2           1            7           8
                                   ------      ------       ------      ------
        Total expenses                383       1,449        1,471       3,457
                                   ------      ------       ------      ------
Net income                         $  374      $  492       $1,173      $1,349
                                   ======      ======       ======      ======

Foreclosed Cable Systems Joint Ventures

        The aggregate combined  statements of operations of the foreclosed cable
systems joint ventures are presented below:

                        COMBINED STATEMENTS OF OPERATIONS
                             (Amounts in Thousands)

                                      Three Months Ended      Nine Months Ended
                                         September 30,          September 30,
                                       1996        1995        1996        1995
                                       ----        ----        ----        ----
INCOME
Subscriber revenue                    $ 249       $ 267       $ 749       $ 794
Gain on sale of cable system           --          --            10        --
Other income                             17           3          24           9
                                      -----       -----       -----       -----
        Total income                    266         270         783         803
                                      -----       -----       -----       -----

EXPENSES
Depreciation and amortization            82          77         243         237
Program services                         83          89         256         247
Management fees to an affiliate
  of the General Partner                 11          12          42          36
General and administrative expenses      80          79         248         228
Provision for losses on accounts
  receivable                              3           3           7           8
                                      -----       -----       -----       -----
        Total expenses                  259         260         796         756
                                      -----       -----       -----       -----

Net income (loss) before income taxes     7          10         (13)         47
Income tax expense                       (3)         (6)         (2)        (13)
                                      -----       -----       -----       -----
Net income (loss)                     $   4       $   4       $ (15)      $  34
                                      =====       =====       =====       =====

Note 8.  Pro Forma Information.

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

        On February 14, 1996, the  Partnership,  along with two other affiliated
partnerships managed by the General Partner, entered into a Settlement Agreement
and Releases with Grassroots  Cable Systems,  Inc., a cable  television  company
that the Partnership had extended credit. As a result of this agreement, Phoenix
Grassroots Cable Systems, L.L.C., a limited liability company and majority owned


<PAGE>


                                                                    Page 9 of 14


subsidiary of the Partnership, was formed.

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

                                                    (Amounts in Thousands Except
                                                        for Per Unit Amounts)

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

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

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

          Net income per limited partnership unit              $ 6.83

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

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


<PAGE>


                                                                   Page 10 of 14


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

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.


Results of Operations

        Phoenix  Leasing  Cash  Distribution  Fund  III,  a  California  limited
partnership and Subsidiaries (the  Partnership)  reported net income of $603,000
and  $3,641,000  for the  three  and  nine  months  ended  September  30,  1996,
respectively,  as compared to net income of $191,000 and $2,475,000 for the same
periods in 1995.  The increase in net income for the three and nine months ended
September  30, 1996, as compared to the prior year, is due to a gain on the sale
of two cable  systems,  as well as an increase in  subscriber  revenue  from the
addition of new cable systems in 1996.

        The  gain on  sale of  cable  systems  during  the  three  months  ended
September  30,  1996,  includes  the sale of a cable  system  owned  by  Phoenix
Grassroots   Cable  Systems,   L.L.C.,   a  majority  owned  subsidiary  of  the
Partnership.  This cable television system was transferred to the Partnership on
February  14,  1996.  The closing  date of this sale was August 30, 1996 and the
Partnership  recorded  sales  proceeds of $8.9 million and a net gain on sale of
$330,000.  This sale and another  sale of a cable system is included in the gain
on sale of cable  systems for the nine  months  ended  September  30,  1996.  On
January 17, 1996,  Phoenix  Black Rock Cable J.V., a wholly owned  subsidiary of
the Partnership, sold its cable television system for $2.6 million in cash. As a
result of this sale, the Partnership recognized a gain on sale of $1,205,000.

        In February of 1996, the  Partnership  entered into  agreements with two
cable  television  system  operators  to transfer all of the assets of the cable
television  systems in  satisfaction  of defaulted  notes  receivable from these
cable television system operators.  The assets of these cable television systems
were transferred to newly formed limited  liability  companies that are majority
owned by the  Partnership.  The assets received  through  foreclosure  generally
consists of headend equipment,  cable plant,  franchise  agreements,  subscriber
lists,  leased property,  land, tools,  vehicles and miscellaneous other assets.
The Partnership plans to continue the operations of the cable television company
received through  foreclosure.  One of these cable systems was subsequently sold
during  1996.  For  further  information  please see the notes to the  financial
statements.  The Partnership reduced its allowance for loan losses by $2,035,000
during the nine months ended  September  30, 1996 as a result of the transfer of
one of the cable  systems.  This  reduction in the allowance for loan losses was
recognized as income during the period.

        Total  revenues  increased by $876,000 and  $2,193,000 for the three and
nine months ended September 30, 1996, when compared to the same periods in 1995.
The increase in total  revenues is  attributable  to a gain on the sale of cable
systems and an increase in cable subscriber revenues.  Cable subscriber revenues
increased due to the addition of two new cable systems that were  transferred to
the Partnership in  satisfaction  of two defaulted  notes  receivable from cable
television system operators.

        During the nine months ended September 30, 1996 the partnership reported
a decrease in interest  income from notes  receivable of $700,000 and a decrease
in rental  income of $872,000,  compared to the same period in 1995.  During the
nine months ended September 30, 1995, the Partnership recognized interest income
from the receipt of a final  payoff from one of its notes  receivable  which was
considered  to be  impaired.  This  payoff  caused  interest  income  from notes
receivable to be higher than expected during the nine months ended September 30,
1995.



<PAGE>


                                                                   Page 11 of 14


        The reduction in rental income  experienced  for both the three and nine
months ended  September  30, 1996 is  primarily  the result of a decrease in the
amount of  equipment  owned by the  Partnership.  At  September  30,  1996,  the
Partnership  owned equipment,  excluding the  Partnership's pro rata interest in
joint ventures, with an aggregate original cost of $16.1 million, as compared to
$27.1 million at September 30, 1995.

        Total expenses increased by $468,000 and $840,000 for both the three and
nine months  ended  September  30, 1996,  respectively,  as compared to the same
periods in 1995. The increase in total expenses during the three and nine months
ended  September  30, 1996,  compared to 1995,  is primarily due to increases in
depreciation  expense and cable  program  service  expense,  resulting  from the
addition of two new cable television  systems during the year. In addition,  the
Partnership  reported  increases in management fees due to the sale of two cable
systems during the year.

        The  Partnership  reported net  recoveries of  allowances  for losses on
receivables of approximately  $2.2 million and $2 million during the nine months
ended September 30, 1996 and 1995,  respectively.  The recovery of the allowance
during 1996 was attributable to the foreclosure upon a cable system in which the
estimated  fair  value  at  foreclosure  indicated  that  an  allowance  was not
necessary,  resulting in an adjustment  to the allowance  that had been provided
for this loan in a prior year.  During the nine months ended September 30, 1995,
the  Partnership  received a  settlement  payment of $2.7 million on a defaulted
note receivable from a cable  television  system  operator.  The Partnership had
provided a loan loss reserve in the amount  equal to the net  carrying  value of
this note in a prior year.  Upon  recovery of a portion of this  defaulted  note
receivable,  the Partnership reduced the allowance for loan losses by $2 million
during the nine months ended September 30, 1995. This reduction in the allowance
(recovery of) for loan losses was  recognized as income during nine months ended
September 30, 1995.

        The Partnership has also foreclosed upon the collateral of several notes
receivable  to certain  cable  television  system  operators.  As a result,  the
Partnership has an ownership  interest in the operating cable television systems
organized as joint ventures.  The Partnership's  equity interest in the earnings
from the foreclosed cable system joint ventures was minimal during the three and
nine months ended September 30, 1996 and 1995.

Liquidity and Capital Resources

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

        The net cash generated by operating activities was $1,162,000 during the
nine months ended September 30, 1996, as compared to $1,153,000  during the same
period in 1995. The net cash generated by operating  activities  remained steady
during  the two  periods  due  primarily  to an  increase  in  cable  subscriber
revenues.

        Proceeds  from the sale of cable  systems  is related to the sale of two
cable  systems  owned by Phoenix  Black Rock Cable J.V.  and Phoenix  Grassroots
Cable Systems, L.L.C ., both majority owned subsidiaries of the Partnership.



<PAGE>


                                                                   Page 12 of 14


        During  the nine  months  ended  September  30,  1996,  the  Partnership
reported  decreases  in  principal  payments  from  financing  leases  and notes
receivable of $661,000 and  $5,982,000,  respectively,  as compared to the prior
year.  These  decreases are  reflective of the decrease in the net investment in
financing  leases and the  decrease  in notes  receivable,  as  reported  on the
balance sheet at September 30, 1996. The Partnership received smaller settlement
payments from outstanding notes during 1996, when compared to the same period in
1995.

        As of September 30, 1996, the Partnership owned equipment held for lease
with an  aggregate  original  cost of  $3,681,000  and a net  book  value of $0,
compared to $7,770,000 and $48,000,  respectively, as of September 30, 1995. The
General  Partner  is  actively  engaged,  on  behalf  of  the  Partnership,   in
remarketing and selling the Partnership's off-lease portfolio.

        The cash  distributed to limited  partners  during the nine months ended
September 30, 1996 and 1995 were $1,954,000 and $5,798,000,  respectively.  As a
result,   the  cumulative  cash   distributions  to  the  limited  partners  are
$98,179,000 and $94,272,000 as of September 30, 1996 and 1995, respectively. The
General Partner did not receive cash distributions  during the nine months ended
September  30,  1996 and 1995.  The  General  Partner has elected not to receive
payment,  at this time, for its share of the cash available for distribution due
to its  negative  capital  account.  During  1995,  the  Partnership  was making
quarterly  distributions to partners with the last quarterly distribution having
been made on  January  15,  1996.  The  Partnership  has  switched  to an annual
distribution plan with the next distribution  planned for January 15, 1997. As a
result of the sale of certain cable television  systems and the settlement of an
impaired note during 1996, the Partnership  anticipates  distributing the excess
cash provided by these events on January 15, 1997.

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




<PAGE>


                                                                   Page 13 of 14


                   PHOENIX LEASING CASH DISTRIBUTION FUND III,
                        A CALIFORNIA LIMITED PARTNERSHIP

                               September 30, 1996

                           Part II. Other Information.
                           ---------------------------


Item 1.    Legal Proceedings.  Inapplicable

Item 2.    Changes in Securities.  Inapplicable

Item 3.    Defaults Upon Senior Securities.  Inapplicable

Item 4.    Submission of Matters to a Vote of Securities Holders.  Inapplicable

Item 5.    Other Information.  Inapplicable

Item 6.    Exhibits and Reports on 8-K:

           a)  Exhibits:

               (27) Financial Data Schedule

           b)  Reports on 8-K:

               One report,  dated August 30, 1996,  on Form 8-K was filed during
the quarter  ending  September  30, 1996,  pursuant to Item 2 and Item 7 of that
form. No financial statements were filed as part of that report.





<PAGE>


                                                                   Page 14 of 14


                                   SIGNATURES


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

                             PHOENIX LEASING CASH DISTRIBUTION FUND III,
                             -------------------------------------------
                                  A CALIFORNIA LIMITED PARTNERSHIP
                                  --------------------------------
                                           (Registrant)

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


November 12, 1996     Chief Financial Officer,            /S/ PARITOSH K. CHOKSI
-----------------     Senior Vice President               ----------------------
                      and Treasurer of                    (Paritosh K. Choksi)
                      Phoenix Leasing Incorporated
                      General Partner


November 12, 1996     Senior Vice President,              /S/ BRYANT J. TONG
-----------------     Financial Operations                ----------------------
                      (Principal Accounting Officer)      (Bryant J. Tong)
                      Phoenix Leasing Incorporated
                      General Partner


November 12, 1996     Senior Vice President of            /S/ GARY W. MARTINEZ
-----------------     Phoenix Leasing Incorporated        ----------------------
                      General Partner                     (Gary W. Martinez)
                                      


November 12, 1996     Partnership Controller              /S/ MICHAEL K. ULYATT
-----------------     Phoenix Leasing Incorporated        ----------------------
                      General Partner                     (Michael K. Ulyatt)