UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               -------------------
                                    FORM 10-Q




         [X]      Quarterly Report Pursuant to Section 13 or 15(d) of the 
                  Securities Exchange Act of 1934
                  For the fiscal quarter ended June 30, 1997

         [  ]     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 ______




<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                                 BALANCE SHEETS
                 (in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>



                                                                                                June 30,           December 31,
                                                                                                  1997                 1996
                                                                                             ------------------------------------
          <S>                                                                                 <C>                  <C>        
          Assets:

          Equipment held for operating lease, at cost                                         $     134,861        $   136,670
            Less accumulated depreciation                                                           (84,267 )          (78,607 )
                                                                                              ------------------------------------
              Net equipment                                                                          50,594             58,063

          Cash and cash equivalents                                                                   2,233              1,414
          Restricted cash and marketable securities                                                   6,119              5,966
          Investments in unconsolidated special-purpose entities                                      9,645             11,138
          Accounts and note receivable, net of allowance for doubtful
                accounts of $1,336 in 1997 and $1,381 in 1996                                         1,279              1,515
          Prepaid expenses and other assets                                                              23                 64
          Deferred charges, net of accumulated amortization of
                $453 in 1997 and $800 in 1996                                                           396                491
                                                                                              ------------------------------------

          Total assets                                                                        $      70,289        $    78,651
                                                                                              ====================================

          Liabilities and partners' capital:

          Liabilities:
          Accounts payable and accrued expenses                                               $         913        $     1,505
          Due to affiliates                                                                             856              1,297
          Lessee deposits and reserves for repairs                                                    7,404              7,552
          Note payable                                                                               39,823             40,284
                                                                                              ------------------------------------
              Total liabilities                                                                      48,996             50,638
                                                                                              ------------------------------------

          Partners' capital:
          Limited partners (9,871,073 depositary units as
                of June 30, 1997 and December 31, 1996)                                              21,293             28,013
          General Partner                                                                                 -                  -
                                                                                              ------------------------------------
              Total partners' capital                                                                21,293             28,013
                                                                                              ------------------------------------

          Total liabilities and partners' capital                                             $      70,289        $    78,651
                                                                                              ====================================


</TABLE>










                       See accompanying notes to financial
                                  statements.

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                            STATEMENTS OF OPERATIONS
         (in thousands of dollars, except weighted-average unit amounts)

<TABLE>
<CAPTION>



                                                                 For the Three Months               For the Six Months
                                                                    Ended June 30,                    Ended June 30,
                                                                  1997          1996                1997          1996
                                                               ------------------------------------------------------------
<S>                                                            <C>            <C>                <C>               <C>   
Revenues:

Lease revenue                                                  $  5,233       $  4,683           $ 10,224          9,369 
Interest and other income                                            93            118                188            249
Net gain on disposition of equipment                                 35             19                124            852
                                                               ------------------------------------------------------------
    Total revenues                                                5,361          4,820             10,536         10,470
                                                               ------------------------------------------------------------

Expenses:

Depreciation and amortization                                     3,544          2,042              7,100          4,090
Marine equipment operating expense                                   14             56                 20             86
Repairs and maintenance                                             870          2,101              2,285          2,740
Interest expense                                                    807            757              1,604          1,637
Insurance expense                                                    66             71                112            136
Management fees to affiliate                                        302            306                594            507
General and administrative expenses to affiliates                   171            187                353            369
Other general and administrative expenses                           236            281                381            518
(Recovery of) provision for bad debt                                (20 )          (89 )              (46 )          629
                                                               ------------------------------------------------------------
    Total expenses                                                5,990          5,712             12,403         10,712
                                                               ------------------------------------------------------------

Equity in net income (loss) of unconsolidated
      special-purpose entities                                      157              6                342            (62 )
                                                               ------------------------------------------------------------

Net loss                                                       $   (472 )     $   (886 )         $ (1,525 )         (304 ) 
                                                               ============================================================

Partners' share of net (loss) income:

Limited partners                                               $   (602 )     $ (1,016 )         $ (1,785 )         (643 )  
General Partner                                                     130            130                260            339
                                                               ------------------------------------------------------------

Total                                                          $   (472 )     $   (886 )         $ (1,525 )         (304 )  
                                                               ============================================================

Net loss per weighted-average depositary unit
      (9,871,073 units and  9,871,873 units as of
      June 30, 1997 and 1996, respectively)                    $  (0.06 )     $  (0.10 )         $  (0.18 )        (0.07 )  
                                                               ============================================================

Cash distributions                                             $  2,598       $  2,600           $  5,195          6,769   
                                                               ============================================================
Cash distributions per weighted-average
      depositary unit                                          $   0.25       $   0.25           $   0.50           0.65  
                                                               ============================================================


</TABLE>




                       See accompanying notes to financial
                                  statements.

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                 STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For
               the period from December 31, 1995 to June 30, 1997
                            (in thousands of dollars)

<TABLE>
<CAPTION>


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

   Net income                                               9,162             598              9,760

   Repurchase of depositary units                            (120 )             -               (120 )

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

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

   Net (loss) income                                       (1,785 )           260             (1,525 )

   Cash distributions                                      (4,935 )          (260 )           (5,195 )
                                                       -------------------------------------------------

   Partners' capital as of June 30, 1997               $   21,293         $     -         $   21,293
                                                       =================================================


</TABLE>





























                       See accompanying notes to financial
                                  statements.

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                            STATEMENTS OF CASH FLOWS
                             (thousands of dollars)
<TABLE>
<CAPTION>
                                                                                                      For the Six Months
                                                                                                        Ended June 30,
                                                                                                     1997            1996
                                                                                                 -----------------------------
   <S>                                                                                            <C>             <C>          
   Operating activities:

   Net loss                                                                                       $  (1,525 )     $    (304 )  
   Adjustments to reconcile net loss to net cash provided by operating activities:
     Net gain on disposition of equipment                                                              (124 )          (852 )
     Depreciation and amortization                                                                    7,100           4,090
     Equity in net (income) loss from unconsolidated special-purpose entities                          (342 )            62
     Sales-type lease income                                                                              -            (398 )
     Changes in operating assets and liabilities:
       Restricted cash and marketable securities                                                       (153 )          (153 )
       Accounts and note receivable, net                                                                236             255
       Prepaid expenses and other assets                                                                 41            (180 )
       Accounts payable and accrued expenses                                                           (592 )         1,144
       Due to affiliates                                                                               (441 )           329
       Lessee deposits and reserves for repairs                                                        (148 )            80
                                                                                                  ----------------------------
           Net cash provided by operating activities                                                  4,052           4,073
                                                                                                  ----------------------------

   Investing activities:

   Payments for purchases of equipment                                                                    -          (5,500 )
   Payments for capitalized improvements                                                               (137 )          (587 )
   Payments of acquisition-related fees to affiliate                                                      -            (303 )
   Payments received from sales-type leases                                                               -             724
   Distributions from unconsolidated special-purpose entities                                         1,835           1,734
   Proceeds from disposition of equipment                                                               725           4,350
                                                                                                  ----------------------------
           Net cash provided by investing activities                                                  2,423             418
                                                                                                  ----------------------------

   Financing activities:

   Proceeds from note payable                                                                             -           4,600
   Principal payments on note payable                                                                  (461 )        (4,686 )
   Cash distributions paid to limited partners                                                       (4,935 )        (6,430 )
   Cash distributions paid to General Partner                                                          (260 )          (339 )
   Repurchase of depositary units                                                                         -            (120 )
                                                                                                  ----------------------------
           Net cash used in financing activities                                                     (5,656 )        (6,975 )
                                                                                                  ----------------------------

   Net increase (decrease) in cash and cash equivalents                                                 819          (2,484 )

   Cash and cash equivalents at beginning of period                                                   1,414           3,243
                                                                                                  ----------------------------

   Cash and cash equivalents at end of period                                                     $   2,233       $     759  
                                                                                                  ============================

   Supplemental information:

   Interest paid                                                                                  $   1,772       $   1,526 
                                                                                                  ============================

</TABLE>


                       See accompanying notes to financial
                                  statements.


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  June 30, 1997


1.   Opinion of Management

In the opinion of the  management  of PLM Financial  Services,  Inc. (FSI or the
General Partner),  the accompanying  unaudited financial  statements contain all
adjustments  necessary,  consisting  primarily of normal recurring accruals,  to
present  fairly the  financial  position of PLM  Equipment  Growth Fund III (the
Partnership)  as of June 30, 1997 and  December  31,  1996,  the  statements  of
operations for the three months and six months ended June 30, 1997 and 1996, the
statements of changes in partners' capital for the period from December 31, 1995
to June 30, 1997, and the statements of cash flows for the six months ended June
30,  1997 and  1996.  Certain  information  and  footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles  have been  condensed  or omitted  from the  accompanying
financial statements.  For further information,  reference should be made to the
financial  statements  and notes thereto  included in the  Partnership's  Annual
Report  on Form  10-K for the  year  ended  December  31,  1996,  on file at the
Securities and Exchange Commission.

2.   Reclassifications

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

3.   Cash Distributions

Cash  distributions are recorded when paid and totaled $5.2 and $6.8 million for
the six months ended June 30, 1997 and 1996, respectively. Cash distributions to
unitholders  in excess of net income are  considered  to  represent  a return of
capital.  Cash  distributions  to  unitholders  of $4.9 million and $6.4 million
during the six months ended June 30, 1997 and 1996 were deemed to be a return of
capital.

4.   Investments in Unconsolidated Special-Purpose Entities

The net investment in unconsolidated  special-purpose  entities (USPEs) included
the following  jointly-owned  equipment (and related assets and liabilities) (in
thousands):

<TABLE>
<CAPTION>

  %                                                                       June 30,           December 31,
Ownership                         Equipment                                 1997               1996
--------------------------------------------------------------------------------------------------------

 <S>                                                                     <C>                <C>         
 17%   Two trusts that own three commercial aircraft, two
       aircraft engines, and a portfolio of aircraft rotables            $  3,622           $    4,564  
 56%   Marine vessel                                                        3,589                3,999
 17%   Trust that owns six commercial aircraft                              2,434                2,575
                                                                        ---------------------------------

         Investments in unconsolidated special-purpose entities          $  9,645           $   11,138  
                                                                        =================================

</TABLE>

5.   Transactions with General Partner and Affiliates

Partnership  management fees payable to an affiliate of the General Partner were
$0.9  million  and $1.3  million  as of June 30,  1997 and  December  31,  1996,
respectively. The Partnership's proportional share of USPE-affiliated management
fees of $46,000 and $20,000  were  payable as of June 30, 1997 and  December 31,
1996, respectively.



<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                  June 30, 1997


5.   Transactions with General Partner and Affiliates (continued)

The Partnership's  proportional share of the affiliated expenses incurred by the
USPEs during 1997 and 1996, are listed in the following table (in thousands):

<TABLE>
<CAPTION>

                                                       For the Three Months               For the Six Months
                                                          Ended June 30,                    Ended June 30,
                                                       1997           1996               1997            1996
                                                    --------------------------------------------------------------

   <S>                                              <C>            <C>                <C>             <C>     
   Management fees                                  $      46      $      70          $     88        $    137
   Insurance expense                                       25             29                52              55
   Data processing and administrative
      expenses                                             12             60                24              63

</TABLE>

Transportation Equipment Indemnity Company, Ltd. (TEI) provides marine insurance
coverage for Partnership  equipment and other insurance brokerage services.  TEI
is an affiliate of the General Partner.

6.    Equipment

The components of owned equipment are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                 June 30,            December 31,
                                                                    1997                 1996
                                                               -------------------------------------

   <S>                                                          <C>                  <C>        
   Equipment held for operating leases:
     Aircraft and aircraft engines                              $   70,615           $    70,615
     Rail equipment                                                 34,815                35,733
     Marine containers                                              12,367                13,146
     Mobile offshore drilling unit                                   9,666                 9,666
     Trailers                                                        7,398                 7,510
                                                                ------------------------------------
                                                                   134,861               136,670
   Less accumulated depreciation                                   (84,267 )             (78,607 )
                                                                ------------------------------------
                                                                ====================================
     Net equipment                                              $   50,594           $    58,063
                                                                ====================================


</TABLE>

As of June 30, 1997,  all equipment in the  Partnership  portfolio was either on
lease or operating in PLM-affiliated short-term trailer rental facilities,  with
the exception of 22 railcars and 30 marine containers with an aggregate carrying
value of $0.2 million. As of December 31, 1996, all equipment in the Partnership
portfolio was either on lease or operating in  PLM-affiliated  short-term rental
facilities,  with the  exception  of 1  aircraft,  32 marine  containers  and 67
railcars with an aggregate carrying value of $4.3 million.

During the six months ended June 30, 1997, the  Partnership  sold or disposed of
marine  containers,  trailers,  and railcars with an aggregate net book value of
$0.6 million for aggregate proceeds of $0.7 million. During the six months ended
June 30, 1996,  the  Partnership  sold or disposed of aircraft  engines,  marine
containers,  trailers,  and railcars  with an  aggregate  net book value of $3.5
million for aggregate proceeds of $4.4 million.



<PAGE>


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

(I)  RESULTS OF OPERATIONS

Comparison of the Partnership's Operating Results for the Three Months Ended 
June 30, 1997 and 1996

(A)  Owned Equipment Operations

Lease revenues less direct expenses  (repair and  maintenance,  marine equipment
operating,  and asset-specific  insurance expenses) on owned equipment increased
for the quarter  ended June 30, 1997,  compared to the same period of 1996.  The
following table presents results by owned equipment type (in thousands):

<TABLE>
<CAPTION>
                                                       For the Three Months
                                                          Ended June 30,
                                                      1997              1996
                                                 ------------------------------------

   <S>                                              <C>            <C>                 
   Aircraft and aircraft engines                    $     1,852    $           (40 )   
   Rail equipment                                         1,277              1,120
   Trailers                                                 526                425
   Mobile offshore drilling unit                            396                  -
   Marine containers                                        269                402
   Marine vessels                                             -                560

</TABLE>

Aircraft and aircraft engines:  Aircraft lease revenues and direct expenses were
$2.0  million and $0.1  million,  respectively,  for the quarter  ended June 30,
1997, compared to $1.1 million and $1.2 million,  respectively,  during the same
period of 1996.  The  increase in  contribution  was due to higher  revenues and
lower repair and maintenance expenses in the second quarter of 1997, compared to
the same  period of 1996.  The  increase in  revenues  was due to one  off-lease
aircraft  that went back on lease during the first  quarter of 1997.  The repair
and maintenance  expenses of $1.2 million in the second quarter of 1996 were for
repairs to this aircraft to prepare it for re-lease.

Rail equipment: Railcar lease revenues and direct expenses were $1.9 million and
$0.6 million,  respectively,  for the quarter  ended June 30, 1997,  compared to
$1.9 million and $0.8 million, respectively, during the same period of 1996. The
increase in railcar  contribution  resulted  from  running  repairs  required on
certain  railcars in the fleet  during the second  quarter of 1996 that were not
needed during the second quarter of 1997.

Trailers:  Trailer lease revenues and direct expenses were $0.6 million and $0.1
million,  respectively,  for the quarter  ended June 30, 1997,  compared to $0.5
million and $0.1  million,  respectively,  during the same  period of 1996.  All
trailers had made the transition to the  PLM-affiliated  short-term rental yards
as of June 30, 1997.  Trailers earned higher lease rates while in the affiliated
short-term  rental  yards than they earned  during the same period of 1996 while
they were on term lease.  This increase was partially  offset by lower  revenues
caused by reduced trailer utilization.

Mobile offshore  drilling unit: Mobile offshore drilling unit lease revenues and
direct  expenses  were $0.4 million and $14,000,  respectively,  for the quarter
ended June 30, 1997. The Partnership  acquired and placed into lease service one
mobile offshore drilling unit in the third quarter of 1996.

Marine containers: Marine container lease revenues and direct expenses were $0.3
million and $2,000, respectively,  for the quarter ended June 30, 1997, compared
to $0.4 million and $3,000,  respectively,  during the same period of 1996.  The
number of marine  containers  owned by the Partnership has been declining due to
sales and  dispositions.  The result of this  declining  fleet and a decrease in
utilization has been a decrease in marine container contribution.

Marine  vessels:  Marine  vessels lease  revenues and direct  expenses were $0.7
million and $0.1  million,  respectively,  for the second  quarter of 1996.  The
decrease of  contribution  from marine vessels in the second quarter of 1997 was
due to the sale of all the Partnership's marine vessels during 1996.



<PAGE>


(B)   Indirect Operating Expenses Related to Owned Equipment Operations

Total  indirect  expenses of $5.1  million  for the quarter  ended June 30, 1997
increased  from $3.5  million  for the same  period  of 1996.  The  variance  is
explained as follows:

     (1) An increase of $1.5 million in depreciation  and  amortization  expense
from 1996 levels reflects the Partnership's  depreciation on equipment purchased
in 1996, offset by the sale or disposition of certain  Partnership assets during
1997 and  1996  and by the  Partnership's  use of the  double-declining  balance
method of depreciation.

     (2) An increase of $0.1 million in bad debt expense primarily  reflects the
Partnership's evaluation of collectibility of certain receivable balances.

(C)   Net Gain on Disposition of Owned Equipment

The net gain on the  disposition  of owned  equipment for the second  quarter of
1997 was $35,000, resulting from the disposition of marine containers, trailers,
and  railcars  with an aggregate  net book value of $0.3  million for  aggregate
proceeds of $0.4 million.  The net gain of $19,000 in the second quarter of 1996
resulted from the disposition of aircraft engines, marine containers,  railcars,
and  trailers  with an aggregate  net book value of $0.3  million for  aggregate
proceeds of $0.3 million.

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

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

                                                     For the Three Months
                                                        Ended June 30,
                                                    1997              1996
                                               -------------------------------------

   <S>                                         <C>               <C>            
   Aircraft, aircraft engines and rotables     $           215   $            91
   Marine vessels                                          (58 )             (84 )
   Mobile offshore drilling unit                             -                 -

</TABLE>

Aircraft,  aircraft engines,  and rotables:  The Partnership's share of aircraft
revenues and expenses was $0.7 million and $0.5 million,  respectively,  for the
quarter  ended  June 30,  1997,  compared  to $0.8  million  and  $0.7  million,
respectively,  during  the  same  period  of  1996.  As of June  30,  1997,  the
Partnership  had a partial  beneficial  interest in three  trusts that hold nine
commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables.
The increase in contribution was due to a lower depreciation expense,  which was
partially  offset  by a  decrease  in  revenues  due to the  liquidation  of the
Partnership's  50%  investment  in an  aircraft  engine  resulting  the  General
Partner's sale of the asset in the third quarter of 1996.

Marine  vessels:  The  Partnership's  share of revenues  and  expenses of marine
vessels was $0.3 million and $0.4 million,  respectively,  for the quarter ended
June 30, 1997, compared to $0.4 million and $0.5 million,  respectively, for the
same  period  of 1996.  The  decrease  in loss  was due to a lower  depreciation
expense  for the  quarter  ended June 30,  1997,  compared to the same period of
1996.

Mobile offshore drilling unit: The Partnership's  share of revenues and expenses
of the  mobile  offshore  drilling  unit was  $0.3  million  and  $0.3  million,
respectively, for the second quarter of 1996. The Partnership liquidated its 45%
investment in an entity that owned a mobile  offshore  drilling unit during 1996
as a result of the General Partner's sale of the asset.

(E)  Net Loss

The  Partnership's  net  loss of $0.5  million  in the  second  quarter  of 1997
decreased  from a net loss of $0.9  million in the second  quarter of 1996.  The
Partnership's  ability to acquire,  operate, or liquidate assets, secure leases,
and  re-lease  those  assets  whose  leases  expire is subject to many  factors.
Therefore,  the  Partnership's  performance  for the three months ended June 30,
1997 is not necessarily  indicative of future periods.  In the second quarter of
1997, the Partnership distributed $2.5 million to the limited partners, or $0.25
per weighted-average depositary unit.



<PAGE>


Comparison of the Partnership's Operating Results for the Six Months Ended 
June 30, 1997 and 1996

(A)  Owned Equipment Operations

Lease revenues less direct expenses  (repair and  maintenance,  marine equipment
operating,  and asset-specific  insurance expenses) on owned equipment increased
for the six months  ended 1997 when  compared  to the same  period of 1996.  The
following table presents results by owned equipment type (in thousands):

<TABLE>
<CAPTION>
                                                      For the Six Months
                                                        Ended June 30,
                                                    1997              1996
                                               -------------------------------------

   <S>                                         <C>               <C>            
   Rail equipment                              $         2,810   $         2,585
   Aircraft and aircraft engines                         2,756             1,034
   Trailers                                                927               836
   Mobile offshore drilling unit                           794                 -
   Marine containers                                       571               820
   Marine vessels                                           (5 )           1,158

</TABLE>

Rail equipment: Railcar lease revenues and direct expenses were $3.8 million and
$1.0  million,  respectively,  for the six months  ended 1997,  compared to $3.9
million and $1.3  million,  respectively,  during the same quarter of 1996.  The
increase in railcar  contribution  resulted  from  running  repairs  required on
certain  railcars in the fleet during the first six months of 1996 that were not
needed during the same period of 1997.

Aircraft and aircraft engines:  Aircraft lease revenues and direct expenses were
$4.0 million and $1.2 million,  respectively,  for the six months ended June 30,
1997, compared to $2.3 million and $1.3 million,  respectively,  during the same
quarter of 1996. The increase of  contribution  was due to higher lease revenues
and a lower  repair and  maintenance  expense for the six months  ended June 30,
1997,  compared to the same period of 1996.  The increase in revenues was due to
one off-lease aircraft that went back on lease during the first quarter of 1997.

Trailers:  Trailer lease revenues and direct expenses were $1.0 million and $0.1
million,  respectively, for the six months ended June 30, 1997, compared to $1.0
million and $0.2  million,  respectively,  during the same quarter of 1996.  The
increase in trailer  contribution  resulted  from  running  repairs  required on
certain  trailers in the fleet during the first six months of 1996 that were not
needed during the same period of 1997.

Mobile offshore  drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.8 million and $20,000,  respectively, for the six months
ended June 30, 1997. The Partnership  acquired and placed into lease service one
mobile offshore drilling unit in the third quarter of 1996.

Marine containers: Marine container lease revenues and direct expenses were $0.6
million  and  $5,000,  respectively,  for the six months  ended  June 30,  1997,
compared to $0.8  million and  $6,000,  respectively,  during the same period of
1996.  The  number  of  marine  containers  owned  by the  Partnership  has been
declining due to sales and dispositions.  The result of this declining fleet and
a  decrease  in  utilization  has  been  a  decrease  in  marine  container  net
contribution.

Marine  vessels:  Marine vessel lease revenues and direct expenses were zero and
$5,000,  respectively,  for the six months ended June 30, 1997, compared to $1.4
million and $0.2  million,  respectively,  during the same  period of 1996.  The
decrease of contribution  from marine vessels in 1997 was due to the sale of all
the Partnership's marine vessels during 1996.



<PAGE>


(B)   Indirect Operating Expenses Related to Owned Equipment Operations

Total indirect  expenses of $10.0 million for the six months ended June 30, 1997
increased  from $7.8  million  for the same  period  of 1996.  The  variance  is
explained as follows:

     (1) An increase in  depreciation  expense of $3.0  million from 1996 levels
reflects the Partnership's  depreciation on equipment  purchased in 1996, offset
by the sale or  disposition of certain  Partnership  assets during 1997 and 1996
and  by  the  Partnership's  use  of  the  double-declining  balance  method  of
depreciation.

     (2) A  decrease  of $0.7  million  in bad debt  expense  from  1996  levels
primarily reflects the Partnership's evaluation of the collectibility of certain
receivable balances.

     (3) A decrease of $0.1  million in general and  administrative  expense was
due to a decrease  in  Canadian  receipts  tax because of a decrease in Canadian
revenues earned by railcars.

(C)   Net Gain on Disposition of Owned Equipment

The net gain on the disposition of equipment was $0.1 million for the six months
ended  June 30,  1997,  resulting  from the  disposition  of marine  containers,
trailers,  and  railcars,  compared to the net gain of $0.9  million in the same
period of 1996,  resulting  from the  disposition  of aircraft  engines,  marine
containers, trailers, and railcars.

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

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

                                                        For the Six Months
                                                          Ended June 30,
                                                      1997              1996
                                                 ------------------------------------

   <S>                                               <C>           <C>                
   Aircraft and aircraft engines and rotables        $      431    $           174    
   Marine vessels                                           (89 )             (231 )
   Mobile offshore drilling unit                              -                 (5 )

</TABLE>

Aircraft,  aircraft engines,  and rotables:  The Partnership's share of aircraft
revenues and expenses was $1.4 million and $1.0 million,  respectively,  for the
quarter  ended  June 30,  1997,  compared  to $1.6  million  and  $1.4  million,
respectively,  during  the  same  period  of  1996.  As of June  30,  1997,  the
Partnership  had a partial  beneficial  interest in three  trusts that hold nine
commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables.
The increase in contribution was due to a lower depreciation expense,  which was
partially  offset  by a  decrease  in  revenues  due to the  liquidation  of the
Partnership's  50% investment in an aircraft engine,  resulting from the General
Partner's sale of the asset in the third quarter of 1996.

Marine  vessels:  The  Partnership's  share of revenues  and  expenses of marine
vessels was $0.7 million and $0.8 million,  respectively,  for the quarter ended
June 30, 1997, compared to $0.8 million and $1.0 million,  respectively, for the
same  period  of 1996.  The  decrease  in loss  was due to a lower  depreciation
expense for the six months ended June 30,  1997,  compared to the same period of
1996.

Mobile offshore drilling unit: The Partnership's  share of revenues and expenses
of the  mobile  offshore  drilling  unit was  $0.6  million  and  $0.6  million,
respectively, for the second quarter of 1996. The Partnership liquidated its 45%
investment  in a mobile  offshore  drilling  unit during 1996 as a result of the
General Partner's sale of the asset.

(E)  Net Loss

The Partnership had a net loss of $1.5 million for the six months ended June 30,
1997,  compared to a net loss of $0.3  million in the same  period of 1996.  The
Partnership's  ability to acquire,  operate, or liquidate assets, secure leases,
and  re-lease  those  assets  whose  leases  expire is subject to many  factors.
Therefore,  the Partnership's  performance in the six months ended June 30, 1997
is not  necessarily  indicative of future periods.  The Partnership  distributed
$4.9 million to the limited partners,  or $0.50 per weighted-average  depositary
unit in the six months ended June 30, 1997.

(II)  FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS

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

For the six months ended June 30, 1997,  the  Partnership  generated  sufficient
operating cash (net cash provided by operating  activities,  plus  distributions
from unconsolidated  special-purpose entities) to meet its operating obligations
and maintain the current level of distributions (total for six months ended June
30, 1997 of approximately  $5.2 million) to the partners.  During the six months
ended  June 30,  1997,  the  General  Partner  sold  equipment  on behalf of the
Partnership and realized proceeds of $0.7 million.

During the first six months of 1997, the  Partnership  paid down $0.5 million of
the outstanding note balance as a result of asset sales.


(III)  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 that 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.

(IV)  FORWARD-LOOKING INFORMATION

Except for historical  information contained herein, the discussion in this Form
10-Q 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-Q should be read as
being applicable to all related forward-looking  statements wherever they appear
in this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.



<PAGE>



                                            PART II -- OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits

              Second amendment to the second amended and restated 
              limited partnership agreement

         (b)  Reports on Form 8-K

              None.



<PAGE>



Pursuant  to the  requirements  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.



                                     PLM EQUIPMENT GROWTH FUND III

                                     By: PLM Financial Services, Inc.
                                         General Partner




Date:  August 8, 1997                By: /s/ Richard Brock
                                         -----------------
                                         Richard Brock
                                         Vice President and
                                         Corporate Controller