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
                  September 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>


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

          Equipment held for operating lease, at cost                                         $     126,417        $   136,670
            Less accumulated depreciation                                                           (80,981 )          (78,607 )
                                                                                              ------------------------------------
              Net equipment                                                                          45,436             58,063

          Cash and cash equivalents                                                                   4,118              1,414
          Restricted cash and marketable securities                                                   5,963              5,966
          Investments in unconsolidated special-purpose entities                                      9,399             11,138
          Accounts and note receivable, net of allowance for doubtful
                accounts of $1,472 in 1997 and $1,381 in 1996                                         1,353              1,515
          Prepaid expenses and other assets                                                               3                 64
          Deferred charges, net of accumulated amortization of
                $307 in 1997 and $800 in 1996                                                           348                491
                                                                                              ------------------------------------

          Total assets                                                                        $      66,620        $    78,651
                                                                                              ====================================

          Liabilities and partners' capital:

          Liabilities:
          Accounts payable and accrued expenses                                               $         773        $     1,505
          Due to affiliates                                                                             645              1,297
          Lessee deposits and reserves for repairs                                                    7,007              7,552
          Note payable                                                                               39,287             40,284
                                                                                              ------------------------------------
              Total liabilities                                                                      47,712             50,638
                                                                                              ------------------------------------

          Partners' capital:
          Limited partners (9,871,073 depositary units as
                of September 30, 1997 and December 31, 1996)                                         18,908             28,013
          General Partner                                                                                 -                  -
                                                                                              ------------------------------------
              Total partners' capital                                                                18,908             28,013
                                                                                              ------------------------------------

          Total liabilities and partners' capital                                             $      66,620        $    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 Nine Months
                                                                  Ended September 30,               Ended September 30,
                                                                  1997          1996                1997          1996
                                                               ------------------------------------------------------------
<S>                                                            <C>           <C>                 <C>           <C>       
Revenues:

Lease revenue                                                  $  5,152      $   4,555           $ 15,377      $  13,924 
Interest and other income                                           119            116                306            364
Net gain on disposition of equipment                                734          5,494                858          6,347
                                                               ------------------------------------------------------------
    Total revenues                                                6,005         10,165             16,541         20,635
                                                               ------------------------------------------------------------

Expenses:

Depreciation and amortization                                     3,544          3,010             10,644          7,100
Marine equipment operating expense                                  133            198                154            284
Repairs and maintenance                                             570            712              2,855          3,452
Interest expense                                                    818            622              2,422          2,259
Insurance expense                                                    54             73                165            233
Management fees to affiliate                                        290            241                883            749
General and administrative expenses to affiliates                   187            122                540            492
Other general and administrative expenses                           163            347                543            839
Provision for bad debt                                              138            155                 93            784
                                                               ------------------------------------------------------------
    Total expenses                                                5,897          5,480             18,299         16,192
                                                               ------------------------------------------------------------

Equity in net income of unconsolidated
      special-purpose entities                                      104          6,968                446          6,905
                                                               ------------------------------------------------------------

Net income (loss)                                              $    212      $  11,653           $ (1,312 )    $  11,348  
                                                               ============================================================

Partners' share of net income (loss):

Limited partners                                               $     82      $  11,523           $ (1,702 )    $  10,879  
General Partner                                                     130            130                390            469
                                                               ------------------------------------------------------------

Total                                                          $    212      $  11,653           $ (1,312 )    $  11,348  
                                                               ============================================================

Net income (loss) per weighted-average depositary unit
      (9,871,073 units as of September 30, 1997 and
      1996)                                                    $   0.01      $    1.17           $  (0.17 )    $    1.10 
                                                               ============================================================

Cash distributions                                             $  2,598      $   2,598           $  7,793      $   9,367 
                                                               ============================================================
Cash distributions per weighted-average
      depositary unit                                          $   0.25      $    0.25           $   0.75      $    0.90  
                                                               ============================================================


</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 September 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 income (loss)                                       (1,702 )           390             (1,312 )

   Cash distributions                                      (7,403 )          (390 )           (7,793 )
                                                       -------------------------------------------------

   Partners' capital as of September 30, 1997          $   18,908         $     -         $   18,908
                                                       =================================================


</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 Nine Months
                                                                                                     Ended September 30,
                                                                                                     1997            1996
                                                                                                 -----------------------------
   <S>                                                                                            <C>            <C>         
   Operating activities:

   Net income (loss)                                                                              $  (1,312 )    $   11,348  
   Adjustments to reconcile net income (loss) to net cash provided by operating
       activities:
     Net gain on disposition of equipment                                                              (858 )        (6,347 )
     Depreciation and amortization                                                                   10,644           7,100
     Equity in net income from unconsolidated special-purpose entities                                 (446 )        (6,905 )
     Sales-type lease income                                                                              -          (1,885 )
     Changes in operating assets and liabilities:
       Restricted cash and marketable securities                                                          3            (230 )
       Accounts and note receivable, net                                                                162             831
       Prepaid expenses and other assets                                                                 61              74
       Accounts payable and accrued expenses                                                           (732 )           270
       Due to affiliates                                                                               (652 )             2
       Lessee deposits and reserves for repairs                                                        (545 )          (481 )
                                                                                                  ----------------------------
           Net cash provided by operating activities                                                  6,325           3,777
                                                                                                  ----------------------------

   Investing activities:

   Payments for purchases of equipment                                                                    -         (28,540 )
   Payments for capitalized improvements                                                               (156 )          (679 )
   Payments of acquisition-related fees to affiliate                                                      -          (1,569 )
   Payments received from sales-type leases                                                               -           6,403
   Distributions from unconsolidated special-purpose entities                                         2,185          16,214
   Proceeds from disposition of equipment                                                             3,140          13,297
                                                                                                  ----------------------------
           Net cash provided by investing activities                                                  5,169           5,126
                                                                                                  ----------------------------

   Financing activities:

   Proceeds from note payable                                                                             -          19,148
   Principal payments on note payable                                                                  (997 )       (19,575 )
   Cash distributions paid to limited partners                                                       (7,403 )        (8,898 )
   Cash distributions paid to General Partner                                                          (390 )          (469 )
   Repurchase of depositary units                                                                         -            (120 )
                                                                                                  ----------------------------
           Net cash used in financing activities                                                     (8,790 )        (9,914 )
                                                                                                  ----------------------------

   Net increase (decrease) in cash and cash equivalents                                               2,704          (1,011 )

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

   Cash and cash equivalents at end of period                                                     $   4,118      $    2,232  
                                                                                                  ============================

   Supplemental information:

   Interest paid                                                                                  $   2,631      $    2,157 
                                                                                                  ============================

</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>

                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 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 September 30, 1997 and December 31, 1996,  the statements of
operations  for the three  months and nine months ended  September  30, 1997 and
1996,  the  statements  of  changes in  partners'  capital  for the period  from
December 31, 1995 to September  30, 1997,  and the  statements of cash flows for
the nine months  ended  September  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 $7.8 and $9.4 million for
the  nine  months  ended  September  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 $7.4 million during
the nine months ended  September 30, 1997 were deemed to be a return of capital.
None of the cash  distributions  to the limited  partners during the nine months
ended  September  30,  1996  were  deemed  to  be  a  return  of  capital.  Cash
distributions  related  to the  results  from the third  quarter of 1997 of $2.6
million, are payable during November 1997.

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>

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

 <S>   <C>                                                               <C>                <C>         
 17%   Two trusts that own three commercial aircraft, two
       aircraft engines, and a portfolio of aircraft rotables            $  3,821           $    4,564  
 56%   Marine vessel                                                        3,414                3,999
 17%   Trust that owns six commercial aircraft                              2,164                2,575
                                                                        ---------------------------------

         Investments in unconsolidated special-purpose entities          $  9,399           $   11,138  
                                                                        =================================

</TABLE>


<PAGE>


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


5.    Equipment

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

                                                                 September 30,           December 31,
                                                                       1997                     1996
                                                               ---------------------------------------------

   <S>                                                           <C>                       <C>         
   Equipment held for operating leases:
     Aircraft and aircraft engines                               $       64,832            $     70,615
     Rail equipment                                                      34,811                  35,733
     Marine containers                                                    9,821                  13,146
     Mobile offshore drilling unit                                        9,666                   9,666
     Trailers                                                             7,287                   7,510
                                                                --------------------------------------------
                                                                        126,417                 136,670
   Less accumulated depreciation                                        (80,981 )               (78,607 )
                                                                --------------------------------------------
                                                                ============================================
     Net equipment                                               $       45,436            $     58,063
                                                                ============================================

</TABLE>

As of September 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 45 railcars and 28 marine  containers  with an aggregate
carrying  value of $0.4 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.

In the fourth quarter of 1996, the Partnership  ended its reinvestment  phase in
accordance with the Limited Partnership Agreement;  therefore,  no equipment was
purchased during the nine months ended September 30, 1997. Capital  improvements
to the Partnership's equipment of $0.2 million and $0.7 million were made during
the nine months ended  September 30, 1997 and September 30, 1996,  respectively.
During the nine months ended September 30, 1996, the Partnership purchased three
commercial aircraft and one mobile offshore drilling unit for $28.5 million, and
incurred  acquisition  fees of $1.3 million and lease  negotiation  fees of $0.3
million to FSI.

During the nine  months  ended  September  30,  1997,  the  Partnership  sold or
disposed of marine  containers,  trailers,  railcars,  and an  aircraft  with an
aggregate net book value of $2.2 million for aggregate proceeds of $3.1 million.
During the nine months ended  September 30, 1996,  the  Partnership  disposed of
marine containers,  railcars,  aircraft engines,  and trailers with an aggregate
net book value of $3.7  million  for  aggregate  proceeds  of $4.6  million.  In
addition,  the  Partnership  sold marine vessels with a carrying  value,  net of
drydock and selling expenses, of $3.3 million for proceeds of $8.7 million.

6.   Transactions with General Partner and Affiliates

Partnership  management fees payable to an affiliate of the General Partner were
$0.6 million and $1.3  million as of  September  30, 1997 and December 31, 1996,
respectively. The Partnership's proportional share of USPE-affiliated management
fees of $66,000 and $20,000 were  payable as of September  30, 1997 and December
31, 1996, respectively.



<PAGE>


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


6.   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 Nine Months
                                                       Ended September 30,                Ended September 30,
                                                       1997           1996               1997            1996
                                                    --------------------------------------------------------------

   <S>                                              <C>            <C>                <C>             <C>     
   Management fees                                  $      43      $      65          $    132        $    202
   Insurance expense                                       17             25                69              80
   Data processing and administrative
      expenses                                             12             33                35              55

</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.

7.    Subsequent Event

On October 2, 1997, the Partnership made an optional  prepayment of $1.1 million
on the outstanding  note payable using the proceeds from the sale of an aircraft
which was sold during the third quarter of 1997.





                      (this space intentionally left blank)



<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 
September 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  September 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 September 30,
                                                      1997              1996
                                                 ------------------------------------

   <S>                                              <C>            <C>           
   Aircraft and aircraft engines                    $   1,994      $      1,055  
   Rail equipment                                       1,422             1,340
   Mobile offshore drilling unit                          404               302
   Trailers                                               370               476
   Marine containers                                      352               355
   Marine vessels                                        (138 )              54

</TABLE>

Aircraft and aircraft engines:  Aircraft lease revenues and direct expenses were
$2.0 million and $40,000 million,  respectively, for the quarter ended September
30, 1997, compared to $1.1 million and $28,000 million, respectively, during the
same period of 1996. The increase in contribution  was due to higher revenues in
the third quarter of 1997,  compared to the same period of 1996. The increase in
revenues was due to the acquisition of three commercial aircraft in September of
1996 and one off-lease aircraft that went back on lease during the first quarter
of 1997.

Rail equipment: Railcar lease revenues and direct expenses were $1.9 million and
$0.5 million,  respectively,  for the quarter ended September 30, 1997, compared
to $2.0 million and $0.7 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 third  quarter of 1996 that were not
needed during the third quarter of 1997.

Mobile offshore  drilling unit: Mobile offshore drilling unit lease revenues and
direct  expenses  were $0.4 million and $10,000,  respectively,  for the quarter
ended  September  30, 1997,  compared to $0.3 million and $4,000,  respectively,
during the same period of 1996. The increase in  contribution  was due to higher
revenues  resulting from the  Partnership's  acquisition of one mobile  offshore
drilling unit in August 1996.

Trailers:  Trailer lease revenues and direct expenses were $0.5 million and $0.1
million,  respectively,  for the quarter ended  September 30, 1997,  compared to
$0.6 million and $0.1 million, respectively, during the same period of 1996. The
decrease in  contribution  was due to lower revenues  caused by reduced  trailer
utilization and the disposition of trailers.

Marine containers: Marine container lease revenues and direct expenses were $0.4
million and $2,000,  respectively,  for the quarter  ended  September  30, 1997,
compared to $0.4  million and  $2,000,  respectively,  during the same period of
1996.

Marine vessels:  Marine vessels lease revenues and direct expenses were zero and
$0.1 million,  respectively,  for the quarter ended September 30, 1997, compared
to $0.3 million and $0.2 million,  respectively,  for the third quarter of 1996.
The decrease in  contribution  from marine  vessels in the third quarter of 1997
was due to the sale of all the  Partnership's  marine  vessels  during 1996. The
$0.1 million expense in the third quarter of 1997 was for supplemental insurance
for a sold vessel.



<PAGE>


(B)   Indirect Operating Expenses Related to Owned Equipment Operations

Total indirect expenses of $5.1 million for the quarter ended September 30, 1997
increased  from $4.5  million  for the same  period  of 1996.  The  variance  is
explained as follows:

     (1) An increase of $0.5 million in depreciation  and  amortization  expense
from 1996 levels reflects the Partnership's  depreciation on equipment purchased
in 1996,  which was  partially  offset  by the sale or  disposition  of  certain
Partnership assets during 1997 and 1996.

     (2) An increase of $0.2 million in interest  expense was due to an increase
in the interest rate on the Partnership's  note payable for the third quarter of
1997, compared to the same quarter of 1996.

     (3) A decrease of $0.1 million in general and  administrative  expenses was
due primarily to decreased property taxes on equipment due to the disposition of
equipment.

(C)   Net Gain on Disposition of Owned Equipment

The net gain on the disposition of owned equipment for the third quarter of 1997
was $0.7, which resulted from the disposition of marine containers,  trailers, a
railcar,  and an aircraft  with an aggregate  net book value of $1.7 million for
aggregate  proceeds of $2.4 million.  The net gain on the  disposition  of owned
equipment was $5.4 million in the third quarter of 1996, which resulted from the
disposition  of vessels,  marine  containers,  railcars,  and  trailers  with an
aggregate net book value of $4.3 million for aggregate proceeds of $9.7 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 September 30,
                                                    1997              1996
                                               -------------------------------------

   <S>                                         <C>               <C>          
   Aircraft, aircraft engines, and rotables    $        158      $         696
   Marine vessels                                       (54 )             (307 )
   Mobile offshore drilling unit                          -              6,579

</TABLE>

Aircraft,  aircraft engines,  and rotables:  The Partnership's share of aircraft
revenues and expenses was $0.6 million and $0.4 million,  respectively,  for the
quarter  ended  September  30, 1997,  compared to $1.3 million and $0.6 million,
respectively,  during  the same  period  of  1996.  The  Partnership's  share of
aircraft  revenues for the quarter ended September 30, 1996 included the gain of
$0.7 million from the  liquidation  of the  Partnership's  50%  investment in an
aircraft  engine.  As of  September  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  decrease  in
contribution was 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 $0.3 million and $0.4 million,  respectively,  for the quarter ended
September 30, 1997, compared to $0.3 million and $0.6 million, respectively, for
the same period of 1996. The decreased loss from marine vessels was due to lower
repair and maintenance expenses and a lower depreciation expense for the quarter
ended September 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 $6.6 million and $20,000, respectively,
for the third 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.



<PAGE>


(E)  Net Income

The  Partnership's  net  income of $0.2  million  in the third  quarter  of 1997
decreased  from $11.7  million in the third 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 September 30, 1997 is not
necessarily  indicative of future  periods.  In the third  quarter of 1997,  the
Partnership  distributed  $2.5  million to the  limited  partners,  or $0.25 per
weighted-average depositary unit.

Comparison of the Partnership's Operating Results for the Nine Months Ended 
September 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 nine months ended September 30, 1997 when compared to the same period of
1996.  The  following  table  presents  results  by  owned  equipment  type  (in
thousands):

                                                      For the Nine Months
                                                      Ended September 30,
                                                    1997              1996
                                               --------------------------------

   Aircraft and aircraft engines               $      4,751      $       2,089
   Rail equipment                                     4,232              3,925
   Trailers                                           1,296              1,312
   Mobile offshore drilling unit                      1,198                302
   Marine containers                                    923              1,175
   Marine vessels                                      (143 )            1,212

Aircraft and aircraft engines:  Aircraft lease revenues and direct expenses were
$6.0 million and $1.2 million, respectively, for the nine months ended September
30, 1997,  compared to $3.4 million and $1.3 million,  respectively,  during the
same  quarter of 1996.  The  increase in  contribution  was due to higher  lease
revenues for the nine months  ended  September  30,  1997,  compared to the same
period of 1996.  The  increase in revenues was due to the  acquisition  of three
commercial  aircraft  during the third quarter of 1996 and one aircraft that was
off-lease in 1996 which went back on lease during the first quarter of 1997.

Rail equipment: Railcar lease revenues and direct expenses were $5.7 million and
$1.5  million,  respectively,  for the nine months ended 1997,  compared to $5.8
million and $1.9  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 first nine months of 1996 that were not
needed during the same period of 1997.

Trailers:  Trailer lease revenues and direct expenses were $1.5 million and $0.2
million, respectively, for the nine months ended September 30, 1997, compared to
$1.5 million and $0.2 million, respectively, during the same period of 1996.

Mobile offshore  drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $1.2 million and $31,000, respectively, for the nine months
ended  September  30, 1997,  compared to $0.3 million and $4,000,  respectively,
during the same period of 1996. The increase in  contribution  was due to higher
revenues  resulting from the  Partnership's  acquisition of one mobile  offshore
drilling unit in August 1996.

Marine containers: Marine container lease revenues and direct expenses were $0.9
million and $8,000, respectively,  for the nine months ended September 30, 1997,
compared to $1.2  million and  $9,000,  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.



<PAGE>


Marine  vessels:  Marine vessel lease revenues and direct expenses were zero and
$0.1  million,  respectively,  for the nine months  ended  September  30,  1997,
compared to $1.7 million and $0.5 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.  The $0.1 million
expense in the third quarter of 1997 was for  supplemental  insurance for a sold
vessel.

(B)   Indirect Operating Expenses Related to Owned Equipment Operations

Total indirect expenses of $15.2 million for the nine months ended September 30,
1997  increased  from $12.3 million for the same period of 1996. The variance is
explained as follows:

     (1) An increase in  depreciation  expense of $3.5  million from 1996 levels
reflects the  Partnership's  depreciation on equipment  purchased in 1996, which
was partially  offset by the sale or disposition of certain  Partnership  assets
during 1997 and 1996.

     (2) An increase of $0.2 million in interest  expense was due to an increase
in interest  rate on the  Partnership's  note  payable for the nine months ended
September 30, 1997, compared to the same period of 1996.

     (3) An increase of $0.1 million in management  fees was due to higher lease
revenue for the nine  months  ended  September  30,  1997,  compared to the same
period of 1996.

     (4) A  decrease  of $0.7  million  in bad debt  expense  from  1996  levels
primarily  reflects  increase in the  General  Partner  reserve for  uncollected
outstanding  receivables  in  1996  for  an  aircraft  lessee  that  encountered
financial difficulties.

     (5) A decrease of $0.2 million in general and  administrative  expenses was
primarily due to a decrease in Canadian  receipts tax because of lower  Canadian
revenues earned by railcars.

(C)   Net Gain on Disposition of Owned Equipment

The net gain on the  disposition  of  equipment  was $0.9  million  for the nine
months  ended  September  30, 1997,  resulting  from the  disposition  of marine
containers, trailers, railcars, and an aircraft with an aggregate net book value
of $2.2 million for aggregate  proceeds of $3.1 million,  compared to a net gain
of  $6.3  million  for the  nine  months  ended  September  30,  1996  from  the
disposition of aircraft engines,  marine vessels,  marine containers,  trailers,
and  railcars  with an aggregate  net book value of $7.0  million for  aggregate
proceeds of $13.3 million.

(D)  Interest and Other Income

Interest  and other  income  decreased  $0.1  million for the nine months  ended
September 30, 1997,  when compared to the same period of 1996,  due primarily to
lower interest income because of lower cash balances available for investment.

(E)  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 Nine Months
                                                        Ended September 30,
                                                      1997              1996
                                                 ------------------------------------

   <S>                                              <C>            <C>             
   Aircraft, aircraft engines, and rotables         $     588      $        869    
   Marine vessels                                        (142 )            (538 )
   Mobile offshore drilling unit                            -             6,574

</TABLE>


<PAGE>


Aircraft,  aircraft engines,  and rotables:  The Partnership's share of aircraft
revenues and expenses was $2.1 million and $1.5 million,  respectively,  for the
nine months ended September 30, 1997, compared to $2.9 million and $2.0 million,
respectively,  during the same period of 1996.  As of September  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 decrease in contribution was 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 $1.0  million and $1.1  million,  respectively,  for the nine months
ended   September  30,  1997,   compared  to  $1.0  million  and  $1.5  million,
respectively,  for the same  period of 1996.  The  decreased  contribution  from
marine  vessels was due to lower  repair and  maintenance  expenses  and a lower
depreciation  expense for the nine months ended September 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  $7.2  million  and  $0.6  million,
respectively,  for the nine months ended  September  30, 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.

(F)  Net Income (Loss)

The  Partnership  had a net  loss of $1.3  million  for the  nine  months  ended
September 30, 1997, compared to a net income of $11.3 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 nine months  ended
September  30,  1997  is not  necessarily  indicative  of  future  periods.  The
Partnership  distributed  $7.4  million to the  limited  partners,  or $0.75 per
weighted-average depositary unit, in the nine months ended September 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  nine  months  ended  September  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
nine months  ended  September  30, 1997 of  approximately  $7.8  million) to the
partners.  During the nine months ended  September 30, 1997, the General Partner
sold  equipment  on behalf of the  Partnership  and  realized  proceeds  of $3.1
million.

During the nine  months  ended  September  30,  1997,  the  Partnership  sold or
disposed of marine  containers,  trailers,  railcars,  and an  aircraft  with an
aggregate net book value of $2.2 million for aggregate proceeds of $3.1 million.

During the second  quarter of 1996,  the cash  distribution  rate was reduced to
more  closely  reflect  current  and  expected  net cash flows from  operations.
Continued  weak market  conditions  in certain  equipment  sectors and equipment
sales have reduced overall lease revenues in the Partnership.  In addition, with
the onset of the equipment  liquidation  phase of the  Partnership  beginning in
1999, the size of the Partnership's  remaining equipment portfolio and, in turn,
the  amount  of  net  cash  flows  from  operations,  will  continue  to  become
progressively smaller as assets are sold. Although operating distribution levels
will be  reduced,  significant  asset  sales  may  result in  potential  special
distributions to unitholders.

From January 1, 1997 through  November 4, 1997, the Partnership  repaid optional
prepayment of $2.1 million of the outstanding  note balance as a result of asset
sales.



<PAGE>


(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

              None.

         (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:  November 4, 1997              By: /s/ Richard Brock
                                         -----------------
                                         Richard Brock
                                         Vice President and
                                         Corporate Controller