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, 1996.

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

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

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


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

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


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


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




<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)

                                 BALANCE SHEETS
                            (in thousands of dollars)

                                     ASSETS
<TABLE>
<CAPTION>


                                                                                                   September 30,        December 31,
                                                                                                       1996                1995
                                                                                                  ---------------------------------

          <S>                                                                                     <C>                  <C>        
          Equipment held for operating leases                                                     $    137,418         $   130,132
          Less accumulated depreciation                                                                (75,252 )           (84,207 )
                                                                                                  ---------------------------------
                                                                                                        62,166              45,925
          Equipment held for sale                                                                           --                 475
                                                                                                  ---------------------------------
            Net equipment                                                                               62,166              46,400

          Cash and cash equivalents                                                                      2,232               3,243
          Restricted cash and marketable securities                                                      5,890               5,660
          Investments in unconsolidated special purpose entities                                        11,511              20,820
          Accounts and note receivable, net of allowance
            for doubtful accounts of $1,350 in 1996
          other   and $569 in 1995                                                                       1,411               2,242
          Net investment in sales-type lease                                                                --               4,518
          Prepaid expenses                                                                                  --                  74
          Deferred charges, net of accumulated
            amortization of $2,248 in 1996 and
            $2,159 in 1995                                                                                 545                 360
                                                                                                  ---------------------------------

          Total assets                                                                            $     83,755         $    83,317
                                                                                                  =================================


                                   LIABILITIES
          Liabilities:
          Accounts payable and accrued expenses                                                   $      1,625         $     1,355
          Due to affiliates                                                                              1,501               1,499
          Notes payable                                                                                 40,573              41,000
          Prepaid deposits and reserves for repairs                                                      7,858               9,126
                                                                                                  ---------------------------------
              Total liabilities                                                                         51,557              52,980

          Partners' capital:

          Limited Partners (9,871,073 Depositary Units at
            September 30, 1996 and 9,899,573 Depositary Units at
            December 31, 1995)                                                                          32,198              30,337
          General Partner                                                                                   --                  --
                                                                                                  ---------------------------------
              Total partners' capital                                                                   32,198              30,337
                                                                                                  ---------------------------------

          Total liabilities and partners' capital                                                 $     83,755         $    83,317
                                                                                                  =================================

</TABLE>


                    See accompanying notes to these financial
                                  statements.


<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)

                              STATEMENTS OF INCOME
                (in thousands of dollars except per unit amounts)
<TABLE>
<CAPTION>

                                                                 For the three months               For the nine months
                                                                  ended September 30,               ended September 30,
                                                                  1996          1995                1996          1995
                                                               ------------------------------------------------------------

<S>                                                            <C>            <C>                <C>           <C>        
Revenues:
  Lease revenue                                                $  4,457       $  5,749           $ 13,427      $  17,147  
  Interest and other income                                         214            432                861          1,266
  Net gain on disposition
    of equipment                                                  5,494            874              6,347          2,888
                                                               ------------------------------------------------------------
    Total revenues                                               10,165          7,055             20,635         21,301

Expenses:
  Depreciation and amortization                                   3,010          3,249              7,100          9,172
  Management fees to affiliate                                      241            274                749            838
  Repairs and maintenance                                           712            775              3,452          2,801
  Interest expense                                                  622            887              2,259          2,656
  Insurance expense to affiliates                                    --             27                 --            244
  Other insurance expense                                            73             53                233            271
  Bad debt expense                                                  155            105                784            290
  Marine equipment operating expenses                               198            106                284            786
  General and administrative expenses
    to affiliates                                                   122            177                492            568
  Other general and administrative
    expenses                                                        347            259                839            789
                                                               ------------------------------------------------------------
    Total expenses                                                5,480          5,912             16,192         18,415

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

    Net income                                                 $ 11,653       $  1,143           $ 11,348      $   2,886   
                                                               ============================================================

Partners' share of net income:
  Limited Partners                                             $ 11,523       $    934           $ 10,879      $   2,258  
  General Partner                                                   130            209                469            628
                                                               ------------------------------------------------------------

    Total                                                      $ 11,653       $  1,143           $ 11,348      $   2,886  
                                                               ============================================================

Net income per Depositary Unit
  (9,871,073  Units at September 30, 1996 and
  9,918,826 Units at September 30, 1995)                       $   1.17       $   0.09           $   1.10      $    0.23   
                                                               ============================================================

Cash distributions                                             $  2,598       $  4,176           $  9,367      $  12,560  
                                                               ============================================================

Cash distributions per
  Depositary Unit                                              $   0.25       $   0.40           $   0.90      $    1.20   
                                                               ============================================================

</TABLE>

                    See accompanying notes to these financial
                                  statements.

<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)

                  STATEMENT OF CHANGES IN PARTNERS' CAPITAL For
             the period from December 31, 1994 to September 30, 1996
                            (in thousands of dollars)
<TABLE>
<CAPTION>


                                                         Limited          General
                                                         Partners         Partner            Total
                                                       ------------------------------------------------
   <S>                                                 <C>                <C>             <C>          
   Partners' capital
     at December 31, 1994                              $   44,751         $    --         $   44,751   

   Net income                                               1,869             837              2,706

   Repurchase of Depositary Units                            (383 )            --               (383 )

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

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

   Net income                                              10,879             469             11,348

   Repurchase of Depositary Units                            (120 )            --               (120 )

   Cash distributions                                      (8,898 )          (469 )           (9,367 )
                                                        -----------------------------------------------

   Partners' capital  at September 30, 1996            $   32,198         $    --         $   32,198  
                                                        ===============================================


</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,
                                                                                                     1996            1995
                                                                                                  ----------------------------
   <S>                                                                                            <C>              <C>       
   Cash flows from operating activities:
     Net income                                                                                   $  11,348        $  2,886  
     Adjustments to reconcile net income to net cash
       provided by operating activities:
       Depreciation and amortization                                                                  7,100           9,172
       Net gain on disposition of equipment                                                          (6,347 )        (2,888 )
       Income from unconsolidated special purpose
         entities in excess of cash distributions                                                    (4,402 )            --
       Sales-type lease income                                                                       (1,885 )            --
     Changes in operating assets and liabilities:
       Accounts and note receivable, net                                                                831           1,034
       Prepaid expenses                                                                                  74             196
       Restricted cash and marketable securities                                                       (230 )         3,569
       Accounts payable and accrued expenses                                                            270             (17 )
       Due to affiliates                                                                                  2             986
       Prepaid deposits and reserves for repairs                                                       (481 )          (180 )
                                                                                                  ----------------------------
   Cash provided by operating activities                                                              6,280          14,758
                                                                                                  ----------------------------

   Investing activities:
     Payments for purchase of equipment                                                             (28,540 )        (9,756 )
     Payments for capitalizable repairs                                                                (679 )        (1,058 )
     Payments of acquisition-related fees to affiliate                                               (1,569 )          (538 )
     Payments received on sales-type lease                                                            6,403              --
     Proceeds from disposition of equipment                                                          13,297           3,085
     Liquidation proceeds from unconsolidated special purpose
      entities                                                                                       13,711              --
                                                                                                  ----------------------------
                                                                                                  ----------------------------
   Cash provided by (used in) investing activities                                                    2,623          (8,267 )
                                                                                                  ----------------------------

   Financing activities:
     Cash distributions paid to General Partner                                                        (469 )          (628 )
     Cash distributions paid to Limited Partners                                                     (8,898 )       (11,932 )
     Repurchase of depositary units                                                                    (120 )          (274 )
     Proceeds from notes payable                                                                     19,148              --
     Principal payments on notes payable                                                            (19,575 )            --
                                                                                                  ----------------------------
   Cash used in financing activities                                                                 (9,914 )       (12,834 )
                                                                                                  ----------------------------

   Cash and cash equivalents:
   Net decrease in cash and cash equivalents                                                         (1,011 )        (6,343 )

   Cash and cash equivalents at beginning of period                                                   3,243          14,885
                                                                                                  ----------------------------

   Cash and cash equivalents at end of period                                                     $   2,232        $  8,542 
                                                                                                  ============================

   Supplemental information:
     Interest paid                                                                                $   2,157        $  1,914  
                                                                                                  ============================
</TABLE>


                       See accompanying notes to financial
                                  statements.


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1996

1.   Opinion of Management

In the opinion of the  management of PLM Financial  Services,  Inc.  (FSI),  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, 1996,  the  statements of income for the three
months and nine months ended  September 30, 1996 and 1995,  and the statement of
changes in Partners'  capital for the period from December 31, 1994 to September
30, 1996 and the  statements  of cash flows for the nine months ended  September
30,  1996 and  1995.  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,  1995,  on file at the
Securities and Exchange Commission.

2.   Reclassifications

Certain  amounts in the 1995  financial  statements  have been  reclassified  to
conform with the 1996 presentation.

3.   Investments in Unconsolidated Special Purpose Entities

During the second half of 1995, the  Partnership  began to increase the level of
its participation in the ownership of large-ticket  transportation  assets to be
owned and operated jointly with affiliated programs. This trend has continued in
the third quarter of 1996.

       Prior  to  1996,  the  Partnership  accounted  for  operating  activities
associated  with joint  ownership of rental  equipment  as undivided  interests,
including its proportionate share of each asset with similar wholly-owned assets
in its financial statements. Under generally accepted accounting principles, the
effects of such  activities,  if material,  should be reported  using the equity
method of accounting.  Therefore,  effective  January 1, 1996,  the  Partnership
adopted the equity  method to account for its  investment  in such  jointly-held
assets.

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



<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1996


3.   Investments in Unconsolidated Special Purpose Entities (continued)

The net  investment in  unconsolidated  special  purpose  entities  includes the
following  jointly-owned  equipment  (and related  assets and  liabilities)  (in
thousands):
<TABLE>
<CAPTION>

                                                                                           September 30,        December 31,
          % Ownership                                 Equipment                                1996                 1995
         ----------------------------------------------------------------------------------------------------------------------
              <S>           <C>                                                             <C>                  <C>      
              56%           Marine vessel                                                   $   4,040            $   4,821
              45%           Mobile offshore drilling unit                                          --                6,093
              50%           Aircraft engine                                                        --                  656
              17%           Trust that owns three commercial aircraft, two aircraft
                            engines, and portfolio of aircraft rotables                         4,412                5,302
              14%           Trust that owns seven commercial aircraft                              --                3,948
              17%           Trust that owns six commercial aircraft                             3,059                   --
                                                                                          -------------------------------------

                              Investments in unconsolidated special purpose entities        $  11,511            $  20,820
                                                                                          =====================================

</TABLE>

During the nine months ended  September 30, 1996, the  Partnership  sold its 45%
investment in a mobile  offshore  drilling  unit,  and its 50%  investment in an
aircraft engine for $13.7 million.

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

4.   Cash Distributions

Cash  distributions  are  recorded  when paid and totaled $9.4 million and $12.6
million for the nine months ended September 30, 1996 and 1995.

       Cash  distributions to unitholders in excess of net income are considered
to represent 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 to unitholders of $9.7 million during the
nine months ended September 30,1995, were deemed to be a return of capital.

       Cash  distributions of $0.25 per Depositary Unit were declared on October
24, 1996, and are to be paid on November 15, 1996, to the  Unitholders of record
as of September 30, 1996. This cash  distribution  will amount to  approximately
$2.5 million.



<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1996

5.    Equipment

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

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

                                                                 September 30,           December 31,
                                                                      1996                   1995
                                                                ----------------------------------------
   <S>                                                            <C>                    <C>       
   Equipment held for operating leases:

   Rail equipment                                                 $   36,148             $   35,761
   Marine containers                                                  13,479                 15,015
   Marine vessels                                                         --                 15,463
   Mobile offshore drilling units                                      9,666                     --
   Aircraft and aircraft engines                                      70,615                 56,269
   Trailers                                                            7,510                  7,624
                                                                ----------------------------------------
                                                                     137,418                130,132
   Less accumulated depreciation                                     (75,252 )              (84,207 )
                                                                ----------------------------------------
                                                                                             45,925
   Equipment held for sale                                                --                    475
                                                                ========================================
       Net equipment                                              $   62,166             $   46,400
                                                                ========================================
</TABLE>

       Revenues are earned by placing the equipment under operating leases which
are generally billed monthly or quarterly.  Certain of the Partnership's  marine
vessels  and marine  containers  are  leased to  operators  of  utilization-type
leasing pools which include  equipment  owned by unaffiliated  parties.  In such
instances revenues received by the Partnership consist of a specified percentage
of revenues  generated by leasing the equipment to sublessees,  after  deducting
certain direct operating  expenses of the pooled  equipment.  Rents for railcars
are based on mileage traveled or a fixed rate; rents for all other equipment are
based on fixed rates.

       No  equipment  was held for sale at September  30, 1996.  At December 31,
1995,  equipment  held for sale  included 110 coalcars  with a net book value of
$0.5 million.  These coalcars were sold in March 1996,  for $1.3 million.  As of
September 30, 1996, all owned equipment in the Partnership  portfolio was either
on lease or operating in PLM-affiliated  short-term  trailer rental  facilities,
with the exception of one aircraft,  52 railcars and 33 marine  containers.  The
aggregate  carrying  value of equipment  off-lease was $4.5 million at September
30,  1996.  At  December  31,  1995,  53 marine  containers,  18 tank cars and 2
aircraft  engines  were  off-lease,  with an  aggregate  carrying  value of $3.1
million.

     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 TEC.

     During the nine months ended September 30, 1996, the  Partnership  disposed
of 344 marine  containers,  123 railcars of which 110 cars were held for sale at
December 31, 1995, two aircraft  engines,  and 11 trailers,  with a combined net
carrying  value of $3.7  million  for  combined  proceeds  of $4.6  million.  In
addition,  the Partnership sold two marine vessels with a carrying value, net of
drydock and  estimated  selling  expenses of $3.3  million for  proceeds of $8.7
million.  During the nine months ended September 30, 1995, the Partnership  sold
360 marine  containers  and 196 railcars  with a combined net carrying  value of
$1.5  million  for  combined  proceeds  of  $3.1  million.   Additionally,   the
Partnership  entered into a sales-type lease related to one marine vessel with a
carrying value, net of drydock and estimated selling  expenses,  of $3.7 million
for a sales price equal to the present  value of the future lease  payments,  of
$5.0 million.  On July 26, 1996,  the Charterer  exercised its option to buy the
marine vessel which was under the sales-type lease for $4.2 million.


<PAGE>


                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1996


6.   Repurchase of Depositary Units

On December 28, 1992,  the  Partnership,  which is traded on the American  Stock
Exchange under the symbol GFZ,  engaged in a program to repurchase up to 250,000
Depository  Units.  In the nine months ended September 30, 1996, the Partnership
repurchased and canceled 28,500 Depositary Units at a cost of $0.12 million.  As
of September 30, 1996, the  Partnership  has  repurchased a cumulative  total of
128,853 Depositary Units at a total cost of $0.92 million.

7.   Debt

The General  Partner has entered into a joint $50 million  credit  facility (the
"Committed Bridge Facility") on behalf of the Partnership,  PLM Equipment Growth
Fund IV,  PLM  Equipment  Growth  Fund V,  PLM  Equipment  Growth  Fund VI , PLM
Equipment Growth & Income Fund VII and Professional Lease Management Income Fund
I ("Fund I"), all affiliated investment programs, TEC Acquisub,  Inc. ("TECAI"),
an indirect wholly-owned subsidiary of the General Partner, and American Finance
Group, Inc. ("AFG"), a wholly-owned  subsidiary of PLM International Inc., which
may be used to provide interim  financing of up to (i) 70% of the aggregate book
value or 50% of the aggregate net fair market value of eligible  equipment owned
by an affiliate,  plus (ii) 50% of unrestricted  cash held by the borrower.  The
Committed Bridge Facility became available on December 20, 1993, and was amended
and restated on October 31, 1996,  to expire on October 31, 1997.  The Committed
Bridge Facility also provides for a $5 million Letter of Credit Facility for the
eligible  borrowers.  Outstanding  borrowings  by Fund  I,  TECAI,  AFG,  or PLM
Equipment Growth Funds III through VII reduce the amount available to each other
under the Committed  Bridge Facility.  Individual  borrowings may be outstanding
for no more than 179 days, with all advances due no later than October 31, 1997.
The Committed  Bridge  Facility  prohibits the  Partnership  from  incurring any
additional  indebtedness.  Interest accrues at either the prime rate or adjusted
LIBOR plus 2.5% at the borrowers  option and is set at the time of an advance of
funds.  Borrowings by the Partnership are guaranteed by the General Partner.  As
of November 11, 1996, AFG had $39,032,522 in outstanding  borrowings and neither
the Partnership, TECAI nor any of the programs had any outstanding borrowings.

     In  October  1996,  the  General  Partner  revised  the  "Committed  Bridge
Facility" and PLM Equipment Growth Fund III is no longer included as a borrower.





<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, 1996 and 1995

(A)  Owned equipment operations

Lease revenues less direct expenses (defined as repairs and maintenance,  marine
equipment  operating,  and asset specific insurance expenses) on owned equipment
decreased  during the third quarter of 1996 when compared to the same quarter of
1995. The following  table presents lease revenues less direct expenses by owned
equipment type (in thousands):
<TABLE>
<CAPTION>


                                                                            For the three months
                                                                             ended September 30,
                                                                            1996             1995
                                                                         ----------------------------
   <S>                                                                   <C>             <C>         
   Aircraft and aircraft engines                                         $  1,055        $   1,114   
   Marine vessels                                                             (45 )            422
   Trailers                                                                   476              401
   Rail equipment                                                           1,340            1,550
   Marine containers                                                          355              527
   Mobile offshore drilling unit                                              302               --

</TABLE>

Aircraft:  Aircraft  lease  revenues and direct  expenses  were $1.1 million and
$0.04  million,  respectively,  for the three months ended  September  30, 1996,
compared  to $1.1  million  and $0.02  million,  respectively,  during  the same
quarter of 1995.  The  decrease  in net  contribution  was due to the  off-lease
status of one Boeing 737 aircraft during the third quarter of 1996;

Marine  vessels:  Marine  vessel lease  revenues and direct  expenses  were $0.2
million and $0.24 million,  respectively,  for the three months ended  September
30, 1996,  compared to $0.5 million and $0.1 million,  respectively,  during the
same quarter of 1995.  The decrease in net  contribution  was due to the sale of
both of the Partnership's marine vessels in the third quarter of 1996;

Trailers:  Trailer lease revenues and direct expenses were $0.6 million and $0.1
million,  respectively,  for the three months ended September 30, 1996, compared
to $0.5 million and $0.1 million, respectively, during the same quarter of 1995.
The trailer fleet remained  virtually the same for both periods,  however,  over
the past twelve months the number of trailers in the PLM  affiliated  short-term
rental yards has increased due to term leases which expired.  These trailers are
now earning a higher lease rate while in the rental yards  compared to the fixed
term lease;

Rail equipment: Railcar lease revenues and direct expenses were $2.0 million and
$0.7  million,  respectively,  for the three  months ended  September  30, 1996,
compared to $2.2 million and $0.6 million,  respectively during the same quarter
of 1995.  The decrease in net  contribution  resulted from lower revenue for the
three months ended  September  30, 1996 due to the sale of equipment and running
repairs  required on certain  railcars  in the fleet  during 1996 which were not
needed during 1995;

Marine containers: Marine container lease revenues and direct expenses were $0.4
million and $2,358, respectively, for the three months ended September 30, 1996,
compared to $0.5  million and $6,307,  respectively,  during the same quarter of
1995.  The  number  of  marine  containers  owned  by the  Partnership  has been
declining due to sales and dispositions. The result of this declining fleet is a
decrease in marine container net contribution.

Mobile offshore  drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.3 million and $3,825, respectively, for the three months
ended September 30, 1996. The Partnership acquired and placed into lease service
one mobile offshore drilling unit in the third quarter of 1996.



<PAGE>


(B)  Indirect expenses related to owned equipment

Total indirect expenses of $4.5 million for the three months ended September 30,
1996,  decreased  from $3.9 million for the same period of 1995. The variance is
explained as follows:

     (a) an increase in depreciation  and  amortization  expense of $0.7 million
from 1995 levels  reflecting  the  acquisition  of two  aircraft  and one mobile
offshore  drilling  unit in the  third  quarter  of 1996,  offset by the sale or
disposition of certain  Partnership assets during the fourth quarter of 1995 and
the first three quarters of 1996;

     (b) an  increase  of $0.1  million in bad debt  expenses  from 1995  levels
primarily  reflecting the General Partner's  evaluation of the collectibility of
certain receivables;

     (c) an increase of $0.1 million in general and  administrative  expense due
to increased  aircraft  inspection  expense on one  aircraft  before it could be
re-leased in the third quarter of 1996;

     (d) a decrease of $0.3  million in  interest  expense due to the paydown of
debt principle due to the sale of assets.

(C) Net gain on  disposition  of equipment was $5.4 million in the third quarter
of 1996,  from the  disposition  of two  vessels,  122 marine  containers,  five
railcars  and four  trailers,  compared  to a gain of $0.9  million in the third
quarter of 1995, from the disposition of 138 marine containers and 116 railcars.

(D)  Interest and other income

Interest and other income  decreased  $0.2 million  during the third  quarter of
1996 due  primarily  to lower  cash  balances  available  for  investments  when
compared to the same period of 1995.

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

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

                                                  For the three months
                                                   ended September 30,
                                               ----------------------------
                                                 1996              1995
                                               ----------------------------
   Aircraft and aircraft engines               $   696           $  (174 )
   Mobile offshore drilling unit                 6,579               (37 )
   Marine vessel                                  (307 )            (0.9 )

Aircraft:  As of September 30, 1996, the  Partnership  has a partial  beneficial
interest  in two  trusts  which  hold four  commercial  aircraft,  two  aircraft
engines,  and a package  of  aircraft  rotables.  The  Partnership  sold its 50%
investment  in an aircraft  engine for $1.3 million in the third quarter of 1996
and realized a gain of $0.7  million.  The  Partnership's  share of revenues and
expenses  of the two trusts and the engine was $1.3  million  and $0.6  million,
respectively,  for the third quarter of 1996,  compared to $0.2 million and $0.4
million,  respectively,  during the same quarter of 1995. The increase in income
to $0.7 million in the third  quarter of 1996 compared to a loss of $0.2 million
in the third  quarter of 1995 was due to the sale of the  aircraft  engine for a
gain of $0.7 million. The Partnership's share of revenue was higher in the third
quarter of 1996 as  compared  to 1995  levels due to the two trusts  acquired in
September of 1995.

Mobile offshore drilling unit: The Partnership's  share of revenues and expenses
of  mobile   offshore   drilling  unit  was  $6.6  million  and  $0.02  million,
respectively,  for the third quarter of 1996, compared to $0.3 million and $0.34
million,  respectively,  during the same quarter of 1995. The increase in income
to $6.6 million in the third quarter of 1996 compared to a loss of $0.04 million
in the third quarter of 1995 was due to the sale of a mobile  offshore  drilling
unit in the third quarter of 1996 at a gain of $6.5 million.



<PAGE>


Marine  vessels:  The  Partnership's  share of revenues  and  expenses of marine
vessels  was $0.3  million,  and $0.6  million,  respectively,  during the third
quarter of 1996, compared to $0.5 million and $0.5 million, respectively, during
the same quarter of 1995. The increase in the loss related to marine vessels was
due to higher  repairs and  maintenance  expense and lower  revenue due to lower
charter rates for the third quarter of 1996 when compared to the same quarter of
1995.

(F) Net Income

The  Partnership's  net income of $11.7  million  in the third  quarter of 1996,
increased  from net  income of $1.1  million in the third  quarter of 1995.  The
Partnership's  ability to acquire,  operate, or liquidate assets, secure leases,
and  re-lease  those  assets  whose  leases  expire  during the  duration of the
Partnership is subject to many factors, therefore, the Partnership's performance
for the three months ended September 30, 1996, is not necessarily  indicative of
future periods.  In the third quarter of 1996, the Partnership  distributed $2.5
million to the Limited Partners, or $0.25 per Depositary Unit.


Comparison of the Partnership's Operating Results for the Nine Months Ended 
September 30, 1996 and 1995

(A) Owned equipment operations

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

                                                       For the nine months
                                                       ended September 30,
                                               --------------------------------
                                                    1996              1995
                                               --------------------------------
   Aircraft and aircraft engines               $         2,089   $         3,489
   Marine vessels                                          715             1,058
   Trailers                                              1,312             1,085
   Rail equipment                                        3,925             3,927
   Marine containers                                     1,175             1,472
   Mobile offshore drilling unit                           302                --

Aircraft: Aircraft lease revenues and direct expenses were $3.4 million and $1.3
million, respectively, for the nine months ended September 30, 1996, compared to
$3.6 million and $0.1 million, respectively during the same quarter of 1995. The
decrease in net contribution was due to extensive repairs of $1.2 million needed
on one aircraft  before it could be re-leased and the  off-lease  status of this
aircraft during the third quarter of 1996;

Marine  vessels:  Marine  vessel lease  revenues and direct  expenses  were $1.2
million and $0.5 million,  respectively, for the nine months ended September 30,
1996,  compared to $2.2 million and $1.1 million,  respectively  during the same
period of 1995.  The  decrease  in net  contribution  was due to the sale of one
marine  vessel  during  the  second  quarter  of 1995 and the sale of two marine
vessels during the third quarter of 1996;

Trailers:  Trailer lease revenues and direct expenses were $1.5 million and $0.2
million, respectively, for the nine months ended September 30, 1996, compared to
$1.3 million and $0.2 million, respectively during the same quarter of 1995. The
trailer fleet remained  virtually the same for both periods,  however,  over the
past  twelve  months the number of  trailers  in the PLM  affiliated  short-term
rental yards has increased due to term leases which expired.  These trailers are
now earning a higher lease rate while in the rental yards  compared to the fixed
term leases;

Rail equipment: Railcar lease revenues and direct expenses were $5.8 million and
$1.9  million,  respectively,  for the nine months ended 1996,  compared to $5.9
million and $2.0  million,  respectively  during the same  quarter of 1995.  The
decrease in railcar contribution resulted from lower revenue for the nine months
ended  September  30, 1996 due to sale of equipment,  offset by running  repairs
required  on certain  railcars  in the fleet  during  1995 which were not needed
during 1996;

Marine containers: Marine container lease revenues and direct expenses were $1.2
million and $8,504, respectively,  for the nine months ended September 30, 1996,
compared to $1.5  million and $16,608,  respectively  during the same quarter of
1995.  The  number  of  marine  containers  owned  by the  Partnership  has been
declining due to sales and dispositions. The result of this declining fleet is a
decrease in marine container net contribution.

Mobile offshore  drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.3 million and $3,825, respectively,  for the nine months
ended September 30, 1996. The Partnership acquired and placed into lease service
one mobile offshore drilling unit in the third quarter of 1996.

(B)  Indirect operating expenses related to owned equipment operations

Total indirect expenses of $12.3 million for the nine months ended September 30,
1996,  increased from $12.1 million for the same period of 1995. The variance is
explained as follows:

     (a) an  increase  of $0.5  million  in bad debt  expense  from 1995  levels
primarily  reflecting the Partnership's  evaluation of collectibility of certain
receivable balances;

     (b) an increase of $0.1 million in depreciation  and  amortization  expense
from 1995 levels  reflecting the  Partnership's  acquisition of two aircraft and
one mobile  offshore  drilling unit in the nine months ended September 30, 1996,
offset by the sale or  disposition  of  certain  Partnership  assets  during the
fourth  quarter  of 1995 and the first  three  quarters  of 1996.  In  addition,
certain aircraft are depreciated using the double-declining balance depreciation
method based on the life of the lease term;

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

(C) Net gain on  disposition  of equipment  was $6.3 million for the nine months
ended  September  30, 1996 from the  disposition  of two aircraft  engines,  two
marine vessels, 344 marine containers,  11 trailers, and 123 railcars,  compared
to a gain of $2.9 million in the same period of 1995 from the disposition of 360
marine containers,  196 railcars,  and one marine vessel. The sale of the vessel
in the first quarter of 1995 was a sales-type lease.

(D) Interest and other income decreased by $0.4 million in the first nine months
of 1996  compared to 1995 due  primarily to lower cash  balances  available  for
investments when compared to the same period of 1995.

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

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

                                                       For the nine months
                                                       ended September 30,
                                               ----------------------------------
                                                    1996              1995
                                               ----------------------------------
   <S>                                         <C>               <C>              
   Aircraft and aircraft engines               $           869   $          (127 )
   Marine vessels                                         (538 )             (93 )
   Mobile offshore drilling unit                         6,574                50
</TABLE>

Aircraft:  As of September 30, 1996, the  Partnership  has a partial  beneficial
interest  in two  trusts  which  hold four  commercial  aircraft,  two  aircraft
engines,  and a package  of  aircraft  rotables.  The  Partnership  sold its 50%
investment in an aircraft  engine for $1.3 million in the third quarter of 1996.
The  Partnership's  share of  revenues  and  expenses  of the two trusts and the
engine was $2.9  million  and $2.0  million,  respectively,  for the nine months
ended   September  30,  1996,   compared  to  $0.3  million  and  $0.4  million,
respectively,  during the same  period of 1995.  The  increase in income to $0.9
million in the third  quarter of 1996 compared to a loss of $0.1 million for the
nine months ended  September 30, 1995 was due to the sale of the aircraft engine
for a gain of $0.7 million. The Partnership's share of revenue was higher in the
nine months ended  September  30, 1996 as compared to 1995 levels due to the two
trusts acquired in September of 1995.

Marine  vessels:  The  Partnership's  share of revenues  and  expenses of marine
vessels was $1.0  million and $1.5  million,  respectively,  for the nine months
ended   September  30,  1996,   compared  to  $1.3  million  and  $1.4  million,
respectively,  for the same period in 1995.  The increase in the loss related to
marine vessels was due to higher repairs and maintenance expenses, higher marine
operating  expenses,  and lower  revenue due to lower charter rates for the nine
months ended September 30, 1996 when compared to 1995 levels.

Mobile offshore drilling unit: The Partnership's  share of revenues and expenses
of the  mobile  offshore  drilling  unit was  $7.2  million  and  $0.6  million,
respectively,  for the nine months ended  September  30, 1996,  compared to $1.0
million  and $1.0  million,  respectively,  for the  same  period  of 1995.  The
increase in income to $6.6 million for the nine months ended September 30, 1996,
as compared to a net income of $0.1 million for the nine months ended  September
30, 1995, was due to the sale of the mobile offshore  drilling unit in the third
quarter  of 1996 with a net book value of $5.9  million  for  proceeds  of $12.4
million at a gain of $6.5 million.

(F) Net Income

The  Partnership's  net  income  of  $11.3  million  for the nine  months  ended
September 30, 1996, increased from net income of $2.9 million in the same period
in 1995. The  Partnership's  ability to acquire,  operate,  or liquidate assets,
secure leases, and re-lease those assets whose leases expire during the duration
of the  Partnership  is subject to many factors.  Therefore,  the  Partnership's
performance  in the nine months ended  September  30, 1996,  is not  necessarily
indicative of future periods.  The Partnership  distributed  $8.9 million to the
Limited  Partners,  or  $0.90  per  Depositary  Unit in the  nine  months  ended
September 30, 1996.



<PAGE>


     (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,  to make cash  distributions  to  limited  partners  and
increase the Partnership's equity portfolio with any remaining available surplus
cash.

     The  Partnership  has one  loan  outstanding  with a face  amount  of $40.6
million  with  interest  at 1.5% over  LIBOR.  The loan  allows the pay down and
borrowing  of funds in  conjunction  with the sale and  subsequent  purchase  of
assets during the reinvestment  phase of the Partnership.  During the first year
following  conversion to a term loan,  beginning  September 30, 1996,  quarterly
principal  payments  equal to 75% of net proceeds  from asset sales will be due.
Beginning  the second year  commencing  December 31, 1997,  quarterly  principal
payments  will be equal to 75% of net proceeds  from asset sales from  September
30, 1997,  or payments  equal to 9.0% of the facility  balance at September  30,
1997.  During the first nine  months of 1996,  the  Partnership  paid down $19.6
million of the outstanding loan balance and redrew $19.1 million.

The General  Partner has entered into a joint $50 million  credit  facility (the
"Committed Bridge Facility") on behalf of the Partnership,  PLM Equipment Growth
Fund  IV,  PLM  Equipment  Growth  Fund V, PLM  Equipment  Growth  Fund VI,  PLM
Equipment Growth & Income Fund VII and Professional Lease Management Income Fund
I ("Fund I"), all affiliated investment programs, TEC Acquisub,  Inc. ("TECAI"),
an indirect wholly-owned subsidiary of the General Partner, and American Finance
Group, Inc. ("AFG"), a wholly-owned  subsidiary of PLM International Inc., which
may be used to provide interim  financing of up to (i) 70% of the aggregate book
value or 50% of the aggregate net fair market value of eligible  equipment owned
by an affiliate,  plus (ii) 50% of unrestricted  cash held by the borrower.  The
Committed Bridge Facility became available on December 20, 1993, and was amended
and restated on October 31, 1996,  to expire on October 31, 1997.  The Committed
Bridge Facility also provides for a $5 million Letter of Credit Facility for the
eligible  borrowers.  Outstanding  borrowings  by Fund  I,  TECAI,  AFG,  or PLM
Equipment Growth Funds III through VII reduce the amount available to each other
under the Committed  Bridge Facility.  Individual  borrowings may be outstanding
for no more than 179 days, with all advances due no later than October 31, 1997.
The Committed  Bridge  Facility  prohibits the  Partnership  from  incurring any
additional  indebtedness.  Interest accrues at either the prime rate or adjusted
LIBOR plus 2.5% at the borrowers  option and is set at the time of an advance of
funds.  Borrowings by the Partnership are guaranteed by the General Partner.  As
of November 11, 1996, AFG had $39,032,522 in outstanding  borrowings and neither
the  Partnership,  TECAI  nor any of the  other  programs  had  any  outstanding
borrowings.

     In  October  1996,  the  General  Partner  revised  the  "Committed  Bridge
Facility" and PLM Equipment Growth Fund III is no longer included as a borrower.

(III)    Delisting of Partnership Units and Depositary Unit Repurchase Plan

The  General  Partner  delisted  the  Partnership's  Depositary  units  from the
American Stock  Exchange  (AMEX) under the symbol GFZ on April 8, 1996. The last
day for trading on the AMEX was March 22, 1996.  Under the Internal Revenue Code
(the Code) the Partnership was classified as a Publicly Traded Partnership.  For
the past three  years the  Partnership  has  engaged in a plan to purchase up to
250,000  Depositary  Units.  For the nine months ended  September 30, 1996,  the
Partnership  repurchased 28,500 Depositary Units at a cost of $0.12 million.  As
of September 30, 1996, the  Partnership  has  repurchased a cumulative  total of
128,853 Depositary Units at a total cost of $0.92 million.



<PAGE>


(IV)     Trends

The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is  intended  to reduce its  exposure  to  volatility  in  individual
equipment  sectors.   Throughout  1995  and  the  first  part  of  1996,  market
conditions,  supply and demand equilibrium,  and other factors varied in several
markets.  In the  container  and  refrigerated  over-the-road  trailer  markets,
oversupply conditions,  industry  consolidations,  and other factors resulted in
falling  rates and lower  returns.  In the dry  over-the-road  trailer  markets,
strong  demand  and  a  backlog  of  new  equipment   deliveries  produced  high
utilization and returns.  The marine vessel,  rail, and mobile offshore drilling
unit markets could be generally  categorized  by increasing  rates as the demand
for  equipment  is  increasing  faster than new  additions  net of  retirements.
Finally,  demand for  narrowbody  stage II aircraft,  such as those owned by the
Partnership,  has increased as expected savings from newer  narrowbody  aircraft
have not  materialized  and  deliveries of the newer  aircraft have slowed down.
These trends are expected to continue for the near term. These different markets
have had individual  effects on the  performance  of Partnership  equipment - in
some cases  resulting  in  declining  performance,  and in others,  in  improved
performance.

     The ability of the  Partnership  to realize  acceptable  lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
governmental or other regulations,  and others. The  unpredictability of some of
these  factors,  or of their  occurrence,  makes it  difficult  for the  General
Partner to clearly define trends or influences  that may impact the  performance
of the Partnership's  equipment.  The General Partner continuously monitors both
the equipment  markets and the  performance  of the  Partnership's  equipment in
these  markets.  The  General  Partner  may decide to reduce  the  Partnership's
exposure to  equipment  markets in which it  determines  that it cannot  operate
equipment and achieve  acceptable  rates of return.  Alternatively,  the General
Partner martnership's equipment in these markets. The General Partner may decide
to reduce the Partnership's exposure to equipment markets in which it determines
that it  cannot  operate  equipment  and  achieve  acceptable  rates of  return.
Alternatively,  the General Partner may make a determination  to enter equipment
markets  in  which it  perceives  opportunities  to  profit  from  supply-demand
instabilities or other market imperfections.

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



<PAGE>


                           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 12, 1996                   By: /s/ David Davis
                                               ---------------
                                               David J. Davis
                                               Vice President and
                                               Corporate Controller