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, 1998

         [  ]     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,
                                                                                           1998               1997
                                                                                     ------------------------------------
<S>                                                                                   <C>                   <C>        
Assets

Equipment held for operating lease, at cost                                           $      98,185         $   105,308
Less accumulated depreciation                                                               (72,363 )           (67,234 )
                                                                                    ---------------------------------------
  Net equipment                                                                              25,822              38,074

Cash and cash equivalents                                                                     4,016               4,239
Accounts receivable, net of allowance for doubtful
    accounts of $1,824 in 1998 and $1,837 in 1997                                               954               1,316
Investments in unconsolidated special-purpose entities                                        5,272               9,179
Prepaid expenses and other assets                                                                 2                  71
Deferred charges, net of accumulated amortization of
    $371 in 1998 and $348 in 1997                                                               161                 307
                                                                                    ---------------------------------------

    Total assets                                                                      $      36,227         $    53,186
                                                                                    =======================================

Liabilities and partners' capital



Liabilities:
Accounts payable and accrued expenses                                                 $         721         $     1,294
Due to affiliates                                                                               156               2,208
Lessee deposits and reserves for repairs                                                      1,047                 835
Note payable                                                                                 18,540              29,290
                                                                                    ---------------------------------------
  Total liabilities                                                                          20,464              33,627
                                                                                    ---------------------------------------

Partners' capital:
Limited partners (9,871,073 depositary units as
    of September 30, 1998 and December 31, 1997)                                             15,763              19,559
General Partner                                                                                  --                  --
                                                                                    ---------------------------------------
  Total partners' capital                                                                    15,763              19,559
                                                                                    ---------------------------------------

    Total liabilities and partners' capital                                           $      36,227         $    53,186
                                                                                    =======================================

</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,

                                                                   1998             1997                 1998             1997
                               ----------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>                   <C>             <C>       
Revenues

Lease revenue                                                  $    3,729       $    5,152            $  12,286       $   15,377
Interest and other income                                              34              119                  148              306
Net gain on disposition of equipment                                    2              734                3,727              858
                                                              ---------------------------------------------------------------------
  Total revenues                                                    3,765            6,005               16,161           16,541
                                                              ---------------------------------------------------------------------

Expenses

Depreciation and amortization                                       2,322            3,544                7,129           10,644
Management fees to affiliate                                          216              290                  723              883
Repairs and maintenance                                               524              570                1,825            2,855
Equipment operating expense                                            --              133                   28              154
Interest expense                                                      340              818                1,383            2,422
Insurance expense to affiliate                                         --               --                  (42 )             --
Other insurance expense                                                45               54                  253              165
General and administrative expenses to affiliates                     128              187                  427              540
Other general and administrative expenses                             171              163                  489              543
Provision for bad debts                                               383              138                   19               93
                                                              ---------------------------------------------------------------------
  Total expenses                                                    4,129            5,897               12,234           18,299
                                                              ---------------------------------------------------------------------

Equity in net income of unconsolidated
    special-purpose entities                                          119              104                   79              446
                                                              ---------------------------------------------------------------------

    Net income (loss)                                          $     (245 )     $      212            $   4,006       $   (1,312)
                                                              =====================================================================

Partners' share of net income (loss)

Limited partners                                               $     (375 )     $       82            $   3,616       $   (1,702)
General Partner                                                       130              130                  390              390
                                                              ---------------------------------------------------------------------

    Total                                                      $     (245 )     $      212            $   4,006       $   (1,312)
                                                              =====================================================================

Net income (loss) per weighted-average depositary
     unit                                                      $    (0.04 )     $     0.01            $    0.37       $    (0.17)
                               ====================================================================================================

Cash distributions                                             $    2,598       $    2,598            $   7,802       $    7,793
                                                              =====================================================================
Cash distributions per weighted-average
    depositary unit                                            $     0.25       $     0.25            $    0.75       $     0.75
                                                              =====================================================================

</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, 1996 to
                               September 30, 1998
                           (in thousands of dollars)

<TABLE>
<CAPTION>



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

<S>                                                    <C>                 <C>              <C>       
Partners' capital as of December 31, 1996              $   28,013          $    --          $   28,013

Net income                                                  1,417              520               1,937

Cash distributions                                         (9,871)            (520)            (10,391)
                                                     -----------------------------------------------------

  Partners' capital as of December 31, 1997                19,559               --              19,559

Net income                                                  3,616              390               4,006

Cash distributions                                         (7,412)            (390)             (7,802)
                                                     -----------------------------------------------------

  Partners' capital as of September 30, 1998           $   15,763          $    --          $   15,763
                                                     =====================================================


</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,
                                                                                                   1998            1997
                                                                                               ----------------------------
<S>                                                                                              <C>              <C>        
Operating activities

Net income (loss)                                                                                $    4,006       $  (1,312 )
Adjustments to reconcile net income (loss) to net cash provided by (used in)
    operating activities:
  Depreciation and amortization                                                                       7,129          10,644
  Net gain on disposition of equipment                                                               (3,727)           (858 )
  Equity in net income from unconsolidated special-purpose entities                                     (79)           (446 )
  Changes in operating assets and liabilities:
    Restricted cash and marketable securities                                                            --               3
    Accounts and note receivable, net                                                                   398             162
    Prepaid expenses and other assets                                                                    69              61
    Accounts payable and accrued expenses                                                              (573)           (732 )
    Due to affiliates                                                                                (2,052)           (652 )
    Lessee deposits and reserves for repairs                                                            212            (545 )
                                                                                               --------------------------------
      Net cash provided by operating activities                                                       5,383           6,325
                                                                                               --------------------------------

Investing activities

Payments for capitalized improvements                                                                   (54)           (156 )
Equipment purchased and placed in unconsolidated special-purpose entity                              (1,198)             --
Distributions from unconsolidated special-purpose entities                                            2,573           2,185
Proceeds from disposition of equipment                                                               11,625           3,140
                                                                                               --------------------------------
      Net cash provided by investing activities                                                      12,946           5,169
                                                                                               --------------------------------

Financing activities

Principal payments on note payable                                                                  (10,750)           (997 )
Cash distributions paid to limited partners                                                          (7,412)         (7,403 )
Cash distributions paid to General Partner                                                             (390)           (390 )
                                                                                               --------------------------------
      Net cash used in financing activities                                                         (18,552)         (8,790 )
                                                                                               --------------------------------

Net (decrease) increase in cash and cash equivalents                                                   (223)          2,704
Cash and cash equivalents at beginning of period                                                      4,239           1,414
                                                                                               --------------------------------
Cash and cash equivalents at end of period                                                       $    4,016       $   4,118
                                                                                               ================================

Supplemental information

Interest paid                                                                                    $    1,389       $   2,631
                                               ================================================================================
Sale proceeds in accounts receivable                                                             $       42       $      --
                                               ================================================================================
Non-cash transfer of equipment at net book value from
  unconsolidated special-purpose entity                                                          $    2,611       $      --
                                               ================================================================================

</TABLE>




                       See accompanying notes to financial
                                  statements.




<PAGE>

                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998


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, 1998 and December 31, 1997,  the statements of
operations  for the three  months and nine months ended  September  30, 1998 and
1997, the  statements of changes in partners'  capital from December 31, 1996 to
September 30, 1998,  and the  statements of cash flows for the nine months ended
September 30, 1998 and 1997. Certain  information and note 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,  1997,  on file at the
Securities and Exchange Commission.

2.   Cash Distributions

Cash  distributions  are  recorded  when paid and totaled  $2.6 million and $7.8
million  for the  three  and nine  months  ended  September  30,  1998 and 1997,
respectively.  Cash  distributions  to  unitholders  in excess of net income are
considered to represent a return of capital.  Cash  distributions to unitholders
of $3.8 million and $7.4 million during the nine months ended September 30, 1998
and  1997,   respectively,   were  deemed  to  be  a  return  of  capital.  Cash
distributions  related to the results  from the third  quarter of 1998,  of $2.6
million, will be paid during the fourth quarter of 1998.

3.   Transactions with General Partner and Affiliates

The Partnership's  proportional share of the affiliated expenses incurred by the
unconsolidated special-purpose entities (USPEs) during 1998 and 1997, are listed
in the following table (in thousands of dollars):

<TABLE>
<CAPTION>

                                                     For the Three Months                 For the Nine Months
                                                      Ended September 30,                 Ended September 30,
                                                      1998           1997                1998            1997
                                                 ------------------------------------------------------------------


<S>                                                <C>             <C>                 <C>              <C>      
Management fees                                    $      30       $      43           $      91        $     132
Data processing and administrative
    expenses                                               8              12                  35               35
Insurance expense                                          3              17                  16               69

</TABLE>

The  Partnership's  proportional  share of  USPE-affiliated  management fees, of
$15,000 and $0.1 million, were payable as of September 30, 1998 and December 31,
1997, respectively.

Transportation  Equipment  Indemnity  Company,  Ltd.  (TEI), an affiliate of the
General   Partner,   provided   certain  marine   insurance   coverage  for  the
Partnership's  equipment and other insurance  brokerage services during 1998 and
1997.

During 1998, the Partnership  received a $46,000  loss-of-hire  insurance refund
from TEI due to lower  claims from the  insured  Partnership  and other  insured
affiliated partnerships.

The balance due to  affiliates  as of September 30, 1998 was $0.2 million due to
FSI and its affiliate for  management  fees. The balance due to affiliates as of
December  31,  1997  includes  $0.4  million  due to FSI and its  affiliate  for
management fees and $1.8 million due to affiliated USPEs.



<PAGE>



                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998



4.    Equipment

Owned  equipment  held for operating  lease is stated at cost. The components of
owned  equipment  held for  operating  leases are as follows  (in  thousands  of
dollars):

<TABLE>
<CAPTION>

                                                                September 30,           December 31,
                                                                   1998                  1997
                                                              -------------------------------------


<S>                                                            <C>                     <C>        
Aircraft                                                       $     51,974            $    46,282
Rail equipment                                                       34,443                 34,859
Marine containers                                                     6,296                  7,421
Trailers                                                              5,472                  7,080
Mobile offshore drilling unit                                            --                  9,666
                                                                     98,185                105,308
Less accumulated depreciation                                       (72,363)               (67,234)
                                                              ----------------------------------------
    Net equipment                                              $     25,822            $    38,074
                                                              ========================================

</TABLE>

As of September 30, 1998, all equipment in the Partnership  portfolio was either
on lease or operating in PLM-affiliated  short-term  trailer rental  facilities,
with the exception of 86 rail equipment, 25 marine containers,  and one aircraft
with an aggregate net book value of $2.7 million.  As of December 31, 1997,  all
equipment  in the  Partnership  portfolio  was either on lease or  operating  in
PLM-affiliated  short-term  rental  facilities,  with the exception of 28 marine
containers  and 41 rail  equipment  with an  aggregate  carrying  value  of $0.3
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, 1998 and 1997.  Capital
improvements  to the  Partnership's  equipment  of $0.1 million and $0.2 million
were made during the nine months  ended  September  30, 1998 and  September  30,
1997, respectively.

During the nine  months  ended  September  30,  1998,  the  Partnership  sold or
disposed of marine  containers,  trailers,  rail equipment and a mobile offshore
drilling unit,  with an aggregate net book value of $8.0 million,  for aggregate
proceeds of $11.7 million.  During the nine months ended September 30, 1997, the
Partnership sold or disposed of marine containers, trailers, rail equipment, 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, 1998, a commercial  aircraft,  which
was in a trust the Partnership had a 25% interest in, was transferred out of the
trust into the Partnership's owned equipment portfolio (see Note 5).



<PAGE>




                          PLM EQUIPMENT GROWTH FUND III
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1998


5.   Investments in Unconsolidated Special-Purpose Entities

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

<TABLE>
<CAPTION>

                                                                               September 30,      December 31,
                                                                                   1998               1997
                                                                              --------------------------------


<S>                                                                            <C>                  <C>        
56% interest in an entity owning a marine vessel                               $    2,954           $     3,104
17% interest in two trusts that own three commercial aircraft, two
        aircraft engines, and a portfolio of rotable components                     2,206                 4,021
25% interest in a trust that owned four commercial aircraft                           112                 2,054
                                                                             -------------------------------------


    Net investments                                                            $    5,272           $     9,179
                                                                             =====================================

</TABLE>

During the nine months ended September 30, 1998, the  Partnership  increased its
investment  in  a  trust  owning  four   commercial   aircraft  by  funding  the
installation  of a hushkit on an  aircraft  assigned to the  Partnership  in the
trust for $1.2 million. In this Trust, all of the commercial aircraft except the
commercial  aircraft  designated to the Partnership  were sold by the affiliated
programs. This aircraft,  designated to the Partnership,  was transferred out of
the Trust into the Partnership's owned equipment portfolio (see Note 4).

6.   Net Income (Loss) Per Weighted-Average Partnership Unit

Net income (loss) per weighted-average Partnership unit was computed by dividing
net income  (loss)  attributable  to limited  partners  by the  weighted-average
number  of  Partnership  units  deemed   outstanding   during  the  period.  The
weighted-average number of Partnership units deemed outstanding during the three
months and nine months ended September 30, 1998 and 1997 was 9,871,073.










                      (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 PLM  Equipment  Growth Fund III's (the  Partnership's)  Operating
Results for the Three Months Ended September 30, 1998 and 1997

(A)  Owned Equipment Operations

Lease  revenues  less  direct  expenses  (repairs  and  maintenance,   equipment
operating  expenses,  and asset-specific  insurance expenses) on owned equipment
decreased for the quarter ended September 30, 1998,  compared to the same period
of 1997.  The  following  table  presents  results by owned  equipment  type (in
thousands of dollars):

<TABLE>
<CAPTION>

                                                       For the Three Months
                                                        Ended September 30,
                                                     1998                1997
                                             ----------------------------------------

<S>                                             <C>                <C>            
Aircraft                                        $         1,592    $         1,994
Rail equipment                                            1,277              1,422
Trailers                                                    257                370
Marine containers                                            48                352
Mobile offshore drilling unit                                --                404
Marine vessel                                                --               (138 )

</TABLE>

Aircraft:  Aircraft  lease  revenues and direct  expenses  were $1.6 million and
$22,000,  respectively,  for the quarter ended  September 30, 1998,  compared to
$2.0 million and $40,000,  respectively,  during the same period of 1997.  Lease
revenues  decreased  $0.4 million  during the three months ended  September  30,
1998, when compared to the same period in 1997 due to the sale of a total of two
aircraft  during the third and fourth  quarters of 1997,  also one aircraft came
offlease  during the third  quarter of 1998.  The decrease in lease  revenue was
partially  offset by the  incremental  lease  revenue from an aircraft  that was
transferred into the Partnership's owned equipment portfolio from a trust during
the second quarter of 1998.

Rail  equipment:  Rail equipment  lease  revenues and direct  expenses were $1.8
million and $0.5  million,  respectively,  for the quarter  ended  September 30,
1998, compared to $1.9 million and $0.5 million,  respectively,  during the same
period of 1997.  The decrease in rail  equipment  contribution  was due to lower
revenues  resulting from the disposition of rail equipment in 1998 and 1997, and
more rail  equipment  being off lease in the third quarter of 1998,  compared to
the same period of 1997.

Trailers:  Trailer lease revenues and direct expenses were $0.3 million and $0.1
million,  respectively,  for the quarter ended  September 30, 1998,  compared to
$0.6 million and $0.1 million, respectively, during the same period of 1997. The
number of trailers owned by the  Partnership has been declining due to sales and
dispositions.  The  result of this  declining  fleet is a  decrease  in  trailer
contribution.

Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $2,000,  respectively,  for the quarter  ended  September  30, 1998,
compared to $0.4  million and  $2,000,  respectively,  during the same period of
1997.  The  number  of  marine  containers  owned  by the  Partnership  has been
declining due to sales and dispositions.  The result of this declining fleet and
a decrease in utilization has been a decrease in marine container contribution.

Mobile offshore  drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were zero for the quarter ended September 30, 1998,  compared to
$0.4 million and $10,000,  respectively,  for the quarter  ended  September  30,
1997. The Partnership sold its mobile offshore drilling unit in June of 1998.

Marine vessel:  Marine vessel lease  revenues and direct  expenses were zero for
the quarter ended September 30, 1998, compared to zero revenues and $0.1 million
direct  expenses,  respectively,  during  the  same  period  of  1997.  All  the
Partnership's marine vessels were sold during 1996.


  

<PAGE>



(B) Indirect Operating Expenses Related to Owned Equipment Operations

Total indirect expenses of $3.6 million for the quarter ended September 30, 1998
decreased from $5.1 million for the same period of 1997.  Significant  variances
are explained as follows:

     (1) A decrease of $1.2 million in depreciation  and  amortization  expenses
from 1997 levels reflects the sale or disposition of certain  Partnership assets
during 1998 and 1997 and the Partnership's use of the  double-declining  balance
method of depreciation which results in greater  depreciation in the first years
an asset is owned.

     (2) A decrease  of $0.5  million  in  interest  expense  was due to a lower
average  debt  outstanding  during the three months  ended  September  30, 1998,
compared to the same quarter in 1997.

     (3) An increase of $0.2  million in bad debt expense was due to the General
Partner's  evaluation  of the  collectability  of  receivables  due from certain
lessees.

(C)      Net Gain on Disposition of Owned Equipment

The net gain on the disposition of owned equipment for the third quarter of 1998
was $2,000,  resulting from the  disposition of marine  containers and trailers,
with an aggregate net book value of $0.1 million, for aggregate proceeds of $0.1
million.  The net gain on the  disposition  of  owned  equipment  for the  third
quarter of 1997 was $0.7 million,  which resulted from the disposition of marine
containers,  trailers, a rail equipment,  and an aircraft, with an aggregate net
book value of $1.7 million, for aggregate proceeds of $2.4 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 of dollars):

<TABLE>
<CAPTION>

                                                    For the Three Months
                                                    Ended September 30,

                                                  1998               1997
                                            ---------------------------------------

<S>                                          <C>                <C>              
Marine vessels                               $            118   $            (54)
Aircraft, aircraft engines, and rotables                    1                158
                                            ---------------------------------------
    Equity in net income of USPEs            $            119   $            104
                                            =======================================
</TABLE>

Marine  vessels:  As of  September  30, 1998 and 1997,  the  Partnership  had an
interest  in an entity that owns a marine  vessel.  The  Partnership's  share of
revenues  and  expenses  of marine  vessels was $0.4  million and $0.3  million,
respectively, for the quarter ended September 30, 1998, compared to $0.3 million
and $0.4  million,  respectively,  for the same period of 1997.  The increase in
lease  revenues  was due to  higher  lease  rates  for the  three  months  ended
September 30, 1998,  when compared to the same quarter in 1997.  The decrease in
direct   expenses   was  due  to  lower  marine   operating   expenses  and  the
double-declining  balance  method of  depreciation,  which  results  in  greater
depreciation in the first years an asset is owned.

Aircraft, aircraft engines, and rotables: As of September 30, 1998 and 1997, the
Partnership  had an interest in two trusts that own three  commercial  aircraft,
two aircraft engines, and a portfolio of aircraft rotables.  As of September 30,
1997, the Partnership  also had an interest in a trust that owned six commercial
aircraft.  The aircraft in this trust was  transferred out of the trust into the
Partnership's  owned  equipment  portfolio  in the second  quarter of 1998.  The
Partnership's  share of aircraft revenues and expenses was $0.2 million and $0.2
million,  respectively,  for the quarter ended  September 30, 1998,  compared to
$0.6 million and $0.4 million, respectively, during the same period of 1997. The
decrease  in lease  revenues  was due to the  renewal  of the  leases  for three
commercial aircraft,  two aircraft engines, and a portfolio of aircraft rotables
at a lower rate than was in place  during the same period of 1997.  In addition,
the lease revenues decreased because of the aircraft that was transferred out of
a trust  into the  Partnership's  owned  equipment  portfolio  during the second
quarter of 1998.  Depreciation and administrative expenses decreased as a result
of  this  transfer.  The  decrease  in  direct  expenses  was  also  due  to the
double-declining  balance  method of  depreciation,  which  results  in  greater
depreciation in the first years an asset is owned.



<PAGE>



(E)      Net Income (Loss)

As a result of the foregoing,  the Partnership had a net loss of $0.2 million in
the third  quarter of 1998 compared to a net income of $0.2 million in the third
quarter of 1997. The Partnership's  ability to operate, or liquidate assets, and
re-lease those assets whose leases expire is subject to many factors. Therefore,
the  Partnership's  performance in the three months ended  September 30, 1998 is
not necessarily  indicative of future periods. In the third quarter of 1998, 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, 1998 and 1997

(A) Owned Equipment Operations

Lease  revenues  less  direct  expenses  (repairs  and  maintenance,   equipment
operating  expenses,  and asset-specific  insurance expenses) on owned equipment
decreased  for the nine  months  ended 1998 when  compared to the same period of
1997. The following table presents results by owned equipment type (in thousands
of dollars):

<TABLE>
<CAPTION>

                                                     For the Nine Months
                                                      Ended September 30,
                                                  1998               1997
                                            ---------------------------------------


<S>                                           <C>                <C>             
Aircraft                                      $         4,866    $          4,751
Rail equipment                                          3,745               4,232
Trailers                                                  767               1,296
Mobile offshore drilling unit                             737               1,198
Marine containers                                         212                 923
Marine vessels                                            (63)               (143)

</TABLE>

Aircraft: Aircraft lease revenues and direct expenses were $5.0 million and $0.1
million, respectively, for the nine months ended September 30, 1998, compared to
$6.0  million and $1.2  million,  respectively,  during the same period of 1997.
Lease revenues decreased $1.0 million during the nine months ended September 30,
1998, when compared to the same period in 1997 due to the sale of a total of two
aircraft  during the third and fourth  quarters of 1997,  also one aircraft came
offlease  during the third  quarter of 1998.  The decrease in lease  revenue was
partially  offset by the  incremental  lease  revenue from an aircraft  that was
transferred into the Partnership's owned equipment portfolio from a trust during
the second quarter of 1998. During the nine months ended September 30, 1997, the
Partnership  incurred  $1.2 million in repairs on one aircraft to prepare it for
re-lease; a similar expense was not needed during the same period of 1998.

Rail  equipment:  Rail equipment  lease  revenues and direct  expenses were $5.4
million and $1.7 million, respectively, for the nine months ended 1998, compared
to $5.7 million and $1.5 million, respectively,  during the same period of 1997.
The decrease in lease  revenues  was due to the  disposition  of rail  equipment
during 1998 and 1997 and more rail  equipment  being off lease  during the first
nine months of 1998 when compared to the first nine months of 1997. The increase
in direct  expenses  resulted  from  running  repairs  required on certain  rail
equipment in the fleet during the first nine months of 1998 that were not needed
during the first nine months of 1997.

Trailers:  Trailer lease revenues and direct expenses were $0.9 million and $0.2
million, respectively, for the nine months ended September 30, 1998, compared to
$1.5 million and $0.2 million, respectively, during the same period of 1997. The
number of trailers owned by the  Partnership has been declining due to sales and
dispositions.  The  result of this  declining  fleet is a  decrease  in  trailer
contribution.

Mobile offshore  drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.8 million and $19,000, respectively, for the nine months
ended  September 30, 1998,  compared to $1.2 million and $31,000,  respectively,
for the nine months ended  September 30, 1997.  The decrease in mobile  offshore
drilling  unit  contribution  was due to the  sale of the  Partnership's  mobile
offshore drilling unit in June of 1998.


 

<PAGE>



Marine containers: Marine container lease revenues and direct expenses were $0.2
million and $5,000, respectively,  for the nine months ended September 30, 1998,
compared to $0.9  million and  $8,000,  respectively,  during the same period of
1997.  The  number  of  marine  containers  owned  by the  Partnership  has been
declining due to sales and dispositions.  The result of this declining fleet and
a decrease in utilization has been a decrease in marine container contribution.

Marine vessel:  Marine vessel lease  revenues and direct  expenses were zero and
$0.1  million for the nine months  ended  September  30, 1998 and 1997.  All the
Partnership's  marine  vessels were sold during 1996. The direct expense of $0.1
million  for the nine months  ended  September  30,  1998 was due to  additional
supplemental  liability insurance charged to the Partnership for sold vessels by
the former insurance company.  This expense was partially offset by loss of hire
insurance refund received during the second quarter of 1998 from  Transportation
Equipment  Indemnity  Company,  Ltd. (TEI), an affiliate of the General Partner,
due to lower claims from the insured  Partnership  and other insured  affiliated
partnerships.  The direct  expense of $0.1  million  for the nine  months  ended
September 30, 1997 was for supplemental insurance for a sold vessel.

(B) Indirect Operating Expenses Related to Owned Equipment Operations

Total indirect expenses of $10.2 million for the nine months ended September 30,
1998  decreased  from $15.2  million  for the same  period of 1997.  Significant
variances are explained as follows:

     (1) A decrease in depreciation  and  amortization  expenses of $3.5 million
from 1997 levels reflects the sale or disposition of certain  Partnership assets
during 1998 and 1997 and the  double-declining  balance  method of  depreciation
which results in greater depreciation in the first years an asset is owned.

     (2) A decrease of $1.0 million in interest expense was due to lower average
debt  outstanding  during the nine months ended September 30, 1998 when compared
to the same period of 1997.

     (3) A decrease of $0.2 million in general and  administrative  expenses was
due to  lower  costs  for  professional  services  needed  to  collect  past due
receivables due from certain nonperforming lessees and decreased  administrative
costs associated with the short-term  rental  facilities due to decreased volume
of trailers operating in these facilities.

     (4) A decrease of $0.2 million in  management  fees to affiliate  from 1997
levels was due to lower  lease  revenue in 1998,  compared to the same period of
1997.

     (5) A decrease of $0.1  million in bad debt  expense was due to the General
Partner's  evaluation  of the  collectability  of  receivables  due from certain
lessees.

(C)       Net Gain on Disposition of Owned Equipment

The net gain on the  disposition  of  equipment  was $3.7  million  for the nine
months  ended  September  30, 1998,  resulting  from the  disposition  of marine
containers,  trailers, rail equipment,  and a mobile offshore drilling unit with
an aggregate  net book value of $8.0 million,  for  aggregate  proceeds of $11.7
million.  For the nine months ended  September  30,  1997,  the net gain of $0.9
million  resulted from the  disposition  of marine  containers,  trailers,  rail
equipment, and an aircraft with an aggregate net book value of $2.2 million, for
aggregate proceeds of $3.1 million.

(D)      Interest and Other Income

Interest  and other  income  decreased by $0.2 million for the nine months ended
September  30, 1998  compared to the same period of 1997  primarily due to lower
cash balances available for investment.



<PAGE>



(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 of dollars):

<TABLE>
<CAPTION>

                                                       For the Nine Months
                                                        Ended September 30,
                                                     1998                1997
                                             ----------------------------------------


<S>                                             <C>                <C>            
Aircraft, aircraft engines, and rotables        $            45    $           588
Marine vessels                                               34               (142 )
    Equity in net income                        $            79    $           446
                       ===============================================================

</TABLE>

Aircraft, aircraft engines, and rotables: As of September 30, 1998 and 1997, the
Partnership  had an interest in two trusts that own three  commercial  aircraft,
two aircraft engines, and a portfolio of aircraft rotables.  As of September 30,
1997,  the  Partnership  also  owned  an  interest  in a trust  that  owned  six
commercial aircraft. The aircraft in this trust was transferred out of the trust
into the Partnership's  owned equipment portfolio in the second quarter of 1998.
The  Partnership's  share of aircraft revenues and expenses was $1.0 million and
$0.9  million,  respectively,  for the nine months  ended  September  30,  1998,
compared to $2.1 million and $1.5 million, respectively,  during the same period
of 1997. The decrease in lease revenues was due to the renewal of the leases for
three commercial  aircraft,  two aircraft  engines,  and a portfolio of aircraft
rotables at a lower rate than was in place  during the same  period of 1997.  In
addition,  the  lease  revenues  decreased  because  of the  aircraft  that  was
transferred  out of a trust into the  Partnership's  owned  equipment  portfolio
during the second  quarter of 1998.  Depreciation  and  administrative  expenses
decreased as a result of this transfer. The decrease in direct expenses was also
due to the  double-declining  balance method of  depreciation,  which results in
greater depreciation in the first years an asset is owned.

Marine  vessels:  As of  September  30, 1998 and 1997,  the  Partnership  had an
interest  in an entity that owns a marine  vessel.  The  Partnership's  share of
revenues  and  expenses in marine  vessels was $1.0 million and $1.0 million for
the nine months  ended  September  30,  1998,  compared to $1.0 million and $1.1
million, respectively, for the nine months ended September 30, 1997.

(F)  Net Income (Loss)

As a result of the foregoing, the Partnership had net income of $4.0 million for
the nine months ended September 30, 1998, compared to a net loss of $1.3 million
in the same period of 1997. The Partnership's  ability to operate,  or liquidate
assets,  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, 1998 is not necessarily  indicative of future periods. In the nine
months ended September 30, 1998, the Partnership distributed $7.4 million to the
limited partners, or $0.75 per weighted-average depositary unit.






                    (this space is intentionally left blank)

 

<PAGE>




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

For the  nine  months  ended  September  30,  1998,  the  Partnership  generated
sufficient  operating  cash of $8.0  million  (net cash  provided  by  operating
activities,    plus    non-liquidating    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, 1998
of approximately $7.8 million) to the partners.

During the nine months  ended  September  30,  1998,  the General  Partner  sold
equipment on behalf of the Partnership and realized proceeds of $11.7 million of
which $11.6 million have been received.

During the first nine months of 1998, the Partnership paid down $10.8 million of
the outstanding note balance from the proceeds of asset sales.

(III) EFFECTS OF YEAR 2000

It is possible that the General Partner's  currently installed computer systems,
software  products and other business  systems,  or the  Partnership's  vendors,
service  providers and customers,  working  either alone or in conjunction  with
other software or systems, may not accept input of, store, manipulate and output
dates on or after  January  1, 2000  without  error or  interruption  (a problem
commonly  known  as  the  "Year  2000"  problem).   As  the  Partnership  relies
substantially  on the  General  Partner's  software  systems,  applications  and
control devices in operating and monitoring significant aspects of its business,
any Year 2000  problem  suffered  by the General  Partner  could have a material
adverse effect on the Partnership's business, financial condition and results of
operations.

The General Partner has  established a special Year 2000 oversight  committee to
review  the  impact  of Year  2000  issues on its  software  products  and other
business  systems  in  order to  determine  whether  such  systems  will  retain
functionality  after  December  31, 1999.  The General  Partner (a) is currently
integrating Year 2000 compliant  programming  code into its existing  internally
customized and internally developed transaction  processing software systems and
(b) the General Partner's  accounting and asset management software systems have
either already been made Year 2000 compliant or Year 2000 compliant  upgrades of
such systems are planned to be implemented by the General Partner before the end
of  fiscal  1999.  Although  the  General  Partner  believes  that its Year 2000
compliance  program can be completed by the  beginning of 1999,  there can be no
assurance that the  compliance  program will be completed by that date. To date,
the  costs  incurred  and  allocated  to the  Partnership  to  become  Year 2000
compliant have not been material. In addition,  the General Partner believes the
future costs allocable to the Partnership to become Year 2000 compliant will not
be material.

Some risks  associated  with the Year 2000 problem are beyond the ability of the
Partnership to control,  including the extent to which third parties can address
the Year  2000  problem.  The  General  Partner  has begun to  communicate  with
vendors,  services  providers  and  customers  in order to assess  the Year 2000
compliance  readiness of such parties and the extent to which the Partnership is
vulnerable to any third-party  Year 2000 issues.  There can be no assurance that
the  software  systems  of such  parties  will be  converted  or made  Year 2000
compliant in a timely manner.  Any failure by the General  Partner or such other
parties  to make  their  respective  systems  Year 2000  compliant  could have a
material  adverse  effect on the  business,  financial  position  and results of
operations of the  Partnership.  The General Partner will make an ongoing effort
to recognize and evaluate  potential  exposure relating to third-party Year 2000
non-compliance  and will  develop  a  contingency  plan if the  General  Partner
determines,  or is unable to determine,  that third-party  non-compliance  would
have a material adverse effect on the Partnership's business, financial position
or results of operation.

(IV)  ACCOUNTING PRONOUNCEMENTS

In  June  1997,  the  Financial   Accounting  Standards  Board  issued  two  new
statements:  SFAS No. 130,  "Reporting  Comprehensive  Income,"  which  requires
enterprises to report,  by major  component and in total,  all changes in equity
from  nonowner  sources;  and SFAS No. 131,  "Disclosures  about  Segments of an
Enterprise  and  Related  Information,"  which  establishes  annual and  interim
reporting  standards  for a public  company's  operating  segments  and  related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the  Partnership's  fiscal year ended December
31, 1998, with earlier  application  permitted.  The effect of adoption of these
statements  will  be  limited  to the  form  and  content  of the  Partnership's
disclosures and will not impact the  Partnership's  results of operations,  cash
flow, or financial position.

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting   for  Derivative   Instruments  and  Hedging   Activities",   which
standardizes  the  accounting  for  derivative  instruments,  including  certain
derivative instruments embedded in other contracts,  by requiring that an entity
recognize  those items as assets or  liabilities  in the  statement of financial
position and measure  them at fair value.  This  statement is effective  for all
quarters of fiscal  years  beginning  after June 15, 1999.  As of September  30,
1998, the General Partner is reviewing the effect this standard will have on the
Partnership's financial statements.

(V)  OUTLOOK FOR THE FUTURE

Since the  Partnership  is in its holding or passive  liquidation  phase through
December 31, 1998, 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  Partnership  intends  to use cash  flow  from  operations  to  satisfy  its
operating  requirements,  pay loan principal on debt,  maintain  working capital
reserves, and pay cash distributions to the investors.

(VI)  FORWARD-LOOKING INFORMATION

Except for the 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.







                      (this space intentionally left blank)



<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 5, 1998            By: /s/ Richard K Brock
                                       -------------------
                                       Richard K Brock
                                       Vice President and
                                       Corporate Controller


<PAGE>