TEXTAINER EQUIPMENT INCOME FUND III L P - 10-Q Quarterly Report

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TEXTAINER FINANCIAL SERVICES CORPORATION
650 California Street, 16th Floor
San Francisco, CA 94108

November 12, 2004

Securities and Exchange Commission
Washington, DC 20549

Ladies and Gentlemen:

Pursuant to the requirements of the Securities Exchange Act of 1934, we are
submitting herewith for filing on behalf of Textainer Equipment Income Fund III,
L.P. (the "Partnership") the Partnership's Quarterly Report on Form 10-Q for the
Third Quarter ended September 30, 2004.

This filing is being effected by direct transmission to the Commission's EDGAR
System.

Sincerely,

Nadine Forsman
Controller

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

Commission file number 0-20140

TEXTAINER EQUIPMENT INCOME FUND III, L.P.
A California Limited Partnership
(Exact name of Registrant as specified in its charter)

California 94-3121277
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)

650 California Street, 16th Floor
San Francisco, CA 94108
(Address of Principal Executive Offices) (ZIP Code)

(415) 434-0551
(Registrant's telephone number, including area code)

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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)

Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2004

Table of Contents
- -----------------------------------------------------------------------------------------------------------------

Page
Part I Financial Information

Item 1. Financial Statements (unaudited)

Balance Sheets - September 30, 2004
and December 31, 2003............................................................................. 3

Statements of Operations for the three and nine months
ended September 30, 2004 and 2003................................................................. 4

Statements of Partners' Capital for the nine months
ended September 30, 2004 and 2003................................................................. 5

Statements of Cash Flows for the nine months
ended September 30, 2004 and 2003................................................................. 6

Notes to Financial Statements..................................................................... 8

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................... 13

Item 3. Quantitative and Qualitative Disclosures about Market Risk................................... 24

Item 4. Controls and Procedures...................................................................... 24

Part II Other Information

Item 6. Exhibits and Reports on Form 8K.............................................................. 24

TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)

Balance Sheets

September 30, 2004 and December 31, 2003
(Amounts in thousands)
(unaudited)
- ---------------------------------------------------------------------------------------------------------------

2004 2003
--------------- ---------------

Assets
Container rental equipment, net of accumulated depreciation
and impairment of $31,525, (2003: $34,299) (notes 4 & 6) $ 16,592 $ 22,714
Cash 762 627
Accounts receivable, net of allowance for doubtful
accounts of $288, (2003: $175) 1,734 2,182
Due from affiliates, net (note 2) 343 290
Prepaid expenses 10 33
--------------- ---------------

$ 19,441 $ 25,846
=============== ===============

Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 100 $ 178
Accrued liabilities 251 252
Accrued damage protection plan costs 326 302
Deferred quarterly distributions 97 65
Deferred damage protection plan revenue 156 156
--------------- ---------------

Total liabilities 930 953
--------------- ---------------

Partners' capital:
General partners - -
Limited partners 18,511 24,893
--------------- ---------------

Total partners' capital 18,511 24,893
--------------- ---------------

$ 19,441 $ 25,846
=============== ===============

See accompanying notes to financial statements

TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)

Statements of Operations

For the three and nine months ended September 30, 2004 and 2003
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- -------------------------------------------------------------------------------------------------------------------------

Three months Three months Nine months Nine months
Ended Ended Ended Ended
Sept. 30, 2004 Sept. 30, 2003 Sept. 30, 2004 Sept. 30, 2003
--------------- --------------- --------------- ---------------

Rental income $ 2,118 $ 2,353 $ 6,385 $ 7,336
--------------- --------------- --------------- ---------------

Costs and expenses:
Direct container expenses 213 521 1,055 1,529
Bad debt expense (benefit) 65 (8) 115 80
Depreciation (note 4) 348 1,378 2,234 4,435
Write-down of containers (notes 4 & 6) - 22 1,950 285
Professional fees 22 5 45 14
Management fees to affiliates (note 2) 204 241 621 707
General and administrative costs
to affiliates (note 2) 94 108 283 339
Other general and administrative costs 19 32 69 92
(Gain) loss on sale of containers (note 4) (112) 164 (26) 323
--------------- --------------- --------------- ---------------

853 2,463 6,346 7,804
--------------- --------------- --------------- ---------------

Income (loss) from operations 1,265 (110) 39 (468)
--------------- --------------- --------------- ---------------

Interest income 3 1 6 5
--------------- --------------- --------------- ---------------

Net earnings (loss) $ 1,268 $ (109) $ 45 $ (463)
=============== =============== =============== ===============

Allocation of net earnings (loss) (note 2):
General partners $ 22 $ 23 $ 66 $ 65
Limited partners 1,246 (132) (21) (528)
--------------- --------------- --------------- ---------------

$ 1,268 $ (109) $ 45 $ (463)
=============== =============== =============== ===============
Limited partners' per unit share
of net earnings (loss) $ 0.21 $ (0.02) $ (0.00) $ (0.09)
=============== =============== =============== ===============

Limited partners' per unit share
of distributions $ 0.34 $ 0.38 $ 1.08 $ 1.07
=============== =============== =============== ===============

Weighted average number of limited
partnership units outstanding 5,903,834 5,919,042 5,903,834 5,924,175
=============== =============== =============== ===============

See accompanying notes to financial statements

TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)

Statements of Partners' Capital

For the nine months ended September 30, 2004 and 2003
(Amounts in thousands)
(unaudited)
- ----------------------------------------------------------------------------------------------------------------

Partners' Capital
---------------------------------------------------------
General Limited Total
-------------- -------------- --------------

Balances at January 1, 2003 $ - $ 33,544 $ 33,544

Distributions (65) (6,321) (6,386)

Redemptions (note 5) - (68) (68)

Net earnings (loss) 65 (528) (463)
-------------- -------------- --------------

Balances at September 30, 2003 $ - $ 26,627 $ 26,627
============== ============== ==============

Balances at January 1, 2004 $ - $ 24,893 $ 24,893

Distributions (66) (6,347) (6,413)

Redemptions (note 5) - (14) (14)

Net earnings (loss) 66 (21) 45
-------------- -------------- --------------

Balances at September 30, 2004 $ - $ 18,511 $ 18,511
============== ============== ==============

See accompanying notes to financial statements

TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)

Statements of Cash Flows

For the nine months ended September 30, 2004 and 2003
(Amounts in thousands)
(unaudited)
- ------------------------------------------------------------------------------------------------------------------

2004 2003
---------------- ---------------

Cash flows from operating activities:
Net earnings (loss) $ 45 $ (463)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation (note 4) 2,234 4,435
Write-down of containers (notes 4 & 6) 1,950 285
Increase in allowance for doubtful accounts 113 64
(Gain) loss on sale of containers (26) 323
Decrease (increase) in assets:
Accounts receivable 383 265
Due from affiliates, net (311) (19)
Prepaid expenses 23 25
(Decrease) increase in liabilities:
Accounts payable and accrued liabilities (79) (89)
Accrued damage protection plan costs 24 67
Warranty claims - (30)
---------------- ---------------

Net cash provided by operating activities 4,356 4,863
---------------- ---------------

Cash flows from investing activities:
Proceeds from sale of containers 2,171 1,606
---------------- ---------------

Net cash provided by investing activities 2,171 1,606
---------------- ---------------

Cash flows from financing activities:
Redemptions of limited partnership units (14) (68)
Distributions to partners (6,378) (6,389)
---------------- ---------------

Net cash used in financing activities (6,392) (6,457)
---------------- ---------------

Net increase in cash 135 12

Cash at beginning of period 627 548
---------------- ---------------

Cash at end of period $ 762 $ 560
================ ===============

See accompanying notes to financial statements

TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)

Statements of Cash Flows--Continued

For the nine months ended September 30, 2004 and 2003
(Amounts in thousands)
(unaudited)
- --------------------------------------------------------------------------------

Supplemental Disclosures:

Supplemental schedule of non-cash investing and financing activities:

The following table summarizes the amounts of distributions to partners and
proceeds from sale of containers which had not been paid or received as of
September 30, 2004 and 2003, and December 31, 2003 and 2002, resulting in
differences in amounts recorded and amounts of cash disbursed or received by the
Partnership, as shown in the Statements of Cash Flows for the nine-month periods
ended September 30, 2004 and 2003.

Sept. 30 Dec. 31 Sept. 30 Dec. 31
2004 2003 2003 2002
----------- ----------- ----------- -----------

Distributions to partners included in:
Due to affiliates.............................. $ 8 $ 5 $ 8 $ 9
Deferred quarterly distributions............... 97 65 86 88

Proceeds from sale of containers included in:
Due from affiliates............................ 257 512 402 361

The following table summarizes the amounts of distributions to partners and
proceeds from sale of containers recorded by the Partnership and the amounts
paid or received as shown in the Statements of Cash Flows for the nine-month
periods ended September 30, 2004 and 2003.

2004 2003
---- ----

Distributions to partners declared.............................................. $6,413 $6,386
Distributions to partners paid.................................................. 6,378 6,389

Proceeds from sale of containers recorded....................................... 1,916 1,647
Proceeds from sale of containers received....................................... 2,171 1,606

The Partnership has entered into direct finance leases, resulting in the
transfer of containers from container rental equipment to accounts receivable.
The carrying value of containers transferred during the nine-month periods ended
September 30, 2004 and 2003 was $48 and $2, respectively.

See accompanying notes to financial statements

TEXTAINER EQUIPMENT INCOME FUND III, L.P.
(a California Limited Partnership)

Notes To Financial Statements

For the three and nine months ended September 30, 2004 and 2003
(Amounts in thousands except for unit and per unit amounts)
(unaudited)
- --------------------------------------------------------------------------------

Note 1. General

Textainer Equipment Income Fund III, L.P. (the Partnership), a California
limited partnership with a maximum life of 20 years, was formed in 1990.
The Partnership owns a fleet of intermodal marine cargo containers, which
are leased to international shipping lines.

In April 2002, the Partnership entered its liquidation phase, which may
last up to six or more years. The final termination and winding up of the
Partnership, as well as payment of liquidating and/or final distributions,
will occur once all or substantially all of the Partnership's equipment has
been sold.

The accompanying interim comparative financial statements have not been
audited by an independent public accountant. However, all adjustments
(which were only normal and recurring adjustments) which are, in the
opinion of management, necessary to fairly present the financial position
of the Partnership as of September 30, 2004 and December 31, 2003 and the
results of its operations for the three and nine-month periods ended
September 30, 2004 and 2003 and changes in partners' capital and cash flows
for the nine-month periods ended September 30, 2004 and 2003, have been
made.

The financial information presented herein should be read in conjunction
with the audited financial statements and other accompanying notes included
in the Partnership's annual audited financial statements as of and for the
year ended December 31, 2003, in the Annual Report filed on Form 10-K.

Certain estimates and assumptions were made by the Partnership's management
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. The Partnership's management evaluates its estimates on
an on-going basis, including those related to the container rental
equipment, accounts receivable and accruals.

These estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments regarding the carrying
values of assets and liabilities. Actual results could differ from those
estimates under different assumptions or conditions.

The following critical accounting policies are used in the preparation of
its financial statements:

The Partnership maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its lessees to make required
payments. These allowances are based on management's current assessment of
the financial condition of the Partnership's lessees and their ability to
make their required payments.

The Partnership depreciates its container rental equipment based on certain
estimates related to the container's useful life and salvage value.
Additionally, the Partnership writes down the value of its containers if an
evaluation indicates that the recorded amounts of containers are not
recoverable based on estimated future undiscounted cash flows and sales
prices. These estimates are based upon historical useful lives of
containers and container sales prices as well as assumptions about future
demand for leased containers and estimated sales prices (See Notes 4 and
6.)

Certain reclassifications, not affecting net earnings (loss), have been
made to prior year amounts in order to conform to the 2004 financial
statement presentation.

Note 2. Transactions with Affiliates

Textainer Financial Services Corporation (TFS) is the managing general
partner of the Partnership and is a wholly-owned subsidiary of Textainer
Capital Corporation (TCC). Textainer Equipment Management Limited (TEM) and
Textainer Limited (TL) are associate general partners of the Partnership.
The managing general partner and the associate general partners are
collectively referred to as the General Partners and are commonly owned by
Textainer Group Holdings Limited (TGH). The General Partners also act in
this capacity for other limited partnerships. The General Partners manage
and control the affairs of the Partnership.

In accordance with the Partnership Agreement, sections 3.08 through 3.12,
net earnings or losses and distributions are generally allocated 1% to the
General Partners and 99% to the Limited Partners. If the allocation of
distributions exceeds the allocation of net earnings (loss) and creates a
deficit in a General Partners' aggregate capital account, the Partnership
Agreement provides for a special allocation of gross income equal to the
amount of the deficit to be made to the General Partners.

As part of the operation of the Partnership, the Partnership is to pay to
the General Partners, an equipment management fee, an incentive management
fee and an equipment liquidation fee. These fees are for various services
provided in connection with the administration and management of the
Partnership. The Partnership incurred $55 and $174 of incentive management
fees during the three and nine-month periods ended September 30, 2004 and
$74 and $192 during the equivalent period in 2003, respectively. No
equipment liquidation fees were incurred during these periods.

The Partnership's container fleet is managed by TEM. In its role as
manager, TEM has authority to acquire, hold, manage, lease, sell and
dispose of the containers. TEM holds, for the payment of direct operating
expenses, a reserve of cash that has been collected from leasing
operations; such cash is included in due from affiliates, net at September
30, 2004 and December 31, 2003.

Subject to certain reductions, TEM receives a monthly equipment management
fee equal to 7% of gross lease revenues attributable to operating leases
and 2% of gross revenues attributable to full payout net leases. These fees
totaled $149 and $447 for the three and nine-month periods ended September
30, 2004, respectively, and $167 and $515, during the comparable periods in
2003.

Certain indirect general and administrative costs such as salaries,
employee benefits, taxes and insurance are incurred in performing
administrative services necessary to the operation of the Partnership.
These costs are incurred and paid by TFS and TEM. General and
administrative costs allocated to the Partnership during the three and
nine-month periods ended September 30, 2004 and 2003 were as follows:

Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
2004 2003 2004 2003
---- ---- ---- ----

Salaries $53 $ 56 $168 $182
Other 41 52 115 157
-- --- --- ---
Total general and
administrative costs $94 $108 $283 $339
== === === ===

TEM allocates these general and administrative costs based on the ratio of
the Partnership's interest in the managed containers to the total container
fleet managed by TEM during the period. TFS allocates these costs either
based on the ratio of the Partnership's investors to the total number of
investors of all limited partnerships managed by TFS or equally among all
the limited partnerships managed by TFS. The General Partners allocated the
following general and administrative costs to the Partnership during the
three and nine-month periods ended September 30, 2004 and 2003:

Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
2004 2003 2004 2003
---- ---- ---- ----

TEM $80 $ 92 $236 $293
TFS 14 16 47 46
-- --- --- ---
Total general and
administrative costs $94 $108 $283 $339
== === === ===

At September 30, 2004 and December 31, 2003, due from affiliates, net is
comprised of:

2004 2003
---- ----
Due from affiliates:
Due from TEM...................... $418 $353
--- ---

Due to affiliates:
Due to TFS........................ 54 54
Due to TCC........................ 20 8
Due to TL......................... 1 1
--- ---
75 63
--- ---

Due from affiliates, net $343 $290
=== ===

These amounts receivable from and payable to affiliates were incurred in
the ordinary course of business between the Partnership and its affiliates
and represent timing differences in the accrual and remittance of expenses,
fees and distributions described above and in the accrual and remittance of
net rental revenues and container sales proceeds from TEM.

Note 3. Lease Rental Income

Leasing income arises principally from the renting of containers to various
international shipping lines. Revenue is recorded when earned according to
the terms of the container rental contracts. These contracts are typically
for terms of five years or less. The following is the lease mix of the
on-lease containers (in units) at September 30, 2004 and 2003:

2004 2003
---- ----

On-lease under master leases 8,635 9,165
On-lease under long-term leases 6,220 6,401
------ ------

Total on-lease containers 14,855 15,566
====== ======

Under master lease agreements, the lessee is not committed to lease a
minimum number of containers from the Partnership during the lease term and
may generally return any portion or all the containers to the Partnership
at any time, subject to certain restrictions in the lease agreement. Under
long-term lease agreements, containers are usually leased from the
Partnership for periods of between three to five years. Such leases are
generally cancelable with a penalty at the end of each twelve-month period.
Under direct finance leases, the containers are usually leased from the
Partnership for the remainder of the container's useful life with a
purchase option at the end of the lease term.

The remaining containers are off-lease and are being stored primarily at a
large number of storage depots.

Note 4. Container Rental Equipment

The Partnership evaluated the recoverability of the recorded amount of
container rental equipment for containers to be held for continued use and
determined that a reduction to the carrying value of these containers was
not required at September 30, 2003. Based on an impairment analysis
performed at June 30, 2004, which considered the possible sale of the
Partnership's remaining container fleet (see Note 6), the Partnership
determined that certain containers were impaired and that a reduction to
the carrying value of these containers was required. The Partnership
recorded a write down of $1,916 during the three-month period ended June
30, 2004 to write down the value of certain containers that had carrying
values which were greater than the anticipated per unit sales price in the
buyer's letter of intent. The Partnership evaluated the recoverability of
these containers at September 30, 2004 and determined that a further
reduction to the carrying value of these containers was not required.

The Partnership also evaluated the recoverability of the recorded amount of
containers identified for sale in the ordinary course of business and
determined that a reduction to the carrying value of some of these
containers was required. The Partnership wrote down the value of these
containers to their estimated net realizable value, which was based on
recent sales prices less cost to sell. During the nine-month periods ended
September 30, 2004 and 2003 the Partnership recorded write down expenses of
$34 and $285, respectively, on 201 and 628 containers identified as for
sale and requiring a reserve. There was no write-down recorded during the
three-month period ended September 30, 2004. During the three-month period
ended September 30, 2003, the Partnership recorded a write down expense of
$22 on 166 containers identified for sale and requiring a reserve. At
September 30, 2004 and 2003, the net book value of the 91 and 287
containers identified as for sale was $76 and $245, respectively. These
containers are included in container rental equipment in the balance
sheets.

During the nine-month periods ended September 30, 2004 and 2003, the
Partnership sold 269 and 715, respectively, of these previously written
down containers for a gain (loss) of $10 and ($62), respectively. During
the three-month period ended September 30, 2003 the Partnership sold 181
previously written down containers for a loss of $5.

The Partnership also sold containers that had not been written down and
recorded a gain (loss) of $16 and ($261) during the nine-month periods
ended September 30, 2004 and 2003, respectively. During the three-month
periods ended September 30, 2004 and 2003, the Partnership recorded a gain
(loss) of $112 and ($159), respectively, on the sale of containers that had
not been written down.

Note 5. Redemptions

The following redemptions were consummated by the Partnership during the
nine-month periods ended September 30, 2004 and 2003:

Units Average
Redeemed Redemption Price Amount Paid
-------- ----------------- -----------

Total Partnership redemptions as of
December 31, 2002.................. 314,335 $ 8.10 $2,546

Nine-month period ended:
September 30, 2003................. 16,623 $ 4.09 68
------- -----

Total Partnership redemptions as of
September 30, 2003................. 330,958 $ 7.90 $2,614
======= =====

Total Partnership redemptions as of
December 31, 2003.................. 342,366 $ 7.76 $2,657

Nine-month period ended:
September 30, 2004................. 3,800 $ 3.68 14
------- -----

Total Partnership redemptions as of
September 30, 2004................. 346,166 $ 7.72 $2,671
======= =====

The redemption price is fixed by formula in accordance with the Partnership
Agreement.

Note 6. Possible Sale of Container Fleet

In July 2004, the Partnership signed a letter of intent to sell its
remaining container fleet for cash to an unaffiliated corporate purchaser.
The Partnership is in the process of negotiating a definitive purchase and
sale agreement with the purchaser. If the purchase and sale agreement is
finalized and signed by all parties, the Partnership will submit the
proposed sale to the Limited Partners for approval. If the Limited Partners
approve the sale and the sale is completed, the Partnership anticipates
that it will distribute the net proceeds of the sale to the partners and
terminate its existence during 2005.

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

(Amounts in thousands except for unit and per unit amounts)
- --------------------------------------------------------------------------------

The Financial Statements contain information which will assist in evaluating the
financial condition of the Partnership for the three and nine-month periods
ended September 30, 2004 and 2003. Please refer to the Financial Statements and
Notes thereto in connection with the following discussion.

Textainer Financial Services Corporation (TFS) is the Managing General Partner
of the Partnership and is a wholly-owned subsidiary of Textainer Capital
Corporation (TCC). Textainer Equipment Management Limited (TEM) and Textainer
Limited (TL) are Associate General Partners of the Partnership. The General
Partners manage and control the affairs of the Partnership.

Introduction

The Partnership is a finite-life entity whose principal business is to own a
fleet of containers for lease to the international shipping industry. The
Partnership's revenues come primarily from the rental income generated by leased
containers and, to a smaller extent, from services related to rental income,
such as handling charges paid by lessees. The Partnership's revenues are,
therefore, dependent on demand for leased containers. Demand for leased
containers drives not only the percentage of the Partnership's containers that
are on lease (utilization), but also, to a certain extent, the rental rates the
Partnership can charge under its leases. When demand declines, utilization
falls, and the Partnership has fewer containers on lease, often earning less
revenue, and more containers off-lease incurring storage expense. In times of
reduced demand, then, the Partnership has higher expenses and may have to reduce
revenues further by offering lessees incentives such as free rental periods or
credits. Conversely, in times of increased demand, rental revenues increase
because the Partnership has more containers on lease, rental rates sometimes
rise, and expenses will drop because the Partnership no longer incurs as many
charges to store or reposition off-lease containers. The General Partners try at
all times to take advantage of the opportunities created by different levels of
demand for leased containers, either by changing services, lease terms or lease
rates offered to customers or by concentrating on different geographic markets.

Demand for containers is driven by many factors, including the overall volume of
worldwide shipping, the number of containers manufactured, the number of
containers available for lease in specific locations and the capacity of the
worldwide shipping industry to transport containers on its existing ships. Since
many of the Partnership's customers are shipping lines that also own their own
containers, the price and availability of new containers directly affects demand
for leased containers. If shipping lines have the cash or financing to buy
containers and find that alternative attractive, demand for leased containers
will fall. Current demand and related market conditions for containers are
discussed below under "Results of Operations: Current Market Conditions for
Leased Containers." Competition for shipping lines' business has increased in
recent years due to operational consolidations among shipping lines and the
entry of new leasing companies that compete with entities like the Partnership.
This competition has generally driven down rental rates and allowed shipping
lines to obtain other favorable lease terms.

In addition to leasing containers, the Partnership also sells containers from
time to time. Containers are generally sold either at the end of their useful
life, or when an economic analysis indicates that it would be more profitable to
sell a container rather than to continue to own it. An example of the latter
would be when re-leasing a container might be relatively expensive, either
because of expenses required to repair the container or to reposition the
container to a location where the container could be readily leased.

To date, the Partnership has generally sold containers individually. As
discussed below under "Possible Sale of Partnership Assets," the Partnership is
currently in negotiations to sell all of its remaining container fleet to a
corporate purchaser.

When the Partnership has sold its containers individually, sales have primarily
been made to wholesalers who subsequently sell to buyers such as mini-storage
operators, construction companies, farmers and other non-marine users.
Additionally, if a container is lost or completely damaged by a lessee, the
Partnership has received proceeds from the lessee for the value of the
container. The Partnership counts these transactions as sales, as well as the
more traditional sales to wholesalers. Generally, since 1998, used container
prices have declined, causing the Partnership to realize less from the sale of
its used containers. Used container sales prices stabilized in 2002 and 2003 and
have increased in 2004.

The Partnership's operations and financial results are also affected by the
price of new containers. The price for new containers fell from 1995 through
2003. This decrease significantly depressed rental rates. This decrease has also
caused the Partnership to evaluate the carrying cost of its container fleet, and
has resulted in write-downs of some containers the Partnership has decided to
sell. These matters are discussed in detail below under the caption "Other
Income and Expenses: Write Down of Containers: Specific Containers Identified
for Sale." Prior to the start of the Partnership's liquidation period, which is
discussed below, the Partnership purchased new containers, which allowed the
Partnership to receive some benefit from the decrease in price for new
containers.

During 2004, new container prices have increased significantly due to a
worldwide shortage of steel, which has resulted in limited availability of new
containers. Although the Partnership is no longer purchasing containers, the
increase in new container prices and the limited availability of new containers
has improved demand for the Partnerships' containers. See "Results of
Operations: Current Market Conditions for Leased Containers" for a further
discussion.

The Partnership is in its liquidation phase, which means that the Partnership no
longer seeks to replenish its container fleet by buying new containers. During
this phase, the Partnership will either (i) sell its remaining container fleet
to an institutional investor, who would continue to lease the containers or (ii)
sell containers gradually to wholesalers when the containers are at or near the
end of their useful life, or when they come off-lease and a sale seems to offer
a better overall yield than continued operation. The choice of liquidation
options has been based on which option is believed to better enhance the overall
economic return to investors. As described below, the Partnership is currently
in the process of negotiating a proposed sale of its entire container fleet to a
corporate purchaser.

In June 2004 the Partnership compared the carrying value of its containers to
the anticipated estimated price to be realized in the proposed sale to the
corporate purchaser. Despite the improvement in the market for used containers,
the Partnership still found that the carrying value of some of its older, more
expensive containers was higher than the anticipated estimated price to be
realized in the sale. The Partnership determined that these containers were
impaired and recorded a write down expense to reduce the carrying value of these
containers to their anticipated sales price. See "Possible Sale of Partnership
Assets" below and "Other Income and Expenses: Write Down of Containers."

Possible Sale of Partnership Assets

In July 2004, the Partnership and five other limited partnerships managed by the
General Partners signed a letter of intent to sell their remaining container
fleets for cash to an unaffiliated corporate purchaser, RFH Limited, (the
"Purchaser"). The Partnership, the other limited partnerships and the Purchaser
are in the process of negotiating the Asset Sale Agreement. If the Asset Sale
Agreement is finalized, the Partnership will submit the proposed sale to the
Limited Partners for approval.

If the Limited Partners approve the sale and the sale is completed, the
Partnership anticipates that it will distribute the net proceeds of this sale to
the partners and terminate its existence during 2005. In the event the sale is
not approved, the Partnership expects to continue to sell its containers
gradually, either individually or in groups, according to the condition of, and
market for, the containers.

Liquidity and Capital Resources

Historical

From January 16, 1991 until May 4, 1992, the Partnership offered limited
partnership interests to the public. The Partnership received its minimum
subscription amount of $1 on February 11, 1991 and on May 4, 1992 the
Partnership's offering of limited partnership interest was closed at $125,000.
In April 2002, the Partnership entered its liquidation phase. During this phase,
regular leasing operations continue, but the Partnership no longer adds to its
fleet by purchasing additional containers, and the General Partners evaluate
opportunities to sell containers.

General

During the liquidation phase the Partnership anticipates that all excess cash,
after redemptions and working capital reserves, will be distributed to the
general and limited partners on a monthly basis. These distributions will
consist of cash from operations and/or cash from sales proceeds. As the
Partnership's container fleet decreases, cash from operations is expected to
decrease, while cash from sales proceeds is expected to fluctuate based on the
number of containers sold and the actual sales price per container received.
Consequently, the Partnership anticipates that a large portion of all future
distributions will be a return of capital.

Sources of Cash

Rental income and proceeds from container sales are the Partnership's principal
sources of liquidity, and the source of funds for distributions. Rental income
and container sales prices are affected by market conditions for leased and used
containers. Cash provided from these sources will fluctuate based on demand for
leased and used containers. Demand for leased and used containers is discussed
more fully in "Results of Operations." Cash provided by operating activities is
affected by rental income, operating expenses and the timing of both payments
received from lessees and payments made by the Partnership for operating
expenses. Additionally, a continued stream of rental income is dependent partly
on the Partnership's ability to re-lease containers as they come off lease. See
the discussion of "Utilization" below under "Results of Operations." Cash
provided by investing activities is affected by the number of containers sold,
the sale price received on these containers, and the timing of payments received
for these sales. Previously reported cash from operations and sales proceeds is
not indicative of future cash flows as these amounts can fluctuate significantly
based on demand for new and used containers, fleet size and timing of the
payments made and received. Fluctuations in rental income, operating expenses,
and sale prices for used containers are discussed more fully in "Results of
Operations."

Operating and investing activities are discussed in detail below.

Cash from Operations

Net cash provided by operating activities for the nine-month periods ended
September 30, 2004 and 2003, was $4,356 and $4,863, respectively. The decrease
of $507, or 10%, was primarily due to the decline in net earnings (loss),
adjusted for non-cash expenses, and fluctuations in due from affiliates, net,
offset by fluctuations in gross accounts receivable between the periods. Net
earnings (loss), adjusted for non-cash expenses, decreased primarily due to a
decrease in rental income, offset by the decline in direct container expenses.
These fluctuations are discussed more fully under "Results of Operations." The
fluctuations in due from affiliates, net, resulted from timing differences in
the payment of expenses and fees and the remittance of net rental revenues, as
well as in fluctuations in these amounts. The decrease in gross accounts
receivable of $383 during the nine-month period ended September 30, 2004 was
primarily due the decrease in rental income. The decrease in gross accounts
receivable of $265 during the same period in 2003 was primarily due to a
decrease in the average collection period of accounts receivable, offset by the
increase in rental income.

Cash from Sale of Containers

Current Uses: For the nine-month periods ended September 30, 2004 and 2003, net
cash provided by investing activities (the sale of containers) was $2,171 and
$1,606, respectively. The increase of $565 was primarily due to the increase in
the average container sales price and a slight increase in the number of
containers sold during the nine-month period ended September 30, 2004, compared
to the equivalent period in 2003. Fluctuations between periods in the number of
containers sold and sales price reflect the age and condition of containers
coming off-lease, the geographic market in which they come off-lease, and other
related market conditions. Fluctuations in sales price between the periods can
also be affected by the number of containers bought by lessees, who reimburse
the Partnership for any containers that are lost or completely damaged beyond
repair. These reimbursement amounts are frequently higher than the average sales
price for a container sold in the open market when it comes off-lease.

Effect of Market Conditions: Market conditions can affect the Partnership's
decision to sell an off-lease container. If demand for leased containers is low,
the Partnership is more likely to sell a container rather than incur the cost to
reposition the container to a location where it can be re-leased. If demand is
strong, the Partnership is less likely to identify the container as for sale, as
it is anticipated that the container can be released in its current location or
repositioned to another location where demand is high. The strong utilization in
the first quarter of 2004 and increases in demand during the second and third
quarters have resulted in fewer containers being identified for sale. Some of
the market conditions affecting the sale of containers are discussed below under
"Comparative Results of Operations." In general, the decline in the number of
containers identified for sale has caused the average sales price of used
containers to increase in 2004 with respect to the sale of off-lease containers
in certain geographic markets.

Effect of Liquidation on Future Cash Flows: The number of containers sold and
the price received for them, will affect how much the Partnership will pay in
future distributions to Partners. Once all of the Partnership's containers are
sold, and the sale proceeds distributed to partners, distributions will stop and
the Partnership will terminate.

Uses of Cash

Distributions to partners are the Partnership's primary use of cash. The amount
of distributions paid to partners is dependent on cash received from operations
and the sale of containers, less amounts used to pay redemptions or held as
working capital.

From time to time, the Partnership redeems units from limited partners for a
specified redemption value, which is set by formula. Up to 2% of the
Partnership's outstanding units may be redeemed each year, although the 2% limit
may be exceeded at the Managing General Partner's discretion. All redemptions
are subject to the Managing General Partner's good faith determination that
payment for the redeemed units will not (i) cause the Partnership to be taxed as
a corporation, (ii) impair the capital or operations of the Partnership, or
(iii) impair the ability of the Partnership to pay distributions in accordance
with its distribution policy.

These activities are discussed in detail below.

Distributions: During the nine-month period ended September 30, 2004, the
Partnership declared cash distributions to limited partners pertaining to the
period from December 2003 through August 2004 in the amount of $6,347, which
represented $1.08 per unit. On a cash basis, as reflected in the Statements of
Cash Flows, after paying redemptions and general partner distributions, $4,276
of these distributions was from operating activities and the balance of $2,071
was a return of capital. On an accrual basis, as reflected on the Statements of
Partners' Capital, after paying redemptions, all of these distributions were a
return of capital.

If the expected Asset Sale Agreement is entered into, distributions are expected
to continue through the proposed effective date of the sale and will then be
suspended until the sale is approved by the limited partners or it is determined
that the sale will not be approved. If the proposed sale is approved and
completed, the Partnership expects to distribute the net proceeds from the sale,
along with any cash from operations earned prior to the effective date of the
sale in one or two payments. If the proposed sale is not approved, once this
determination is made, the Partnership expects to continue paying monthly
distribution payments as described above.

Capital Commitments: Redemptions: During the nine-month period ended September
30, 2004, the Partnership redeemed 3,800 units for a total dollar amount of $14.
The Partnership used cash flows from operations to pay for the redeemed units.

The Partnership invests working capital and cash flow from operations and
investing activities prior to its distribution to the partners in short-term,
liquid investments.

Results of Operations

The Partnership's income from operations, which consists primarily of rental
income less costs and expenses (including container depreciation, direct
container expenses, management fees, and reimbursement of administrative
expenses) is primarily affected by the size of its container fleet, the number
of containers it has on lease (utilization) and the rental rates received under
its leases. The current status of each of these factors is discussed below.

Size of Container Fleet

2004 2003
---- ----

Beginning container fleet............... 17,507 20,536
Ending container fleet.................. 15,401 18,441
Average container fleet................. 16,454 19,489

The average container fleet decreased 16% from the nine-month period ended
September 30, 2003 to the same period in 2004, primarily due to the continuing
sale of containers. The decline in the container fleet has contributed to an
overall decline in rental income from the nine-month period ended September 30,
2003 to the comparable period in 2004.

Utilization

Rental income and direct container expenses are also affected by the average
utilization of the container fleet, which was 91% and 83% on average during the
nine-month periods ended September 30, 2004 and 2003, respectively. The
remaining container fleet is off-lease and is being stored primarily at a large
number of storage depots. At September 30, 2004 and 2003, utilization was 96%
and 84%, respectively, and the Partnership's off-lease containers (in units)
were located in the following locations:

2004 2003
---- ----

Americas 253 1,332
Europe 117 416
Asia 160 1,061
Other 16 66
--- -----
Total off-lease containers 546 2,875
=== =====

Rental Rates

In addition to utilization, rental income is affected by daily rental rates.
Daily rental rates are different under different lease types. The two primary
lease types for the Partnership's containers are long term leases and master
leases. The average daily rental rate for the Partnership's containers decreased
5% from the nine-month period ended September 30, 2003 compared to the same
period in 2004 due to the declines in both master lease and long term lease
rates. The majority of the Partnership's rental income was generated from master
leases, but in the past several years an increasing percentage of the
Partnership's containers have been on lease under long term leases. At September
30, 2004 and 2003, 42% and 41%, respectively, of the Partnership's on-lease
containers were on lease under long term leases. Long term leases generally have
lower rental rates than master leases because the lessees have contracted to
lease the containers for several years and cannot return the containers prior to
the termination date without a penalty. Fluctuations in rental rates under
either type of lease generally will affect the Partnership's operating results.

Comparative Results of Operations

The following is a comparative analysis of the results of operations for the
three and nine-month periods ended September 30, 2004 and 2003:

Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
2004 2003 2004 2003
---- ---- ---- ----

Rental income $2,118 $2,353 $6,385 $7,336
Income (loss) from operations $1,265 ($ 110) $ 39 ($ 468)

Percent change from previous year in:
Utilization 14% 18% 10% 34%
Average container fleet size (17%) (14%) (16%) (15%)
Average rental rates ( 6%) ( 5%) ( 5%) ( 8%)

Income from operations for the nine-month period ended September 30, 2004 was
minimal primarily due to the write down of the Partnership's containers. See
"Other Income and Expenses: Write Down of Containers," and "Critical Accounting
Policies and Estimates: Container Impairment Estimates."

The Partnership's rental income decreased $235, or 10%, and $951, or 13%, from
the three and nine-month periods ended September 30, 2003 to the comparable
periods in 2004, respectively. The declines were attributable to decreases in
income from container rentals and other rental income, which is discussed below.
Income from container rentals, the major component of total revenue, decreased
$199, or 10%, and $851, or 13%, from the three and nine-month periods ended
September 30, 2003 to the comparable periods in 2004, respectively. These
declines were primarily due to decreases in the average container fleet size and
rental rates, offset by the increases in utilization as detailed in the above
table.

Current Market Conditions for Leased Containers: Utilization was stable for most
of 2003 and demand remained strong during the first quarter of 2004 and
increased through the third quarter of 2004. Beginning in 2004, a worldwide
steel shortage caused significant increases in new container prices and limited
the number of new containers being built. As a result, demand for leased
containers increased further beginning in March and has remained strong through
the beginning of November.

Sale of Containers in Lower Demand Locations: Despite the increase in demand,
areas of lower demand for containers still exist due to a continuing trade
imbalance between Asia and the Americas and Europe. However, the number of
off-lease containers in these lower demand locations has decreased, as lessees
have returned fewer containers to these lower demand locations and have also
leased containers from some of these locations. The continuing sale of these
off-lease containers has also reduced the number of containers in some of these
locations. In recent years, market conditions in these low demand locations have
driven some sales of off-lease containers. These sales resulted from the high
cost of repositioning containers from these areas. The number of the
Partnership's off-lease containers in the Americas and Europe, where most of
these lower demand locations occur, is detailed above in "Utilization."

Other Income and Expenses

The following is a discussion of other income earned and expenses incurred by
the Partnership:

Other Rental Income

Other rental income consists of other lease-related items, primarily income from
charges to lessees for dropping off containers in surplus locations less credits
granted to lessees for leasing containers from surplus locations (location
income), income from charges to lessees for handling related to leasing and
returning containers (handling income) and income from charges to lessees for a
Damage Protection Plan (DPP).

During the nine-month period ended September 30, 2004, other rental income was
$871, a decrease of $100 from the equivalent period in 2003. Other rental income
decreased between the periods primarily due to decreases in handling and
location income of $54 and $33, respectively.

During the three-month period ended September 30, 2004, other rental income was
$274, a decrease of $36 from the equivalent period in 2003. The decrease was
primarily due to decreases in handling and DPP income of $29 and $28,
respectively, offset by an increase in location income of $21.

Direct Container Expenses

Direct container expenses decreased $474, or 31%, from the nine-month period
ended September 30, 2003 to the equivalent period in 2004. The decrease was
primarily due to decreases in storage and repositioning expenses of $245 and
$115, respectively. Storage expense decreased not only due to the decrease in
average fleet size, but also due to the increase in utilization noted above,
offset by a slight increase in the average storage cost per container. The
decrease in repositioning expense was primarily due to a decrease in the number
of containers repositioned between the periods, offset by a higher average
repositioning cost.

The decrease in direct container expenses of $308, or 59%, from the three-month
period ending September 30, 2003 to the equivalent period in 2004 was primarily
due to declines in storage and repositioning expenses of $118 and $106,
respectively. Storage expense decreased $118 due to the decrease in average
fleet size and the increase in utilization noted above, offset by a slight
increase in the average storage cost per container. The decrease in
repositioning expense was primarily due to a decrease in the number of
containers being repositioned, between the periods, offset by a higher average
repositioning costs.

Bad Debt Expense or Benefit

Bad debt expense (benefit) was $115 and $80 for the nine-month periods ended
September 30, 2004 and 2003, respectively, and $65 and ($8) for the three-month
periods ended September 30, 2004 and 2003, respectively. Fluctuations in bad
debt expense (benefit) reflect the adjustments to the bad debt reserve, after
deductions have been taken against the reserve, and are based on management's
then current estimates of the portion of accounts receivable that may not be
collected, and which will not be covered by insurance. These estimates are based
primarily on management's current assessment of the financial condition of the
Partnership's lessees and their ability to make their required payments. See
"Critical Accounting Policies and Estimates" below. The expenses recorded during
the nine-month periods ended September 30, 2004 and 2003 and the three-month
period ended September 30, 2004 reflect higher reserve estimates, after
deductions had been taken against the reserve, from December 31, 2003 and 2002
and June 30, 2004, respectively. The benefit recorded during the three-month
period ended September 30, 2003 reflects a lower reserve estimate, after
deductions had been taken against the reserve, from June 30, 2003.

Depreciation Expense

Depreciation expense decreased $2,201, or 50%, from the nine-month period ended
September 30, 2003 to the comparable period in 2004 and $1,030, or 75% from the
three-month period ended September 30, 2003 to the comparable period in 2004.
These decreases were primarily due to (i) the write-down recorded in June 2004,
which reduced the carrying value of certain containers and resulted in a lower
depreciation expense during the third quarter of 2004; (ii) the declines in the
average fleet size and (iii) a larger portion of the container fleet being fully
depreciated. For a discussion of the Partnership's depreciation policy, see
"Critical Accounting Policies and Estimates: Container Depreciation Estimates."

Write Down of Containers

Write Down of Containers Held for Continued Use: The Partnership evaluated the
recorded value of its container fleet at June 30, 2004, taking into
consideration the container sales prices in the letter of intent relating to the
sale of the Partnership's container fleet. The Partnership recorded a write down
of $1,916 to reduce the carrying value of some of the containers to their
anticipated per unit sales price. See "Critical Accounting Policies and
Estimates: Container Impairment Estimates."

Specific Containers Identified for Sale: The Partnership also identifies certain
containers for sale from time to time in the ordinary course of its business.
When the Partnership evaluated the recoverability of the recorded amount of
these containers identified for sale, the evaluation sometimes resulted in write
downs. The write downs for these individual containers have generally been made
on a monthly basis. Most of these write downs related to containers that were
off lease in areas of low demand, which are discussed above under "Comparative
Results of Operations: Sale of Containers in Lower Demand Locations."

The write down expense for these types of containers decreased $22 and $251,
from the three and nine-month periods ended September 30, 2003 to the same
periods in 2004. These declines were primarily due to the write-down recorded in
June 2004 and due to fewer containers being identified for sale.

Gain (Loss) on Sale of Containers

The following details the gain (loss) on the sale of containers for the three
and nine-month periods ended September 30, 2004 and 2003:

Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
2004 2003 2004 2003
---- ---- ---- ----

Gain (loss) on written-down containers
identified for sale $ - ($ 5) $10 ($ 62)
Gain (loss) on other containers 112 ( 159) 16 ( 261)
--- --- -- ---
Total gain (loss) on container sales $112 ($164) $26 ($323)
=== === == ===

The Partnership recorded a gain on the sale of written down containers for the
nine-month period ended September 30, 2004 as the actual sales proceeds received
were greater than the estimated sales proceeds used to determine the write-down
amount. The losses recorded during the comparable period in 2003 and the
three-month period ended September 30, 2003, were due to actual sales proceeds
that were lower than the estimated sales proceeds used to determine the
write-down. See "Critical Accounting Policies and Estimates" below.

Since it has been the Partnership's practice to determine write-down amounts on
containers identified for sale once a month, some containers that had been
identified for sale were sold before they were written down. The amount of gain
or loss recorded on the sale of these containers has fluctuated due to the
specific conditions of the containers sold, the type of containers sold, the
location where the containers were sold and their net book value. The gains
recorded on these sales during the three and nine-month periods ended September
30, 2004 were primarily due to significant reduction in net book value as a
result of the June 2004 write-down.

Management Fees and General and Administrative Costs

Management fees to affiliates consist of equipment management fees, which are
primarily based on rental income, and incentive management fees, which are based
on the Partnership's limited and general partner distributions made from cash
from operations and partners' capital. The following details these fees for the
three and nine-month periods ended September 30, 2004 and 2003:

Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------
2004 2003 2004 2003
---- ---- ---- ----

Equipment management fees $149 $167 $447 $515
Incentive management fees 55 74 174 192
--- --- --- ---
Management fees to affiliates $204 $241 $621 $707
=== === === ===

Equipment management fees fluctuated based on the fluctuations in rental income
and were approximately 7% of rental income for the three and nine-month periods
ended September 30, 2004 and 2003. Fluctuations in incentive management fees
between the periods were primarily due to fluctuations in the amount of
distributions paid from cash from operations.

General and administrative costs to affiliates decreased $56, or 17%, from the
nine-month period ended September 30, 2003 to the equivalent period in 2004 and
decreased $14, or 13%, from the three-month period ended September 30, 2003 to
the comparable period in 2004. The declines were primarily due to decreases in
overhead costs allocated from TEM, as the Partnership represented a smaller
portion of the total fleet managed by TEM.

Contractual Obligations

The Partnership Agreement provides for the ongoing payment to the General
Partners of the management fees and the reimbursement of the expenses discussed
above. Since these fees and expenses are established by the Agreement, they
cannot be considered the result of arms' length negotiations with third parties.
The Partnership Agreement was formulated at the Partnership's inception and was
part of the terms upon which the Partnership solicited investments from its
limited partners. The business purpose of paying the General Partners these fees
is to compensate the General Partners for the services they render to the
Partnership. Reimbursement for expenses is made to offset some of the costs
incurred by the General Partners in managing the Partnership and its container
fleet.

The Partnership Agreement requires the Partnership to continue to pay these fees
and expenses to the General Partners and to reimburse the General Partners for
expenses incurred by them and other service providers. For the amount of fees
and reimbursements made to the General Partners for the three and nine-month
periods ended September 30, 2004 and 2003, see Note 2 to the Financial
Statements in Item 1. For the amount of fees and reimbursements made to other
service providers, see Other general and administrative expenses in the
Statements of Operations in Item 1.

Net Earnings/ Loss per Limited Partnership Unit

Three months Nine months
ended Sept. 30, ended Sept. 30,
--------------- ---------------

2004 2003 2004 2003
---- ---- ---- ----
Net earnings (loss) per limited
partnership unit $ 0.21 ($0.02) ($0.00) ($0.09)
Net earnings (loss) allocated
to limited partners $1,246 ($ 132) ($ 21) ($ 528)

Net earnings/loss per limited partnership unit fluctuates based on fluctuations
in net earnings/loss allocated to limited partners as detailed above. The
allocation of net loss for the nine-month periods ended September 30, 2004 and
2003 included a special allocation of gross income to the General Partners of
$66 and $70, respectively, in accordance with the Partnership Agreement.

Critical Accounting Policies and Estimates

Certain estimates and assumptions were made by the Partnership's management that
affect its financial statements. These estimates are based on historical
experience and on assumptions believed to be reasonable under the circumstances.
These estimates and assumptions form the basis for making judgments about the
carrying value of assets and liabilities. Actual results could differ.

The Partnership's management believes the following critical accounting policies
affect its more significant judgments and estimates used in the preparation of
its financial statements.

Allowance for Doubtful Accounts: The allowance for doubtful accounts is based on
management's current assessment of the financial condition of the Partnership's
lessees and their ability to make their required payments. If the financial
condition of the Partnership's lessees were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

The General Partners have established a Credit Committee, which actively manages
and monitors the collection of receivables on at least a monthly basis. This
committee establishes credit limits for every lessee and potential lessee of
equipment, monitors compliance with these limits, monitors collection
activities, follows up on the collection of outstanding accounts, determines
which accounts should be written-off and estimates allowances for doubtful
accounts. As a result of actively managing these areas, the Partnership's
allowance for bad debt as a percentage of accounts receivable has ranged from 5%
to 14% and has averaged approximately 10% over the last 5 years. These
allowances have historically covered all of the Partnership's bad debts.

Container Depreciation Estimates: The Partnership depreciates its container
rental equipment based on certain estimates related to the container's useful
life and salvage value. The Partnership estimates a container's useful life to
be 12 years, an estimate which it has used since the Partnership's inception.
Prior to July 1, 2002, the Partnership estimated salvage value as a percentage
of equipment cost. Effective July 1, 2002, the Partnership revised its estimate
for container salvage value to an estimated dollar residual value, reflecting
current expectations of ultimate residual values.

The Partnership will evaluate the estimated residual values and remaining
estimated useful lives on an on-going basis and will revise its estimates as
needed. The Partnership will revise its estimate of residual values if it is
determined that these estimates are no longer reasonable based on recent sales
prices and revised assumptions regarding future sales prices. The Partnership
will revise its estimate of container useful life if it is determined that the
current estimates are no longer reasonable based on the average age of
containers sold and revised assumptions regarding future demand for leasing
older containers.

As a result, depreciation expense could fluctuate significantly in future
periods as a result of any revisions made to these estimates. A decrease in
estimated residual values or useful lives of containers would increase
depreciation expense, adversely affecting the Partnership's operating results.
Conversely, any increase in these estimates would result in a lower depreciation
expense, resulting in an improvement in operating results. These changes would
not affect cash generated from operations, as depreciation is a non-cash item.

Container Impairment Estimates: Write-downs of containers are made when it is
determined that the recorded value of the containers exceeds their estimated
fair value. Containers held for continued use and containers identified for sale
in the ordinary course of business are considered to have different estimated
fair values.

In determining estimated fair value for a container held for continued use,
management estimates the future undiscounted cash flows for the container and
considers other relevant information. Estimates of future undiscounted cash
flows require estimates about future rental revenues to be generated by the
container, future demand for leased containers, and the length of time for which
the container will continue to generate revenue.

At June 30, 2004, management used a different estimated fair value for these
containers, which took into account the possible sale of the Partnership's
entire container fleet. The estimated fair value used at June 30 was the
anticipated sales price from the letter of intent regarding this sale. When this
estimated fair value was compared to the recorded value of the Partnership's
containers, some of the recorded values were found to be higher. The Partnership
wrote down the containers with the higher recorded values to the estimated sales
price from the letter of intent.

As noted above, the Partnership also evaluates the recorded value of those
containers identified for sale in the ordinary course of its business,
separately from containers held for continued use. Containers identified for
sale in the ordinary course of business include those containers that have been
sold prior to the proposed arrangement for the sale of the Partnership's entire
container fleet, as well as those containers that are being sold individually
(usually when they come off-lease) without regard to that proposed sale. For
these routine sales made in the ordinary course of business, the Partnership has
used an estimated fair value of the estimated sales price for the container,
less estimated cost to sell. When this estimate was compared to the recorded
value of the container identified for sale, and the recorded value was higher,
the container identified for sale was written down. See "Write Down of
Containers: Specific Containers Identified for Sale" above. The Partnership has,
however, recorded some losses on the sale of these previously written-down
containers. Losses were recorded because the estimated sales price was higher
than the actual sales price realized. Estimated sales prices are difficult to
predict, and management's estimates proved too high in these cases. See "Gain
and Loss on Sale of Containers" above.

The Partnership will continue to monitor the recoverability of its containers.
Any additional write-downs or losses would adversely affect the Partnership's
operating results.

Risk Factors and Forward Looking Statements

Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership's customers are
international shipping lines, which transport goods on international trade
routes. The domicile of the lessee is not indicative of where the lessee is
transporting the containers. The Partnership's business risk in its foreign
operations lies with the creditworthiness of the lessees, and the Partnership's
ability to keep its containers under lease, rather than the geographic location
of the containers or the domicile of the lessees. The containers are generally
operated on the international high seas rather than on domestic waterways. The
containers are subject to the risk of war or other political, economic or social
occurrence where the containers are used, which may result in the loss of
containers, which, in turn, may have a material impact on the Partnership's
results of operations and financial condition.

Other risks of the Partnership's leasing operations include competition, the
cost of repositioning containers after they come off-lease, the risk of an
uninsured loss, including bad debts, the risk of technological obsolescence,
increases in maintenance expenses or other costs of operating the containers,
and the effect of world trade, industry trends and/or general business and
economic cycles on the Partnership's operations. See "Critical Accounting
Policies and Estimates" above for information on the Partnership's critical
accounting policies and how changes in those estimates could adversely affect
the Partnership's results of operations.

The Partnership has discussed the sale of its container fleet above under
"Possible Sale of Partnership Assets." This sale is subject to conditions,
including the finalization of the Asset Sale Agreement, completing negotiations
with the Purchaser, and receiving the approval of holders of the required number
of limited partner units. There is no assurance that this sale will be
completed.

The foregoing includes forward-looking statements and predictions about possible
or future events, results of operations and financial condition. These
statements and predictions may prove to be inaccurate, because of the
assumptions made by the Partnership or the General Partners or the actual
development of future events. No assurance can be given that any of these
forward-looking statements or predictions will ultimately prove to be correct or
even substantially correct. The risks and uncertainties in these forward-looking
statements include, but are not limited to, changes in demand for leased
containers, changes in global business conditions and their effect on world
trade, future modifications in the way in which the Partnership's lessees
conduct their business or of the profitability of their business, increases or
decreases in new container prices or the availability of financing, alterations
in the costs of maintaining and repairing used containers, increases in
competition, changes in the Partnership's ability to maintain insurance for its
containers and its operations, the effects of political conditions on worldwide
shipping and demand for global trade or of other general business and economic
cycles on the Partnership, as well as other risks detailed herein. The
Partnership does not undertake any obligation to update forward-looking
statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Exchange Rate Risk

Although substantially all of the Partnership's income from operations is
derived from assets employed in foreign operations, virtually all of this income
is denominated in United States dollars. The Partnership does pay a small amount
of its expenses in various foreign currencies. For the nine-month period ended
September 30, 2004, approximately 6% of the Partnership's expenses were paid in
15 different foreign currencies. As there are no significant payments made in
any one foreign currency, the Partnership does not hedge these expenses.

Item 4. Controls and Procedures

Based on an evaluation of the Partnership's disclosure controls and procedures
(as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934),
the managing general partner's principal executive officer and principal
financial officer have found those controls and procedures to be effective as of
the end of the period covered by the report. There has been no change in the
Partnership's internal control over financial reporting that occurred during the
Partnership's last fiscal quarter, and which has materially affected, or is
reasonably likely materially to affect, the Partnership's internal control over
financial reporting.

Part II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits 31.1 and 31.2 Certifications pursuant to Rules 13a-14 or
15d-14 of the Securities and Exchange Act of 1934.

Exhibits 32.1 and 32.2 Certifications pursuant to 18 U.S.C. Section
1350, as adopted, and regarding Section 906 of the Sarbanes-Oxley Act
of 2002.

SIGNATURES

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.

TEXTAINER EQUIPMENT INCOME FUND III, L.P.
A California Limited Partnership

By Textainer Financial Services Corporation
The Managing General Partner

By ________________________________________
Ernest J. Furtado
Chief Financial Officer

Date: November 12, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the Managing General Partner of the Registrant, in the
capacities and on the dates indicated:

Signature Title Date

________________________ Chief Financial Officer, Senior November 12, 2004
Ernest J. Furtado Vice President and Secretary

________________________ President November 12, 2004
John A. Maccarone

SIGNATURES

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.

TEXTAINER EQUIPMENT INCOME FUND III, L.P.
A California Limited Partnership

By Textainer Financial Services Corporation
The Managing General Partner

By /s/Ernest J. Furtado
________________________________________
Ernest J. Furtado
Chief Financial Officer

Date: November 12, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Textainer Financial
Services Corporation, the Managing General Partner of the Registrant, in the
capacities and on the dates indicated:

Signature Title Date

/s/Ernest J. Furtado
_________________________________ Chief Financial Officer, Senior November 12, 2004
Ernest J. Furtado Vice President and Secretary

/s/John A. Maccarone
_________________________________ President November 12, 2004
John A. Maccarone

EXHIBIT 31.1

CERTIFICATIONS

I, John A. Maccarone, certify that:

1. I have reviewed this quarterly report on form 10-Q of Textainer Equipment
Income Fund III, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:

a.) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;

b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

c.) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):

a.) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and

b.) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.

November 12, 2004

/s/ John A. Maccarone
_____________________________________________
John A. Maccarone
President and Director of TFS

EXHIBIT 31.2

CERTIFICATIONS

I, Ernest J. Furtado, certify that:

1. I have reviewed this quarterly report on form 10-Q of Textainer Equipment
Income Fund III, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:

a.) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;

b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

c.) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):

a.) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and

b.) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.

November 12, 2004

/s/ Ernest J. Furtado
_____________________________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. ss. 1350,

AS ADOPTED, REGARDING SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Textainer Equipment Income Fund III,
L.P., (the "Registrant") on Form 10-Q for the quarterly period ended September
30, 2004, as filed on November 12, 2004 with the Securities and Exchange
Commission (the "Report"), I, John A. Maccarone, the President and Director of
Textainer Financial Services Corporation ("TFS") and Principal Executive Officer
of TFS, the Managing General Partner of the Registrant, certify, pursuant to 18
U.S.C. ss. 1350, as adopted, regarding Section 906 of the Sarbanes-Oxley Act of
2002, that:

(i) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and

(ii) The information contained in the Report fairly presents, in all material
respects, the financial condition, results of operations and cash flows of
the Registrant.

November 12, 2004

By /s/ John A. Maccarone
____________________________________
John A. Maccarone
President and Director of TFS

A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. ss. 1350,

AS ADOPTED, REGARDING SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Textainer Equipment Income Fund III,
L.P., (the "Registrant") on Form 10-Q for the quarterly period ended September
30, 2004, as filed on November 12, 2004 with the Securities and Exchange
Commission (the "Report"), I, Ernest J. Furtado, Chief Financial Officer, Senior
Vice President, Secretary and Director of Textainer Financial Services
Corporation ("TFS") and Principal Financial and Accounting Officer of TFS, the
Managing General Partner of the Registrant, certify, pursuant to 18 U.S.C. ss.
1350, as adopted, regarding Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and

(ii) The information contained in the Report fairly presents, in all material
respects, the financial condition, results of operations and cash flows of
the Registrant.

November 12, 2004

By /s/ Ernest J. Furtado
____________________________________________________
Ernest J. Furtado
Chief Financial Officer, Senior Vice President,
Secretary and Director of TFS

A signed original of this written statement required by Section 906 has been
provided to the Registrant and will be retained by the Registrant and furnished
to the Securities and Exchange Commission or its staff upon request.