Peoples Drug Stores Inc. reported yesterday that profits for its third quarter ended July 7 rose 17 percent as sales increased 10 percent.

Net income for Peoples, the largest retail drug store chain on the East Coast, totaled $1.3 million (35 cents a share) compared with $1.1 million (30 cents) a year ago. Sales were $99.9 million compared with $91.0 million.

The retail chain also announced a 16 percent increase in nine-month earnings to $4.8 million ($1.33) from $4.2 million ($1.15). Sales increased by 10 percent from $307.8 million to $338.2 million.

Chairman A. C. Israel and President Sheldon W. Fantle said the chain is continuing its "on-going efficiency and revitalization programs" and is moving to make its "on-going efficiency and revitalization programs"

As part of the strategy, the company this year opened 25 new units and acquired B. H. Krueger, a manufacturer of creams, lotions and fragrances. The chain also plans to open two dental centers.

Peoples operates 398 retail outlets under the names of Reed, Lee, Health Mart, Lane and Peoples in Washington, D.C., Maryland, Virginia, Ohio, Georgia, Pennsylvania, North Carolina, Alabama, West Virginia, Tennessee and Indiana.

American Health Services Inc. reported an increase in profits for its third quarter ended June 30 from $342,000 (40 cents a share) to $349,000 (41 cents). Revenues were $4.0 million, down from $5.4 million a year ago.

Profits for the past nine months were $3.1 million, including a $2.2 gain from the sale of three nursing homes, up from $765,000. Revenues for that period, however, decreased from $15.6 million to $12.5 million.

Univeristy Security Instruments of Owings Mills reported a net loss of $65,363 (4 cents a share) for its first quarter ended June 30 compared with a net loss of $169,111 (11 cents) a year ago. Sales for the period also declined from $1.7 million for the first quarter last year to $1.5 million.

Government Employes Life Insurance Co. reported its first-half operating profits declined 6 percent to $3.9 million (87 cents a share) from $4.16 million (93 cents a share) a year earlier.

Net income was $3.86 million, after accounting for investment losses of $36,000, in contrast with a $3,700 investment gain last year.

Government Employees Life's investment income for the half increased to $5.7 million from $5.2 million. Life insurance sales climbed to $99.6 million from $82.8 million. For the three months ended June 30, Government Employees Life earned $1.95 million before securities transactions, compared with $2.04 million a year ago.