SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

           ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 1998
                         Commission file number 0-10134

                            SUPER 8 MOTELS III, LTD.
             (Exact name of registrant as specified in its charter)

                     California                       94-2664921
         (State or other jurisdiction of         (I.R.S. Employer Iden-
           incorporation or organization)          tification No.)

         2030 J Street, Sacramento, California          95814
         (Address of principal executive offices)    (Zip Code)
       Registrant's telephone number, including area code: (916) 442-9183

       Securities registered pursuant to Section 12 (b) of the Act: None
          Securities registered Pursuant to Section 12 (g) of the Act:
                      UNITS OF LIMITED PARTNERSHIP INTEREST
                                (Title of Class)

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 such shorter  period that the  registrant has
been  required  to file such  reports)  and (2) has been  subject  to the filing
requirements for the past 90 days. Yes X No __

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.(X)

State the aggregate market value of the voting stock held by  non-affiliates  of
the registrant. Inapplicable.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None







                                       1

<PAGE>


                                     PART I

Item 1.  BUSINESS

General Development of Business

Super 8 Motels III, Ltd. (the  "Partnership") is a limited partnership which was
organized under the Uniform  Limited  Partnership Act of the State of California
on June 2, 1980.

The General Partner of the Partnership is Grotewohl Management Services, Inc., a
California corporation which is 50% owned by Philip B. Grotewohl.

Through two public  offerings  of units of limited  partnership  interest in the
Partnership (the "Units"), the Partnership sold 5,941 Units at a price of $1,000
per Unit.

The net proceeds of the offerings  were expended for the  acquisition in fee and
development of properties located in San Bernardino, California and Bakersfield,
California.  Motel  operations  commenced on March 6, 1982 at the San Bernardino
property, and on September 20, 1982 at the Bakersfield property. Both properties
were sold on February 22, 1999.

Upon the sale of properties,  the Partnership was dissolved.  The Partnership is
now  winding  up  its  activities  by  identifying   and  paying  its  remaining
obligations and  liabilities.  Upon completion of its winding-up  activities the
Partnership  will  distribute its then remaining cash to the General and Limited
Partners and will then cancel its  certificate  of limited  partnership as filed
with the California Secretary of State and be terminated.

Narrative Description of Business

(a)  Franchise Agreements

The Partnership operated each of its motel properties as a franchisee of Super 8
Motels,   Inc.   through   sub-franchises   obtained  from  Super  8  Management
Corporation.  In March 1988, Brown & Grotewohl, a California general partnership
which  is  an  affiliate  of  the  General  Partner  (the   "Manager"),   became
sub-franchisor in the stead of Super 8 Management  Corporation.  As of September
30, 1998, Super 8 Motels,  Inc. had franchised a total of 1,722 motels having an
aggregate  of  103,888  guestrooms  in  operation.  Super 8  Motels,  Inc.  is a
wholly-owned subsidiary of Hospitality Franchise Systems, Inc.

The objective of the Super 8 Motel chain is to maintain a  competitive  position
in  the  motel  industry  by  offering  to  the  public  comfortable,  no-frills
accommodations  at a budget price.  Each Super 8 Motel  provides its guests with
attractively  decorated rooms, free color television,  direct dial telephone and
other  basic  amenities,  but  eliminates  or  modifies  other  items to provide
substantial cost reduction without  seriously  affecting comfort or convenience.
Some of these savings are  accomplished by reductions in room size,  elimination
of expensive lobbies, and by substantial economies in building construction.




                                       2

<PAGE>

By the  terms  of each  franchise  agreement  with  Super 8  Motels,  Inc.,  the
Partnership  paid monthly  franchise fees equal to 4% of its gross room revenues
(half of which was paid to the  sub-franchisor) and contributed an additional 1%
of its gross room  revenues to a fund  administered  by Super 8 Motels,  Inc. to
finance the national reservation and promotions program.

(b)  Operation of the Motels

The  Manager  managed and  operated  the  Partnership's  motels.  The  Manager's
responsibilities  included,  but  were  not  limited  to,  the  supervision  and
direction  of  the   Partnership's   employees  who  operated  each  motel,  the
establishment  of room rates and the direction of the promotional  activities of
the Partnership's  employees.  In addition, the Manager directed the purchase of
replacement  equipment and supplies,  maintenance activity and the engagement or
selection  of  all  vendors,   suppliers  and   independent   contractors.   The
Partnership's  financial  activities  were and are  performed by the  individual
motel staffs and a  centralized  accounting  staff,  all of which work under the
direction of the Manager.  Together, these staffs perform all bookkeeping duties
in connection with each motel,  including all collections and all  disbursements
to be paid out of funds generated by motel  operations or otherwise  supplied by
the Partnership.

As of December 31, 1998, the Partnership employed a total of 33 persons,  either
full or part-time at its two motel  properties,  including  ten desk clerks,  18
housekeeping and laundry  personnel,  three maintenance  personnel and two motel
managers.  In addition,  and as of the same date,  the  Partnership  employed 10
persons  in  administrative  positions  at its  central  office  in  Sacramento,
California,  all of whom worked for the Partnership on a part-time  basis.  They
included accounting, investor service, motel supervisory personnel,  secretarial
personnel,  and purchasing personnel,  including David Grotewohl,  son of Philip
Grotewohl,  whom the  Partnership  employs as Director of  Operations  and as an
attorney,  and,  until April 30,  1998,  Mark  Grotewohl,  whom the  Partnership
employed as marketing and sales director.

Item 2.  Properties

As of March 24, 1999, the Partnership no longer owns any real property.


Item 3.  LEGAL PROCEEDINGS

Inapplicable.














                                       3

<PAGE>
Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During  November 1998 the Partnership  submitted to the limited  partners of the
Partnership (the "Limited Partners") a consent solicitation statement soliciting
the consent of the Limited Partners to (i) the sale of the Partnership's  motels
and related assets at an aggregate  purchase  price of $2,900,000,  and (ii) the
dissolution and termination of the Partnership.  The Limited Partners  consented
to such sale by  majority  vote.  No  meeting  was held in  connection  with the
solicitation  of consents.  The result of the  solicitation  was as follows:  In
favor,  4,415;  opposed,  570;  and not voting,  956. As  discussed  above,  the
Partnership's  motels  and  related  personal  property  have  been sold and the
Partnership has been dissolved. See Item 1 above.


                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
             STOCKHOLDER MATTERS

Market Information

The Units are not  freely  transferable  and no public  market for the Units has
developed or is expected to develop.

Holders

As of December 31, 1998 a total of 951 individuals (the "Limited Partners") held
Units in the Partnership.

Distributions

Cash  distributions  are made on a  quarterly  basis  from  Cash  Available  for
Distribution,  defined in the Partnership's Certificate and Agreement of Limited
Partnership  (the  "Partnership  Agreement")  as Cash Flow,  less  adequate cash
reserves for  obligations  of the  Partnership  for which there is no provision.
Cash Flow means cash funds provided from operations of the Partnership,  without
deduction  for  depreciation,  but after  deducting  cash  funds  used to pay or
provide for the payment of debt service,  capital  improvements and replacements
and the operating expenses of the Partnership's  property. Of the Cash Available
for  Distribution in any year, the General Partner will receive 10% thereof,  of
which 9% will  constitute  a fee for  managing  the  Partnership  and 1% will be
attributable to its interest in the profits of the Partnership. The balance will
be  distributed to the Limited  Partners.  Notwithstanding  the  preceding,  the
General   Partner  will  not  receive   distributions   of  Cash  Available  for
Distribution  in  any  year  in  which  the  Limited  Partners  do  not  receive
distributions  of Cash Available for Distribution in an amount at least equal to
10% per annum cumulative on their adjusted capital contributions.











                                      4
<PAGE>

In addition,  the Partnership will promptly  distribute net proceeds of the sale
and  refinancing of its motel  properties to the General Partner and the Limited
Partners.  Of the sale or refinancing proceeds available for distribution in any
year,  the General  Partner will  receive 15%  thereof,  and the balance will be
distributed to the Limited Partners.  Notwithstanding the preceding, the General
Partner will not receive  distributions  of sale or  refinancing  proceeds until
each Limited Partner has received from all sources  distributions  equal to 100%
of his  capital  contributions  plus 10% per annum  cumulative  on his  adjusted
capital contribution.

The following  distributions of Cash Available for Distribution were made to the
Limited Partners during the years 1997 and 1998:

                                Total         Amount
              Date          Distribution     Per Unit
            -----------------------------------------
             8/15/97           $74,263        $12.50
            11/15/97           $74,263        $12.50
             2/15/98           $74,263        $12.50
             5/15/98           $74,263        $12.50
             8/15/98           $74,263        $12.50
            11/15/98           $74,263        $12.50

No  distributions  of Cash Available for  Distribution  were made to the General
Partner.


Item 6.  SELECTED FINANCIAL DATA

Following  are  selected  financial  data of the  Partnership  for its last five
fiscal years ended December 31, 1998, 1997, 1996, 1995 and 1994.

























                                       5

<PAGE>



                            SUPER 8 MOTELS III, LTD.

Item 6. Selected Financial Data

                                  Years Ended December 31:
              -----------------------------------------------------------------
                 1998       1997       1996       1995       1994      1993
              ---------- ---------- ---------- ---------- ---------- ----------


Guest Room
 Income       $1,638,563 $1,592,209 $1,464,850 $1,526,742 $1,625,581 $1,734,535

Net Income      $198,331   $117,093     $1,116    $68,750    $33,851    $49,083

Per Partnership
 Unit: Cash dis-
  tributions (1)  $50.00     $25.00   $   -       $  -       $  -       $  -

 Net income       $33.05     $19.52       $.19     $11.46      $5.64      $8.18


                                         December 31:
              -----------------------------------------------------------------
                 1998       1997       1996       1995       1994      1993
              ---------- ---------- ---------- ---------- ---------- ----------

Total Assets  $3,100,397 $3,259,069 $3,237,869 $3,411,456 $3,632,719 $3,793,456
Long-Term Debt  $   -      $   -      $   -       $75,493   $390,484   $595,214


(1) On an annual  basis,  to the extent  cash  distributions  exceed net income,
Limited  Partners  receive a return of capital  rather than a return on capital.
However,  an annual  analysis will be misleading if the Limited  Partners do not
receive their investment back upon liquidation of the Partnership. For investors
who purchased their Units directly from the Partnership, the original investment
was $1,000 per Unit, cumulative  allocations of income through December 31, 1998
were approximately $376 per Unit, and cumulative  distributions through December
31, 1998 were approximately $714 per Unit.  Investors who did not purchase their
Units directly from the Partnership must consult with their own advisors in this
regard.













                                       6

<PAGE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resource

The General Partner believes that the  Partnership's  liquidity,  defined as its
ability to generate cash to satisfy its cash needs, is adequate.  As of December
31, 1998 the Partnership had current assets of $427,481 and current  liabilities
of $56,464, providing an operating reserve of $371,017.

As of February 22, 1999, the Partnership's  motels were sold. The Partnership is
currently in a winding-up phase,  identifying its outstanding  liabilities,  and
after the payment thereof will distribute the balance of its cash to the Limited
Partners and General  Partner in  accordance  with the terms of the  Partnership
Agreement. Thereafter, the Partnership will be terminated.

During the fiscal year covered by this report, the Partnership  expended $80,626
for renovations and replacements of which $30,316 was  capitalized.  This amount
included $21,676 for guestroom carpets, $18,917 for roof repairs, $3,330 for tub
refurbishing,  $6,349 for  replacement  bedspreads,  $5,253 for  replacement air
conditioners and $5,264 for swimming pool refurbishment.

During the fiscal year ended December 31, 1997, the Partnership expended $66,721
for renovations and replacements of which $36,441 was  capitalized.  This amount
included $18,629 for guestroom carpets, $8,021 for two ice machines,  $4,255 for
tub refurbishing,  $5,099 for replacement bedspreads, $6,323 for replacement air
conditioners and $4,524 for replacement televisions.

Results of Operations

Combined Financial Results

The following tables summarize the operating  results of the Partnership for the
fiscal years ended  December 31, 1998,  1997 and 1996 on a combined  basis.  The
results of the individual properties follow in separate subsections.  The income
and expense  numbers in the  following  table are shown on an accrual  basis and
other payments on a cash basis.  Total expenditures and debt service include the
operating expense of the motels, together with the costs of capital improvements
and those Partnership expenses properly allocable to such motels.

                                         Average         Average
                                        Occupancy         Room
           Fiscal Year Ended:              Rate           Rate
           ------------------------------------------------------
           December 31, 1996              69.5%          $33.66

           December 31, 1997              70.0%          $36.43

           December 31, 1998              71.5%          $36.70







                                       7

<PAGE>

                                                 Total
                                              Expenditures       Partnership
                               Total              and             Cash Flow
   Fiscal Year Ended:         Revenues        Debt Service           (1)
   ---------------------------------------------------------------------------
   December 31, 1996          $1,510,262        $1,515,375         $(5,113)

   December 31, 1997          $1,641,860        $1,408,696        $233,164

   December 31, 1998          $1,685,932        $1,373,076        $312,856

       (1)  While  Partnership  Cash  Flow as it is used  here is not an  amount
            found in the financial  statements,  the General Partner believes it
            is the best  indicator of the annual  change in the amount,  if any,
            available  for  distribution  to the  Limited  Partners,  because it
            tracks the  definition  of the term "Cash Flow" as it is used in the
            Partnership  Agreement.  These  calculations  are  reconciled to the
            financial statements in the following table. Limited Partners should
            not interpret  Partnership Cash Flow as an alternative to net income
            or as a measure of performance.

                                               1998        1997        1996
                                            ----------  ----------  ----------
Total Expenditures and Debt Service         $1,373,076  $1,408,696  $1,515,375
Principal Payments on Financial Obligations       -           -       (153,456)
Additions to Fixed Assets                      (30,316)    (36,441)    (24,711)
Depreciation and Amortization                  144,841     151,769     162,569
Other Items                                       -            742       9,369
                                            ----------  ----------  ----------
Net Income                                  $1,487,601  $1,524,766  $1,509,146
                                            ==========  ==========  ==========

A  reconciliation  of Partnership Cash Flow (included in the chart above) to Net
Income as shown on the Statements of Operations (in the financial statements) is
as follows:

                                               1998        1997        1996
                                            ----------  ----------  ----------
Partnership Cash Flow                         $312,856    $233,164     $(5,113)
Principal Payments on Financial Obligations       -           -        153,456
Additions to Fixed Assets                       30,316      36,441      24,711
Depreciation and Amortization                 (144,841)   (151,769)   (162,569)
Other Items                                       -           (743)     (9,369)
                                            ----------  ----------  ----------
Net Income                                    $198,331    $117,093      $1,116
                                            ==========  ==========  ==========











                                       8
<PAGE>

Following is a reconciliation  of the Partnership Cash Flow (shown above) to the
aggregate total of Cash Flow from Property  Operations for the Partnership's two
motels  which  are  segregated  in the  tables  below  under the  captions  "San
Bernardino Motel" and "Bakersfield Motel".

                                                1998        1997        1996
                                             ----------  ----------  ----------
San Bernardino Motel                           $133,004     $82,590     $20,090
Bakersfield Motel                               163,154     134,412     (34,512)
                                             ----------  ----------  ----------
Aggregate Cash Flow from Property Operations   $296,158    $217,002    ($14,422)
Interest on Cash Reserves                        10,335      13,116       8,288
Other Partnership Income (net of Other
  Expenses) not allocated to the properties       6,363       3,046       1,019
                                             ----------  ----------  ----------
Partnership Cash Flow                          $312,856    $233,164     $(5,113)
                                             ==========  ==========  ==========

The Partnership achieved a $44,072 or 2.7% increase in total revenues during the
fiscal year covered by this report as compared to the previous  fiscal year. The
increase  in revenue is due to the net effect of  slightly  increased  occupancy
rates at both motels and  significantly  higher room rates at the San Bernardino
motel.  The San  Bernardino  market  has  improved  in 1998 as  compared  to the
previous fiscal year.

The  Partnership  achieved a $131,598 or 8.7% increase in total revenues  during
the fiscal year ended December 31, 1997 as compared to the previous fiscal year.
The  increase  in revenue is due to the net effect of  slightly  increased  room
rates  at  both  motels  and  significantly   reduced  occupancy  rates  at  the
Bakersfield motel. The San Bernardino market improved in 1997 as compared to the
previous fiscal year.

The  Partnership  achieved a $35,620 or 2.5% decrease in the total  expenditures
and debt  service  during the fiscal year  covered by this report as compared to
the previous  fiscal year.  The decrease was due to the waiver of an incorrectly
applied late tax filing penalty.

The Partnership  achieved a $106,679 or 7.0% decrease in the total  expenditures
and debt service  during the fiscal year ended  December 31, 1997 as compared to
the previous  fiscal year.  This decrease is due primarily to the liquidation of
the Bakersfield motel's loan during 1996.


San Bernardino Motel
                                          Average         Average
                                         Occupancy          Room
      Fiscal Year Ended:                    Rate            Rate
      -----------------------------------------------------------
      December 31, 1996                   49.9%           $40.23

      December 31, 1997                   53.8%           $43.57

      December 31, 1998                   54.8%           $45.17



                                       9

<PAGE>

                                                   Total           Cash Flow
                                               Expenditures           from
                                 Total              and             Property
   Fiscal Year Ended:          Revenues        Debt Service        Operations
   --------------------------------------------------------------------------
   December 31, 1996           $615,471          $595,381           $20,090

   December 31, 1997           $717,895          $635,305           $82,590

   December 31, 1998           $753,239          $620,235          $133,004

The  Partnership's  San Bernardino  motel achieved a $35,344 or 4.9% increase in
total revenues  during the fiscal year covered by this report as compared to the
previous  fiscal  year.  Guest room  revenue  increased  $39,237  or 5.7%.  This
increase was achieved in the leisure market segment and was partially  offset by
a decrease in patronage from the corporate market segment.

The  Partnership's San Bernardino motel achieved a $102,424 or 16.6% increase in
total revenues during the fiscal year ended December 31, 1997 as compared to the
previous fiscal year. The increased  revenue was primarily in guestroom  revenue
and was realized by increased business in the corporate market segment.

The  San  Bernardino  motel  achieved  a  $15,070  or  2.4%  decrease  in  total
expenditures  during the fiscal  year  covered by this report as compared to the
previous  fiscal  year.  The tax waiver  mentioned  above  resulted in a $55,083
comparative  reduction of  expenditures.  This reduction was partially offset by
$17,563 in increased  personnel  costs and $5,918 in increased  renovations  and
replacements.  Legal  fees  associated  with  the  sale of the  property  raised
comparative legal fees by $22,397.

The San  Bernardino  motel  experienced  a  $39,924  or 6.7%  increase  in total
expenditures  during the fiscal year ended  December 31, 1997 as compared to the
previous fiscal year. These expenditure  increases included $14,184 in increased
resident  manager  costs  reflecting  a management  change,  $9,987 in increased
franchise and  management  fees costs  associated  with the increased  guestroom
revenue and $6,808 in increased renovation expenses.


Bakersfield Motel
                                          Average          Average
                                         Occupancy          Room
          Fiscal Year Ended:                Rate             Rate
          ---------------------------------------------------------
          December 31, 1996                 87.2%           $30.28

          December 31, 1997                 84.6%           $32.35

          December 31, 1998                 86.6%           $31.88








                                       10

<PAGE>

                                                 Total            Cash Flow
                                             Expenditures           from
                               Total              and             Property
  Fiscal Year Ended:         Revenues        Debt Service        Operations
  --------------------------------------------------------------------------
  December 31, 1996         $885,403          $919,915           $(34,512)

  December 31, 1997         $910,849          $776,437           $134,412

  December 31, 1998         $915,994          $752,840           $163,154

The  Bakersfield  motel  achieved a $5,145 or 0.6%  increase  in total  revenues
during the fiscal year covered by this report as compared to the previous fiscal
year.  Guestroom  revenue  increased  $7,116  or 0.8% due to  increased  average
occupancy rates from 84.6% in 1997 to 86.6% in 1998. This increased  revenue was
partially offset by a decrease in average daily room rate from $32.35 in 1997 to
$31.88  in  1998.  Amtrak  provided  a  higher  share of the  rooms  sold.  This
relatively low rate business reduced the average room rate.

The  Bakersfield  motel  achieved a $25,446 or 2.9%  increase in total  revenues
during the fiscal year ended  December  31,  1997 as  compared  to the  previous
fiscal year.  Guestroom revenue increased $30,045 due to increased average daily
rates  from  $30.28  in 1996 to  $32.35  in 1997.  This  increased  revenue  was
partially offset by a decrease in occupancy from 87.2% in 1996 to 84.6% in 1997.
The railroad  contracts were  essentially  unchanged,  while rate increases were
achieved in other market segments with a slight decline in rooms sold.

The Partnership's Bakersfield motel achieved a $23,597 or 3.0% decrease in total
expenses  and debt  service  during the fiscal  year  covered by this  report as
compared to the previous fiscal year. The waiver of the tax penalty  resulted in
a $55,082  reduction  in  expenditures.  This was offset by $24,036 in increased
legal fees and $7,986 in increased renovations and replacments.

The Partnership's  Bakersfield motel experienced a $143,478 or 15.6% decrease in
total  expenses and debt service  during the fiscal year ended December 31, 1997
as  compared  to the  previous  fiscal  year.  The loan that was  secured by the
Bakersfield property was liquidated in 1996.



















                                       11

<PAGE>

Future Trends

The  Partnership's  motel properties were sold effective  February 22, 1999. The
Partnership will be terminated after it completes its winding-up activities.  As
a result, "Y2K" problems are irrelevant to the Partnership.


Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Inapplicable.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Financial  Statements and Notes to Financial  Statements  attached hereto at
pages F-1 through F-13.








































                                       12

<PAGE>





                           ANNUAL REPORT ON FORM 10-K

                                     ITEM 8

                              FINANCIAL STATEMENTS

                            SUPER 8 MOTELS III, LTD.

                             SACRAMENTO, CALIFORNIA

                                DECEMBER 31, 1998









































                                      F-1

<PAGE>



Item 8: Financial Statements




                            SUPER 8 MOTELS III, LTD.

                          INDEX OF FINANCIAL STATEMENTS


                                                                    Pages


   Report of Independent Certified Public Accountants                F-3

   Balance Sheets, December 31, 1998 and 1997                        F-4

   Statements of Operations for the years ended December 31, 1998,
     1997 and 1996                                                   F-5

   Statements of Partners' Equity for the years ended December 31,
     1998, 1997 and 1996                                             F-6

   Statements of Cash Flows for the years ended December 31, 1998,
     1997 and 1996                                                   F-7 to
                                                                     F-8

   Notes to Financial Statements                                     F-9 to
                                                                     F-13














Note:  All  schedules  have been omitted since the required  information  is not
present or not  present  in amounts  sufficient  to  require  submission  of the
schedules  or because the  information  required  is  included in the  financial
statements or notes thereto.







                                      F-2
 
<PAGE>






               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




To the Partners
Super 8 Motels III, Ltd.

We have audited the  accompanying  balance sheets of Super 8 Motels III, Ltd., a
California  limited  partnership,  as of  December  31,  1998 and 1997,  and the
related  statements of operations,  partners' equity, and cash flows for each of
the  three  years  in the  period  ended  December  31,  1998.  These  financial
statements  are  the  responsibility  of  the  Partnership's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Super 8 Motels III, Ltd. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.

As discussed in Note 10 in the financial  statements,  on February 22, 1999, the
Partnership was dissolved as a result of the sale of all of its properties.


VOCKER KRISTOFFERSON AND CO.


February 4, 1999
(except for Note 10 as to which the date is February 22, 1999)
San Mateo, California










                                      F-3

<PAGE>
                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                                 BALANCE SHEETS
                           December 31, 1998 and 1997

                                     ASSETS
                                                            1998        1997
                                                        ----------   ----------
Current Assets:
 Cash and temporary investments (Notes 1, 3 and 7)        $271,625   $  362,215
 Accounts receivable                                       110,652      100,184
 Other receivables (Note 9)                                 36,286         -
 Prepaid expenses                                            8,918        9,229
                                                        ----------   ----------
  Total Current Assets                                     427,481      471,628
                                                        ----------   ----------

Property and Equipment (Notes 2 and 4):
 Land                                                    1,670,129    1,670,129
 Capital improvements                                       26,175       26,175
 Buildings   3,276,870                                   3,276,870
 Furniture and equipment                                   809,802      782,439
                                                        ----------   ----------
                                                         5,782,976    5,755,613
 Accumulated depreciation and amortization              (3,110,060)  (2,968,172)
                                                        ----------   ----------
  Property and Equipment, Net                            2,672,916    2,787,441
                                                        ----------   ----------

   Total Assets                                         $3,100,397   $3,259,069
                                                        ==========   ==========

                        LIABILITIES AND PARTNERS' EQUITY

Current Liabilities:
 Accounts payable and accrued liabilities               $   48,148   $  105,668
 Due to related parties                                      8,316       10,749
                                                        ----------   ----------
  Total Current Liabilities                                 56,464      116,417
                                                        ----------   ----------

   Total Liabilities                                        56,464      116,417
                                                        ----------   ----------

Partners' Equity:
 Limited Partners                                        3,021,574    3,122,276
 General Partner                                            22,359       20,376
                                                        ----------   ----------
  Total Partners' Equity                                 3,043,933    3,142,652
                                                        ----------   ----------

   Total Liabilities and Partners' Equity               $3,100,397   $3,259,069
                                                        ==========   ==========


   The accompanying notes are an integral part of these financial statements.

                                      F-4

<PAGE>


                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                            STATEMENTS OF OPERATIONS


                                                  Years Ended December 31:
                                             ----------------------------------
                                                1998        1997        1996
                                             ----------  ----------  ----------
Income:
 Guest room                                  $1,638,563  $1,592,209  $1,464,850
 Telephone and vending                           26,760      33,356      34,128
 Interest                                        10,335      13,116       8,288
 Other                                           10,274       3,178       2,996
                                             ----------  ----------  ----------
  Total Income                                1,685,932   1,641,859   1,510,262
                                             ----------  ----------  ----------

Expenses:
 Motel operations (exclusive of depreciation
  shown separately below) (Notes 5 and 6)     1,185,995   1,164,112   1,189,294
 General and administrative (exclusive 
  of depreciation shown separately below)
  (Note 5)                                       77,300      72,722      74,474
 Depreciation and amortization (Note 2)         144,841     151,769     162,569
 Penalties assessed (waived)                    (54,766)     54,766        -
 Interest                                          -           -          7,765
 Legal settlement and related legal fees         21,368        -           -
 Legal fees related to pending sale              29,401        -           -
 Property management fees (Note 5)               83,462      81,437      75,044
                                             ----------  ----------  ----------
  Total Expenses                              1,487,601   1,524,766   1,509,146
                                             ----------  ----------  ----------

   Net Income                                $  198,331  $  117,093  $    1,116
                                             ==========  ==========  ==========


Net Income Allocable to Limited Partners       $196,348    $115,922      $1,105
                                               ========    ========      ======

Net Income Allocable to General Partner          $1,983      $1,171         $11
                                                 ======      ======      ======

Net Income Per Partnership Unit (Note 1)         $33.05      $19.52        $.19
                                                 ======      ======      ======

Distributions to Limited Partners Per
  Partnership Unit (Note 1)                      $50.00      $25.00       $  -
                                                 ======      ======      ======
  



The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>


                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                         STATEMENTS OF PARTNERS' EQUITY

                                                 Years Ended December 31:
                                             ----------------------------------
                                                1998        1997        1996
                                             ----------  ----------  ----------
Limited Partners:
 Balance, beginning of year                  $3,122,276  $3,154,879  $3,153,774
 Net Income                                     196,348     115,922       1,105
 Cash Distributions                            (297,050)   (148,525)       -
                                             ----------  ----------  ----------
  Balance, End of Year                        3,021,574   3,122,276   3,154,879
                                             ----------  ----------  ----------

General Partner:
 Balance, beginning of year                  $   20,376  $   19,205  $   19,194
 Net income                                       1,983       1,171          11
                                             ----------  ----------  ----------
  Balance, End of Year                           22,359      20,376      19,205
                                             ----------  ----------  ----------


  Total Partners' Equity                     $3,043,933  $3,142,652  $3,174,084
                                             ==========  ==========  ==========



























  The accompanying notes are an integral part of these financial statements.

                                      F-6

<PAGE>


                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                            STATEMENTS OF CASH FLOWS

                                                 Years Ended December 31:
                                             ----------------------------------
                                                1998        1997        1996
                                             ----------  ----------  ----------

Cash Flows From Operating Activities:
 Received from motel operations              $1,665,129  $1,596,674  $1,505,571
 Expended for motel operations and
  general and administrative expenses        (1,438,688) (1,317,510) (1,359,033)
 Interest received                               10,335      13,115       9,401
 Interest paid                                     -          -          (9,044)
                                             ----------  ----------  ----------
  Net Cash Provided by Operating Activities     236,776     292,279     146,895
                                             ----------  ----------  ----------

Cash Flows From Investing Activities:
 Proceeds from sale of equipment                   -            120         500
 Purchases of property and equipment            (30,316)    (36,441)    (24,711)
                                             ----------  ----------  ----------
  Net Cash Used by Investing Activities         (30,316)    (36,321)    (24,211)
                                             ----------  ----------  ----------

Cash Flows From Financing Activities:
 Distributions paid to limited partners        (297,050)   (148,525)    -
 Payments on notes payable                         -           -       (153,456)
                                             ----------  ----------  ----------
  Net Cash Used by Financing Activities        (297,050)   (148,525)   (153,456)
                                             ----------  ----------  ----------

  Net Increase (Decrease) in Cash and
   Temporary Investments                        (90,590)    107,433     (30,772)

Cash and Temporary Investments:
   Beginning of year                            362,215     254,782     285,554
                                             ----------  ----------  ----------

    End of Year                              $  271,625  $  362,215   $ 254,782
                                             ==========  ==========  ==========











  The accompanying notes are an integral part of these financial statements.

                                      F-7

<PAGE>


                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                      STATEMENTS OF CASH FLOWS (Continued)

                                                 Years Ended December 31:
                                             ----------------------------------
                                                1998        1997        1996
                                             ----------  ----------  ----------
Reconciliation of Net Income to Net Cash
 Provided by Operating Activities:
  Net income                                 $  198,331  $  117,093  $    1,116
                                             ----------  ----------  ----------

  Adjustments to reconcile net income to
   net cash provided by operating activities:
    Depreciation and amortization               144,841     151,769     162,569
    (Gain) loss on disposition of property
     and equipment                                 -            743        (500)
    (Increase) decrease in accounts
     receivable                                 (10,468)    (32,070)      4,710
    Increase in other receivables               (36,286)       -           -
    Decrease in prepaid expenses                    311       2,112         247
    Increase (decrease) in accounts payable
     and accrued liabilities                    (57,520)     43,648     (23,012)
    Increase (decrease) in due to
     related parties                             (2,433)      8,984       1,765
                                             ----------  ----------  ----------
     Total Adjustments                           38,445     175,186     145,779
                                             ----------  ----------  ----------

     Net Cash Provided by
      Operating Activities                   $  236,776  $  292,279  $  146,895
                                             ==========  ==========  ==========





















  The accompanying notes are an integral part of these financial statements.

                                      F-8
<PAGE>
                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - THE PARTNERSHIP

Super 8 Motels III, Ltd. is a limited partnership organized under California law
on June 2, 1980 to acquire and operate motel  properties in San  Bernardino  and
Bakersfield,  California. The term of the Partnership expires December 31, 2030,
and may be dissolved earlier under certain  circumstances (see note 10). The San
Bernardino motel was opened in March, 1982, and the Bakersfield motel was opened
in September,  1982. The Partnership  grants credit to customers,  substantially
all of which are local  businesses or government  agencies in San  Bernardino or
Bakersfield.

The general partner is Grotewohl  Management  Services,  Inc., the fifty percent
stockholder and officer of which is Philip B. Grotewohl.

The net income or net loss of the  Partnership  is  allocated  1% to the General
Partner  and 99% to the  Limited  Partners.  Net  income and  distributions  per
Partnership unit are based on 5,941 units outstanding. All Partnership units are
owned by the Limited Partners.

The Partnership agreement requires that the Partnership maintain working capital
reserves for normal repairs, replacements,  working capital and contingencies in
an amount of at least 5% of adjusted capital contributions ($297,050 at December
31,  1998).  As of December  31,  1998 the  Partnership  had working  capital of
$371,017.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Items of Partnership  income are passed  through to the individual  partners for
income tax purposes, along with any income tax credits. Therefore, no federal or
California  income  taxes are provided for in the  financial  statements  of the
Partnership.

Property and equipment are recorded at cost.  Depreciation  and amortization are
computed using the following estimated useful lives and methods:

           Description                   Methods              Useful Lives
    -----------------------     --------------------------    ------------
    Capital improvements        150-200% declining balance     10-20 years

    Buildings                   Straight-line and              10-25 years
                                150% declining balance

    Furniture and equipment     200% declining balance          4-7 years

Costs incurred in connection with maintenance and repair are charged to expense.
Major renewals and betterments  that materially  prolong the lives of assets are
capitalized.

Long-lived  assets are reviewed  for  impairment  whenever  events or changes in
circumstances  indicate that the carrying amount may not be recoverable.  If the
sum of the  expected  future  undiscounted  cash flows is less than the carrying
amount of the asset, a loss is recognized  for the  difference  between the fair
value and the carrying value of the asset.

                                      F-9
<PAGE>
                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                    NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect certain  reported amounts and  disclosures.  Accordingly,  actual results
could differ from those estimates.


NOTE 3 - CASH AND TEMPORARY INVESTMENTS

Cash and temporary  investments as of December 31, 1998 and 1997 consists of the
following:

                                                         1998       1997
                                                      ---------   ---------
      Cash in bank                                    $  42,462   $  44,675
      Money market accounts                             229,163     317,540
                                                      ---------   ---------
       Total Cash and Temporary Investments           $ 271,625   $ 362,215
                                                      =========   =========

Temporary investments are recorded at cost, which approximates market value. The
Partnership  considers  temporary  investments and all highly liquid  marketable
securities  with  original  maturities  of  three  months  or  less  to be  cash
equivalents for purposes of the statement of cash flows.


NOTE 4 - PROPERTY AND EQUIPMENT

The following is a summary of the accumulated  depreciation  and amortization of
property and equipment:
                                                        1998         1997
                                                     ----------   ----------
   Capital improvements                              $   24,388   $   23,381
   Buildings                                          2,364,738    2,256,608
   Furniture and equipment                              720,934      688,183
                                                     ----------   ----------
                                                     $3,110,060   $2,968,172
                                                     ==========   ==========

The  following  is a summary of the federal  income tax basis as of December 31,
1998:

   Land                                              $1,670,129
   Capital improvements                                  26,175
   Buildings                                          3,098,640
   Furniture and equipment                              809,802
                                                     ----------
                                                      5,604,746
   Less accumulated depreciation and amortization    (3,829,178)
                                                     ----------
                                                     $1,775,568
                                                     ==========
                                      F-10
<PAGE>
                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                    NOTES TO FINANCIAL STATEMENTS (Continued)


NOTE 5 - RELATED PARTY TRANSACTIONS

Franchise Fees
Super 8 Motels,  Inc.,  now a wholly-owned  subsidiary of Hospitality  Franchise
Systems,  Inc., is franchisor of all Super 8 Motels. The Partnership pays to the
franchisor monthly fees equal to 4% of the gross room revenues of each motel and
contributes an additional 1% of its gross room revenues to an  advertising  fund
administered by the franchisor.  In return, the franchisor provides the right to
use the name "Super 8," a national institutional advertising program, an advance
room reservation system, and inspection services. These costs ($81,928,  $79,610
and $73,242 for the years ended December 31, 1998, 1997 and 1996,  respectively)
are  included in motel  operations  expense in the  accompanying  statements  of
operations.  The  Partnership  operates its motel  properties as a franchisee of
Super 8 Motels, Inc., through a sub-franchise  agreement with Brown & Grotewohl,
a California general partnership,  of which Grotewohl Management Services,  Inc.
(see  Note  1) is a 50%  owner.  Under  the  sub-franchise  agreement,  Brown  &
Grotewohl  earned 40% of the above  franchise  fees,  which amounted to $32,771,
$31,844  and  $29,297  for the years ended  December  31,  1998,  1997 and 1996,
respectively.

Property Management Fees
The General  Partner,  or its  affiliates,  handles the  management of the motel
properties  of the  Partnership.  The fee for this  service  is 5% of the  gross
revenues from Partnership  operations,  as defined in the Partnership agreement,
and  amounted to $83,462,  $81,437 and $75,044 for the years ended  December 31,
1998, 1997 and 1996, respectively.

Subordinated Partnership Management Fees
During the Partnership's operational stage, the General Partner is to receive 9%
of cash available for distributions for Partnership  management services,  along
with an additional  1% of cash  available  for  distributions  on account of its
interest in the profit and losses subordinated in each case, however, to receipt
by the Limited  Partners of a 10% per annum  cumulative  pre-tax return on their
adjusted capital  contributions.  At December 31, 1998, the Limited Partners had
not  received  the  10%  cumulative  return,  and  accordingly,  no  Partnership
management  fees are presently  payable and therefore are not reflected in these
financial statements.  Management believes it is not likely that these fees will
become payable in the future.  This fee is payable only from cash funds provided
from  operations  of the  Partnership,  and may not be paid from the proceeds of
sale or a refinancing.  As of December 31, 1998, the cumulative  amount of these
fees was $471,296.

Subordinated Incentive Distributions
Under the terms of the Partnership agreement,  the General Partner is to receive
15% of distributions of net proceeds from the sale or refinancing of Partnership
properties  remaining after  distribution to the Limited Partners of any portion
thereof required to cause distributions to the Limited Partners from all sources
to be equal to their  capital  contributions  plus a  cumulative  10% per  annum
pre-tax return on their adjusted  capital  contributions.  Through  December 31,
1998, there had been no such sales or refinancings.



                                      F-11
<PAGE>
                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                    NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)

Administrative Expenses Shared by the Partnership and Its Affiliates
There are certain administrative  expenses allocated between the Partnership and
other  partnerships  managed by the General  Partner and its  affiliates.  These
expenses,  which are allocated  based on usage are telephone,  data  processing,
rent of the  administrative  office,  administrative  salaries  and  duplication
expenses.   Management  believes  that  the  methods  used  to  allocate  shared
administrative expenses are reasonable. The administrative expenses allocated to
the Partnership were  approximately  $247,000,  $230,000 and $225,000 during the
years ended December 31, 1998, 1997 and 1996, respectively,  and are included in
general and  administrative  and motel  operating  expenses in the  accompanying
statements  of  operations.  Included in  administrative  salaries are allocated
amounts paid to two employees who are related to Philip B. Grotewohl,  the fifty
percent stockholder of Grotewohl Management Services, Inc., the General Partner.
One of these employees terminated his employment prior to May 1998.

NOTE 6 - MOTEL OPERATING EXPENSES

The following table summarizes the major components of motel operating costs for
the following years:
                                                1998        1997        1996
                                             ----------  ----------  ----------
Salaries and related costs                   $  466,639  $  454,635  $  447,181
Franchise and advertising fees                   81,928      79,610      73,242
Utilities                                       107,831     111,274     111,366
Allocated costs, mainly
  indirect salaries                             197,696     186,004     184,064
Replacements and renovations                     50,310      30,280      46,007
Maintenance expenses                             54,359      68,121      73,715
Property taxes                                   58,001      57,738      53,058
Property insurance                               31,616      33,433      37,215
Other operating expenses                        137,615     143,017     163,446
                                             ----------  ----------  ----------
 Total motel operating expenses              $1,185,995  $1,164,112  $1,189,294
                                             ==========  ==========  ==========
NOTE 7 - CONCENTRATION OF CREDIT RISK

The Partnership  maintains its cash accounts in four commercial banks located in
California.  Accounts  at  each  bank  are  guaranteed  by the  Federal  Deposit
Insurance  Corporation  (FDIC) up to $100,000  per bank.  A summary of the total
insured and uninsured  cash balances (not reduced by  outstanding  checks) as of
December 31, 1998 follows:

         Total cash in all California banks                $301,019
         Portion insured by the FDIC                       (279,939)
                                                           --------
            Uninsured cash balances                        $ 21,080
                                                           ========
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying  amount of cash and  temporary  investments,  accounts  receivable,
other  receivables,  accounts  payable,  accrued  liabilities and due to related
parties in the balance sheet approximates fair value.

                                      F-12
<PAGE>
                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                    NOTES TO FINANCIAL STATEMENTS (Continued)


NOTE 9 - PENDING SALE OF MOTEL ASSETS (SEE NOTE 10)

On May 15, 1998 the Partnership and four other limited  partnerships  managed by
the general  partner  entered  into a contract  to sell all their motel  assets.
Escrow for the sales opened June 1998. By majority vote the limited  partners of
the  Partnership  have  approved  the  sale of the  Partnership's  motel  assets
pursuant to such  contract,  and the limited  partners of the four other limited
partnerships  have also approved by majority  vote the sale of their  respective
limited  partnership's  motel assets. The sale of the Partnership's motel assets
and the motel assets of the other  limited  partnerships  are subject to certain
contingencies.  Because  of  these  contingencies  the  Partnership  has not yet
reclassified  its motel assets as held for sale. If the sale occurs on the terms
approved by the limited  partners,  it is anticipated that the Partnership would
report a gain per books in the amount of  approximately  $140,000.  Accordingly,
there has been no adjustment to the carrying  value of the  Partnership's  motel
assets. If the sale is consummated the Partnership would be liquidated.

In connection with the anticipated sale of the motel assets, the Partnership has
incurred reimbursable costs in the amount of $36,286 which are included as other
receivables in the accompanying balance sheet.


NOTE 10 - SUBSEQUENT EVENTS AND TERMINATION OF PARTNERSHIP

On February 22, 1999,  the  Partnership  sold both motel  properties and related
assets.  The property was  purchased  by Tiburon  Hospitality  LLC, a California
limited  liability  company in which Mark Grotewohl has a 50% profits  interest.
Mark Grotewohl is a former  employee of the  Partnership  and the son of the two
owners of the Partnership's  General Partner.  The Partnership  received cash of
approximately  $2,810,800.  These  transactions  resulted in a gain per books of
approximately $140,000.

As a result of the sale of all of its properties the  Partnership  was dissolved
on February 22, 1999.  Upon  completion of its winding-up  activities and, after
payment of all expenses,  the Partnership will make a final  distribution to its
partners and will be terminated.
















                                      F-13
<PAGE>


Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE

Inapplicable.


                                    PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The original general partners of the Partnership were Dennis A. Brown and Philip
B.  Grotewohl,  as the  managing  general  partners,  and  Borel  Associates  (a
partnership  of which Robert J. Dana was a partner),  as the  associate  general
partner.  Upon Mr. Brown's death on February 25, 1988,  Mr.  Grotewohl and Borel
Associates elected to continue the Partnership. During March 1988, Mr. Grotewohl
appointed Grotewohl Management  Services,  Inc., a California  corporation,  his
successor as General Partner.  Upon the liquidation of Borel Associates in April
1990,  Grotewohl  Management  Services,  Inc.,  as the  sole  remaining  General
Partner, elected to continue the Partnership.

The  General  Partner  was  organized  in 1981 to serve as a general  partner of
limited  partnerships  to be formed  for the  purpose  of  investing  in Super 8
Motels. Mr. Grotewohl is a 50% shareholder,  the sole director and the principal
executive officer of the General Partner.

Mr.  Grotewohl,  age 80, is an  attorney-at-law  and was  engaged in the private
practice of law in San Mateo County,  California,  between 1967 and 1978.  Since
1978, Mr.  Grotewohl's  principal  occupation has been as a promoter and general
partner of Super 8 Motels limited partnerships.


Item 11.  EXECUTIVE COMPENSATION

Although Mr. Brown ceased to be a general  partner of the  Partnership  upon his
death,  a trust  established  for Mr.  Brown's  heirs  shares in  certain of the
compensation  otherwise  payable  to the  General  Partner  and its  affiliates.
Similarly,  although  Borel  Associates  ceased  to  have  any  interest  in the
Partnership  upon  its  dissolution,   Mr.  Dana  continues  to  share  in  such
compensation.

The  following  is a  description  of the fees paid or  payable  to the  General
Partner, the Brown trust and Mr. Dana.

Property Management Fees

The Manager managed all motel  properties of the  Partnership.  The fee for this
service was 5% of the gross  proceeds from the  operations  of each motel.  This
compensation  was in  addition  to the cost of  compensating  the  Partnership's
employees and the cost of goods and services  acquired for the Partnership  from
independent contractors.





                                       13

<PAGE>

The  Partnership  accrued  and paid such fees to the  Manager  in the  amount of
$83,462 during the year ended December 31, 1998.

Franchise Fees and Advertising Fees

The  Partnership  operated its motels as a franchisee  of Super 8 Motels,  Inc.,
pursuant to sub-franchises from the Manager. In connection with the operation of
each of its motels,  the Partnership,  as franchisee,  paid 4% of its gross room
revenues  to the  franchisor.  One-half  of the  franchise  fee was  paid to the
Manager.  In addition to the franchise fee, the Partnership paid 1% of its gross
room revenues to the franchisor as an  advertising  fee. No part of this fee was
paid to the Manager.

The total of franchise  fees accrued  during the year ended December 31, 1998 to
Super 8 Motels, Inc. was $65,543,  of which $32,771 accrued to the Manager.  All
the above amounts have been paid.

General Partner's Interest in Cash Available for Distribution

At quarterly intervals, the total amount of the Partnership's Cash Available for
Distribution is determined at the discretion of the General Partner. (See Item 5
above.)   Distributions   therefrom  are  made  as  follows:  (1)  90%  of  such
distributions  are paid to the Limited  Partners;  (2) 9% thereof is paid to the
General  Partner as Partnership  management  fees; and (3) 1% thereof is paid to
the General  Partner in accordance with its interest in the income and losses of
the Partnership.

Notwithstanding  the  foregoing,  however,  distributions  of Cash Available for
Distribution  which would  otherwise be paid to the General Partner are deferred
and paid only after  payment to the Limited  Partners of  distributions  of Cash
Available  for  Distribution  in an amount  equal to a 10% per annum  cumulative
return on their adjusted capital contributions.

No such cash  distributions  were paid by the Partnership to the General Partner
during the fiscal year ended  December 31, 1998 and no such  distributions  ever
will be paid to the General Partner.

General Partner's  Interest in Net Proceeds of Sales,  Financing and
 Refinancing  of  Partnership  Properties

The proceeds from the sale or refinancing of properties are distributed first to
the Limited  Partners  until they have  received  cumulative  payments  from all
distribution sources equal to 100% of their original capital contributions and a
cumulative 10% per annum return on their adjusted  capital  contributions.  When
the foregoing requirement has been satisfied,  any remaining funds from the sale
or refinancing of properties would be distributed 15% to the General Partner and
85% to the Limited Partners.

No such  distributions  were paid or  accrued  for the  account  of the  General
Partner during the fiscal year covered by this report and no such fees ever will
paid in the future.





                                       14

<PAGE>

Allocation of General Partners' Interest

Compensation  to the  General  Partners  and  their  affiliates  in the  form of
franchise fees and property  management  fees is allocated 1/3 each to the Brown
trust, the General Partner and Robert J. Dana.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT

Security Ownership of Certain Beneficial Owners

                                                   AMOUNT AND
   TITLE                                           NATURE OF
    OF          NAME AND ADDRESS OF BENEFICIAL     BENEFICIAL    PERCENT
   CLASS                     OWNER                 OWNERSHIP    OF CLASS
------------------------------------------------------------------------
   Units       Everest Lodging Investors, LLC      355 Units      5.98%
   Units       Everest Madison Investors, LLC      280 Units      4.71%
   Units       KM Investments                       50 Units       .84%
                                                 -----           ------
                        Total                      685 Units     11.53%
                                                 =====

Security Ownership of Management

The General Partner is not the beneficial owner of any Units.

Changes in Control

With the consent of all other General Partners and Limited Partners holding more
than 50% of the Units, a General Partner may designate a successor or additional
general partner,  in each case with such participation in such General Partner's
interest as such General Partner and successor or additional general partner may
agree upon, provided that the interests of the Limited Partners are not affected
thereby.

A General  Partner may withdraw from the  Partnership  at any time upon 60 days'
prior written notice to the Limited Partners and any other General Partners,  or
may transfer his interest to an entity  controlled  by him;  provided,  however,
that in either such event, if it is determined that the Partnership  business is
to be continued rather than dissolved and liquidated upon the happening thereof,
the  withdrawal  or  transfer  will  be  effective  only  after  receipt  by the
Partnership  of an opinion of counsel  to the  effect  that such  withdrawal  or
transfer  will not cause the  Partnership  to be  classified  as an  association
taxable as a  corporation  rather than as a partnership  for federal  income tax
purposes.









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The Limited  Partners shall take no part in the management of the  Partnership's
business;  however, a majority in interest of the Limited Partners,  without the
concurrence  of  the  General  Partner,  shall  have  the  right  to  amend  the
Partnership Agreement, dissolve the Partnership, remove a General Partner or any
successor general partner,  elect a new general partner or general partners upon
the removal, retirement,  death, insanity, insolvency or bankruptcy of a General
Partner,  and  approve or  disapprove  the sale,  exchange or pledge in a single
transaction  of all or  substantially  all of  the  properties  acquired  by the
Partnership.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Administrative Expenses Shared by the Partnership and its Affiliates

There are certain administrative  expenses allocated between the Partnership and
other  partnerships  managed by the General  Partner and its  affiliates.  These
expenses,  which are allocated based on usage,  are telephone,  data processing,
rent  of  administrative  offices,   administrative  salaries  and  depreciation
expenses.  The  administrative   expenses  allocated  to  the  Partnership  were
approximately  $247,000  in 1998 are  included  in  general  and  administrative
expenses  and  motel  operations   expenses  in  the   Partnership's   financial
statements.  Included in  administrative  salaries are allocated amounts paid to
two employees who are related to Philip B. Grotewohl, the 50% shareholder of the
General Partner.































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                                     PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  Documents filed as part of this report
   1. Financial Statements Included in Part II of this Report

      Report of Independent Certified Public Accountants

       Balance Sheets, December 31, 1998 and 1997
       Statements of Operations for the Years Ended December 31, 1998,  1997 and
       1996  Statements  of  Partners'  Equity for the Years Ended  December 31,
       1998,  1997 and 1996 Statements of Cash Flow for the Years Ended December
       31, 1998, 1997 and 1996 Notes to Financial Statements

   2. Financial Statement Schedules Included in this Report

       None

   3. Exhibits

       3.1 and 4.1 The  Partnership  Agreement  filed as Exhibits 3.1 and 4.1 to
       the annual  report on Form 10-K for the fiscal  year ended  December  31,
       1994 is incorporated herein by reference.

       3.2 & 4.2 The Amendment to Partnership Agreement, included as Exhibit 3.2
       & 4.2 to the  annual  report  on Form  10-K  for the  fiscal  year  ended
       December 31, 1989 is incorporated herein by reference.

       Exhibits  10.1  through  10.4,  filed  as  Exhibits  10.1  through  10.4,
       respectively, to the annual report on Form 10-K for the fiscal year ended
       December 31, 1989 are hereby incorporated herein by reference.

       10.1 Santa Fe Railway Agreement with the Partnership's Bakersfield Motel.
       10.2 Amtrak  Contract  with the  Partnership's  Bakersfield  Motel.  10.3
       Franchise  Agreement  for  the  Bakersfield   Property.   10.4  Franchise
       Agreement for the San Bernardino Property. 10.5 Amtrak Contract Amendment
       filed as Exhibit  10.5 to the  annual  report on Form 10-K for the fiscal
       year ended December 31, 1994 is  incorporated  herein by reference.  10.5
       Amtrak  Contract  Amendment filed as Exhibit 10.5 to the annual report on
       Form 10-K for the fiscal year ended  December  31,  1994 is  incorporated
       herein by reference.

       Exhibits 10.6 and 10.7 are hereby  incorporated  herein by reference from
       Schedule 14A filed by the registrant on November 3, 1998.

       10.6 Purchase and Sale Agreement dated April 30, 1998.








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       10.7 Agreement  dated April 21, 1998 and Exclusive  Sales Agency contract
       dated May 8, 1998.

       Exhibits 10.8 and 10.9 are hereby  incorporated  herein by reference from
       the Rule 13E-3 Transaction  Statement filed by the registrant on November
       16, 1998.

       10.8 First Amendment dated May 15, 1998 to Agreement dated April 21,1998.

       10.9 Second Amendment dated October 29, 1998 to Agreement dated April 21,
       1998.

(b)  Reports on Form 8-K

     Inapplicable







































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                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.

(Registrant)                     SUPER 8 MOTELS III, LTD.

By (Signature and Title)    /s/ Philip B. Grotewohl
                            ------------------------------------------------
                            Philip B. Grotewohl,
                            Chairman of Grotewohl Management Services, Inc.,
                            General Partner

Date April 12, 1999


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

By (Signature and Title)    /s/ Philip B. Philip B. Grotewhl
                            ------------------------------------------------
                            Philip B. Grotewohl,
                            Chief financial  officer,  chief accounting  officer
                            and director of Grotewohl Management Services, Inc.,
                            General Partner

Date April 12, 1999
























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