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 (FEE REQUIRED)

                  For the Fiscal Year Ended December 31, 1996
                        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 have been 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.
Narrative Description of Business

(a)  Franchise Agreements

The Partnership operates 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 December
31, 1995, Super 8 Motels,  Inc. had franchised a total of 1,480 motels having an
aggregate of 89,678 guest rooms in operation.

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.

By the  terms  of each  franchise  agreement  with  Super 8  Motels,  Inc.,  the
Partnership  pays monthly  franchise fees equal to 4% of its gross room revenues
(half of which is paid to the  sub-franchisor)  and contributes 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.









                                       2
<PAGE>



(b)  Operation of the Motels

The  Manager  manages and  operates  the  Partnership's  motels.  The  Manager's
responsibilities  include,  but are not limited to, supervision and direction of
the Partnership's  employees having direct  responsibility  for the operation of
each  motel,  establishment  of room  rates  and  direction  of the  promotional
activities of the Partnership's  employees. In addition, the Manager directs 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 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, 1996, the Partnership employed a total of 31 persons,  either
full or part-time at its two motel  properties,  including nine desk clerks,  17
housekeeping and laundry  personnel,  three maintenance  personnel and two motel
managers.

In addition,  and as of the same date,  the  Partnership  employed 11 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,  sales and marketing personnel,  motel supervisory  personnel,
secretarial personnel, and purchasing personnel.  Employed by the Partnership on
a part-time basis are David and Mark Grotewohl,  relatives of Philip  Grotewohl,
chairman  of  the  General  Partner.  David  Grotewohl,   an  attorney,  is  the
Partnership's general counsel and is the Director of Operations.  Mark Grotewohl
is the Director of Marketing and Sales.

(c)  Property Acquisition and Development

The net  proceeds of the offering of the Units,  and  financing in the amount of
$870,000  (which has since been  repaid),  was expended in  connection  with the
acquisition  and  development  of two  properties  located in San Bernardino and
Bakersfield, California, respectively.

It is the present intention of the General Partner that the proceeds of any sale
or refinancing be distributed to the Limited Partners rather than reinvested.

(d)  Competition

As discussed in greater detail below, in each area in which its motel properties
are located the  Partnership  faces intense  competition  from motels of varying
quality and size,  including  other budget  motels which are part of  nationwide
chains and which have access to nationwide reservation systems.

Super 8 Motels offer accommodations at the upper end, in terms of facilities and
prices, of the budget segment of the lodging industry. Generally, Super 8 Motels
offer larger rooms and higher  quality  furnishings  at higher rates than motels
franchised under the trade-names  Motel 6, Western 6, Econolodge,  Red Roof Inns
and E-Z 8.


                                       3
<PAGE>

Item 2.  Properties

(a) San Bernardino, California

The San Bernardino motel, which consists of 81 guest rooms on approximately 1.87
acres of land,  commenced  operations  on March 6,  1982.  The  average  monthly
occupancy  rates and  average  monthly  room rates  during the three most recent
years are as follows:

                                  Average Occupancy Rate
                             1996          1995          1994
                           ---------     ---------     ---------
    Annual Average           49.9%         55.3%         59.1%

                                     Average Room Rate
                             1996          1995          1994
                           ---------     ---------     ---------
    Annual Average          $40.23        $40.29        $41.07

The  Partnership's  San  Bernardino  motel  provides  accommodations  to no  one
customer,   the  loss  of  which  could  materially   affect  the  Partnership's
operations.

The following lodging facilities provide direct and indirect  competition to the
Partnership's San Bernardino motel:

                                                  APPROXIMATE
                                                NUMBER DISTANCE
            FACILITY             OF ROOMS         FROM MOTEL
        ---------------          --------       ---------------
        Comfort Inn                  50           Adjacent
        Hilton Inn                  200         Across street
        La Quinta Motel             154           200 yards
        Travelodge                   90           200 yards
        EZ-8 Motel                  117          0.13 miles






















                                       4
<PAGE>



(b) Bakersfield, California

The Bakersfield  motel,  which consists of 90 guest rooms on approximately  2.32
acres of land,  commenced  operations on September 20, 1982. The average monthly
occupancy rate and average monthly room rate for the three most recent years are
as follows:

                                  Average Occupancy Rate
                             1996          1995          1994
                           ---------     ---------     ---------
    Annual Average           87.2%         85.6%         89.9%

                                     Average Room Rate
                             1996          1995           1994
                           ---------     ---------      ---------
    Annual Average          $30.28        $30.87         $30.73

From October 1, 1982 to January 31, 1993,  an agreement  was in effect  granting
the Partnership the first  opportunity to provide rooms to employees of Santa Fe
Railroad at a room rate of $20.00.  Though expired  according to its terms,  the
contract  continues to be observed by both parties,  except that the agreed rate
is now $23.00 per room night. Revenue attributable to this agreement constituted
approximately 31%, 32%, and 20% of the motel's total guest revenues during 1996,
1995 and 1994, respectively.

On December 31, 1992, the Partnership  entered into a written agreement with the
National Railroad  Passenger  Corporation  (Amtrak) for the provision of lodging
services  to  its  employees  at  a  room  rate  of  $25.75,  which  included  a
transportation  credit of $1.75 per room night  payable to the  Partnership  for
providing  transportation from the train terminal.  Due to competitive bids, the
rate was  lowered  to $24.00 per room night  effective  October 1, 1994.  Amtrak
provided  approximately  22%,  26% and 19% of the motel's  guest room revenue in
1996, 1995 and 1994, respectively.

Except as set forth above, the Bakersfield  motel provides  accommodations to no
one  customer,  the loss of which  could  materially  affect  the  Partnership's
operations.


















                                       5
<PAGE>


The following lodging facilities  provide direct or indirect  competition to the
Partnership's Bakersfield motel:
                                                        APPROXIMATE
                                              NUMBER      DISTANCE
                    FACILITY                 OF ROOMS       FROM
                                                            MOTEL
          ---------------------------------  --------   -----------
          California Inn                        74        Adjacent
          Motel 6                              160       0.50 miles
          EZ-8 Motel                           100       0.50 miles
          Travelodge Plaza                      61       0.75 miles
          Comfort Inn South                     80       0.75 miles
          Four Points Inn                      199       1.00 mile
          Best Western Kern River Motor Inn    200       1.00 mile
          La Quinta Inn                        150       1.00 mile
          Days Inn                             120       1.00 mile
          Roderunner                            49       1.50 miles
          Economy Motels of America            140       1.50 miles
          Rio Mirada                           209       2.00 miles
          Comfort Inn                           60       2.00 miles
          Econo Lodge                          100       2.00 miles
          Holiday Inn Express                  100       6.00 miles


Item 3.  LEGAL PROCEEDINGS

Inapplicable.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Inapplicable.

                                     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.















                                       6
<PAGE>

Holders

As of December 31, 1996 a total of 988 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 subordinated  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.

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,  to the extent such proceeds are not reinvested in the  acquisition of
additional  properties.  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  Partnership  has made no  distributions  during the two most recent  fiscal
years.




















                                       7
<PAGE>


Item 6.  SELECTED FINANCIAL DATA

Following  are  selected  financial  data of the  Partnership  for its last five
fiscal years ended December 31, 1996, 1995, 1994, 1993 and 1992.




















































                                       8
<PAGE>


                           SUPER 8 MOTELS III, LTD.

Item 6. Selected Financial Data



                                  Years Ended December 31:
              -----------------------------------------------------------------
                 1996       1995       1994       1993       1992       1991
              ---------- ---------- ---------- ---------- ---------- ----------


Guest Room
  Income      $1,464,850 $1,526,742 $1,625,581 $1,734,535 $1,622,825 $1,687,071
Net Income
  (Loss)          $1,116    $68,750    $33,851    $49,083   $(31,203)   $97,596

Per Partnership Unit:
 Cash
   distributions  $  -       $  -       $  -       $  -        $25.00    $25.00
 Net income
   (loss)           $.19     $11.46      $5.64      $8.18      $(5.20)   $16.26


                                  Years Ended December 31:
              -----------------------------------------------------------------
                 1996       1995       1994       1993       1992       1991
              ---------- ---------- ---------- ---------- ---------- ----------

Total Assets  $3,237,869 $3,411,456 $3,632,719 $3,793,456 $3,852,557 $4,045,669
Long-Term Debt   $  -       $75,493   $390,484   $595,214   $724,636   $741,069

























                                       9
<PAGE>


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


Liquidity

The General Partner believes that the  Partnership's  liquidity,  defined as its
ability  to  generate  cash  to  satisfy  its  cash  needs,  is  adequate.   The
Partnership's  primary source of liquidity is its cash flow from operations.  As
of December 31, 1996 the  Partnership had current assets of $334,237 and current
liabilities of $63,785, providing an operating reserve of $270,452. This reserve
is below the  $297,050  reserve  target  required by the  Partnership  Agreement
inasmuch as the Partnership made supplemental principal payments on its mortgage
debt in each of the last four  years to retire  the debt.  The  General  Partner
authorized the pay-down as cash flow from operations has been increasing in each
of the three preceding 1996. The decrease in total cash during 1996 was also due
to the $150,000 in extraordinary loan repayments.

This loan, in the original principal amount of $855,000 at a 10% per annum fixed
interest  rate,  had a maturity  date of September  1997 when,  according to the
loan's  original  terms,  $648,230  would  have  been  due.  As a result  of the
additional  principal  payments in 1993 through 1996,  the loan has been paid in
full. When the reserve has been completely  restored,  the General Partner plans
to resume distributions.

The  liquidity  of the  Partnership  is  enhanced  by the fact that both the San
Bernardino  and  Bakersfield  motels are  presently  unencumbered.  Although the
General Partner knows of no trend likely to create a material  deficiency in the
Partnership's  liquidity,  if the need arises,  cash could be generated  through
leveraging the properties.

During  1997,  the  General   Partner   anticipates   making   certain   capital
expenditures, as noted below under the caption "Capital Resources," although the
amount of such  expenditures will not be such as to compromise the Partnership's
liquidity.  Other than as described below and above the General Partner foresees
no significant trends, demands,  commitments,  events or uncertainties which are
likely  to  affect  the  Partnership's  liquidity,  on  either  a  long-term  or
short-term basis.

Capital Resources

The Partnership has no material commitments for capital  expenditures.  However,
the General Partner  anticipates  that during 1997 the Partnership will spend an
as yet  undetermined  amount  for the  refurbishment  of its  motels  and  their
furnishings. In particular, the Bakersfield motel needs painting.

During the fiscal year covered by this report, the Partnership  expended $70,718
of which $24,711 was  capitalized.  This amount included $21,900 for parking lot
resurfacing at the Bakersfield motel,  $15,348 for computer systems,  $7,345 for
guest room carpets,  $6,218 for re-keying,  $5,365 for tub refurbishing,  $5,006
for replacement bedspreads and $3,702 for replacement televisions.





                                       10
<PAGE>

During the fiscal year ended December 31, 1995, the Partnership expended $81,620
for  renovations  and  replacements,  of  which  $45,880  was  capitalized.  The
capitalized items included $20,759 for guest room carpet, $4,314 for replacement
of televisions, $15,191 for Amtrak shuttle vehicles and $3,789 for a replacement
ice machine.  The uncapitalized items include $8,351 for bedspreads,  $7,325 for
guest room chairs,  $5,827 for mattress sets,  $5,081 for replacement  lamps and
lamp shades, and $4,000 for major boiler repairs.

Other than as described above under "Liquidity," the General Partner knows of no
material  trends  likely  to  affect  or to  require  a change in the mix of its
capital resources.

Results of Operations

Combined Financial Results

The following tables summarize the operating  results of the Partnership for the
fiscal years ended  December 31, 1996,  1995 and 1994 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.

                                      Average       Average
                                     Occupancy       Room
       Fiscal Year Ended:               Rate         Rate
       ------------------            ---------      -------
       December 31, 1994               75.3%        $34.57

       December 31, 1995               71.3%        $34.33

       December 31, 1996               69.5%        $33.66

                                                Total
                                             Expenditures     Partnership
                               Total             and           Cash Flow
       Fiscal Year Ended:     Revenues       Debt Service         (1)
       ------------------     ----------     ------------     -----------
       December 31, 1994      $1,671,022      $1,715,903        $(44,881)

       December 31, 1995      $1,571,111      $1,671,151       $(100,040)

       December 31, 1996      $1,510,262      $1,515,375         $(5,113)















                                       11
<PAGE>

(1) While Partnership Cash Flow as it is used here is not an amount found in the
financial statements,  this amount is the best indicator of the annual change in
the amount,  if any,  available for distribution to the Limited  Partners.  This
calculation is reconciled to the financial statement in the following table.

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:

                                              1996        1995       1994
                                           ----------  ----------  --------- 
Partnership Cash Flow                        $(5,113)  $(100,040)  $(44,881)
Principal Payments on Financial Obligations  153,456     285,133    185,326
Additions to Fixed Assets                     24,711      45,880     64,261
Depreciation and Amortization               (162,569)   (164,599)  (172,398)
Other Items                                   (9,369)      2,376      1,543
                                           ----------  ----------  ---------
Net Income                                    $1,116     $68,750    $33,851
                                           ==========  ==========  =========

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".

                                               1996        1995        1994
                                            ---------   ---------   ---------
San Bernardino Motel                          $20,090     $41,110     $24,211
Bakersfield Motel                             (34,512)   (159,959)    (78,601)
                                            ---------   ---------   ---------
Aggregate Cash Flow from Property Operations  (14,422)   (118,849)    (54,390)

Interest on Cash Reserves                       8,288      10,071       8,727
Other Partnership Income (net of Other
  Expenses) not allocated to the properties     1,020       8,738         782
                                            ---------   ---------   ---------
Partnership Cash Flow                         $(5,114)  $(100,040)   $(44,881)
                                            =========   =========   ========= 


The Partnership  experienced a $60,849 or 3.9% decrease in total revenues during
the fiscal year covered by this report as compared to the previous  fiscal year.
The decrease in revenue is due to slightly reduced room rates at both motels and
to significantly reduced occupancy at the San Bernardino motel. These conditions
are related to the high level of  competition in the  Bakersfield  market and to
poor economic conditions in the San Bernardino market.

The Partnership  experienced a $99,911 or 6.0% decrease in total revenues during
the fiscal year ended December 31, 1995 as compared to the previous fiscal year.
The decline in revenue is due to reduced average  occupancy at both motels and a
reduced average room rate at the San Bernardino motel.  Amplified discussion can
be found in the individual property subsections that follow.





                                       12
<PAGE>

The Partnership  achieved a $155,776 or 9.3% reduction in the total expenditures
during the fiscal year covered by this report as compared to the previous fiscal
year.  This  reduction is due primarily to the  comparatively  smaller  payments
necessary to liquidate the  Bakersfield  motel's loan and to lower  payments for
renovations and replacements.

The  Partnership  achieved a $44,752 or 2.6% reduction in combined  expenditures
and debt service  during the fiscal year ended  December 31, 1995 as compared to
the previous  fiscal year.  Debt service  increased by $75,000.  The increase in
debt service was offset by a $100,095 reduction in motel operating expenses, due
primarily to the reduced average occupancy.

San Bernardino Motel
                                      Average       Average
                                     Occupancy        Room
       Fiscal Year Ended:              Rate           Rate
       ------------------            ---------      -------
       December 31, 1994               59.1%         $41.07

       December 31, 1995               55.3%         $40.29

       December 31, 1996               49.9%         $40.23

                                                Total        Cash Flow
                                            Expenditures        from
                                Total            and          Property
       Fiscal Year Ended:     Revenues      Debt Service     Operations
       ------------------     --------      ------------     ----------
       December 31, 1994      $741,564        $717,353        $24,211
                         
       December 31, 1995      $678,561        $637,451        $41,110
                         
       December 31, 1996      $615,471        $595,381        $20,090
       
The Partnership's San Bernardino motel experienced a $63,090 or 9.3% decrease in
total revenues  during the fiscal year covered by this report as compared to the
previous  fiscal  year.  Guest room  revenue  from the  leisure  market  segment
decreased approximately $68,000 while the revenue from the other market segments
remained substantially unchanged.

The San  Bernardino  motel  experienced  a  $63,003  or 8.5%  decrease  in total
revenues  during the fiscal  year ended  December  31,  1995 as  compared to the
previous  fiscal year.  Guest room revenue from the corporate and leisure market
segments  decreased  approximately  $10,000.  The  number of guest  room  nights
generated from these two market segments remained substantially  unchanged while
the average  room rate  received  for the  corporate  market  segment  increased
slightly and the average room rate  received  from the leisure  market  declined
more  substantially.  Average  occupancy  from the  discounted  room  and  group
traveler  market  segments   declined   sharply   resulting  in  a  decrease  of
approximately $50,000 in guest room revenue.







                                       13
<PAGE>

The San  Bernardino  motel  achieved  a  $42,070  or  6.6%  reduction  in  total
expenditures  during the fiscal  year  covered by this report as compared to the
previous fiscal year. Theses expenditure  reductions included $13,573 in reduced
property taxes from a property tax appeal,  $14,602 in reduced  resident manager
costs,  $6,054 in lower  housekeeping  wages and  $9,861 in  reduced  renovation
expenses. This reductions were partially offset by $7,250 in appraisal costs and
by $7,609 of increased workers' compensation insurance.

The San Bernardino motel achieved a $79,902 or 11.1% reduction in total expenses
and debt service  during the fiscal year ended  December 31, 1995 as compared to
the previous  fiscal year. The motel achieved an $8,663  reduction in bad debts,
an $8,102 reduction in housekeeping  wages, an $18,229  reduction in maintenance
wages and a $41,727 reduction in renovation and replacements.  The previous year
was subject to an unusually high level of replacement and renovation expense.

Bakersfield Motel
                                      Average       Average
                                     Occupancy        Room
       Fiscal Year Ended:              Rate           Rate
       ------------------            ---------      -------
       December 31, 1994               89.9%         $30.73
                         
       December 31, 1995               85.6%         $30.87

       December 31, 1996               87.2%         $30.28
         
                                                Total         Cash Flow
                                            Expenditures        from
                                Total            and          Property
       Fiscal Year Ended:     Revenues      Debt Service     Operations
       ------------------     --------      ------------     ----------
       December 31, 1994      $919,367         $997,968        $(78,601)
                         
       December 31, 1995      $882,261       $1,042,220       $(159,959)
                         
       December 31, 1996      $885,403         $919,915        $(34,512)





















                                       14
<PAGE>

The Bakersfield motel achieved a $3,142 (0.4%) increase in total revenues during
the fiscal year covered by this report as compared to the previous  fiscal year.
Guest room revenue was substantially  unchanged as the increase in occupancy was
mostly  offset by the decrease in average  room rate.  Decreased  corporate  and
leisure  market segment  business was offset by increased  contract rooms to the
Santa Fe Railroad and to Amtrak.

The  Bakersfield  motel  experienced a $37,106 (4.0%) decrease in total revenues
during the fiscal year ended  December  31,  1995 as  compared  to the  previous
fiscal year. Decreased revenue generated from the corporate, group, discount and
trucker  market  segments  was  substantially,  but not  completely,  offset  by
increased revenue from the leisure market segment and the railroad accounts.

The  Partnership's  Bakersfield motel experienced a $122,305 (11.7%) decrease in
total expenses and debt service during the fiscal year covered by this report as
compared  to the  previous  fiscal  year.  The  $152,300  reduction  in mortgage
payments was partially offset by increased  expenditures of $7,250 for appraisal
fees,  of $5,460 for workers'  compensation  insurance  and $5,329 for increased
supplies.

The  Partnership's  Bakersfield  motel  experienced a $44,252 (4.4%) increase in
total  expenses and debt service  during the fiscal year ended December 31, 1995
as compared to the  previous  fiscal  year.  Excluding  the $75,000  comparative
increase  in debt  service,  the motel  achieved  a $30,748  reduction  in other
expenditures.  Included in this  reduction were savings of $10,242 in front desk
wages,  $10,120 in maintenance wages,  $8,780 in housekeeping  wages,  $6,635 in
resident manager expense and $5,653 in workers'  compensation  insurance.  These
reduced  expenditures  were partially  offset by increased costs associated with
transporting  railroad  employees from the train station to the motel.  The cost
savings  was due to  adjustments  to staffing  levels and to a lessor  extent to
reduced average occupancy.

Future Trends

The General Partner believes that  competitive  conditions in the San Bernardino
and Bakersfield  markets are such as to prevent the Partnership  from reflecting
inflation in increased room rates at its motels. Accordingly, an increase in the
inflation rate could have a deleterious effect on Partnership operations.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Financial  Statements and Notes to Financial  Statements  attached hereto at
pages F-1 through F-12.














                                       15
<PAGE>






                          ANNUAL REPORT ON FORM 10-K

                                    ITEM 8

                             FINANCIAL STATEMENTS

                           SUPER 8 MOTELS III, LTD.

                            SACRAMENTO, CALIFORNIA

                               DECEMBER 31, 1996








































                                      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, 1996 and 1995                          F-4

  Statements of Operations for the years ended December 31, 1996,
    1995 and 1994                                                     F-5

  Statements of Partners' Equity for the years ended December 31,
    1996, 1995 and 1994                                               F-6

  Statements of Cash Flows for the years ended December 31, 1996,
    1995 and 1994                                                     F-7 to
                                                                      F-8

  Notes to Financial Statements                                       F-9 to
                                                                      F-12














Note: All other  schedules  have been omitted since the required  information is
not present or not present in amounts  sufficient  to require  submission of the
schedule 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,  1996 and 1995,  and the
related  statements of operations,  partners' equity, and cash flows for each of
the  three  years  in the  period  ended  December  31,  1996.  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, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.


VOCKER KRISTOFFERSON AND CO.


February 20, 1997
San Mateo, California







                                      F-3

<PAGE>



                           SUPER 8 MOTELS III, LTD.
                      (A California Limited Partnership)
                                BALANCE SHEETS
                          December 31, 1996 and 1995



                                   ASSETS

                                                            1996         1995
                                                         ----------  ----------
Current Assets:
    Cash and temporary investments (Notes 1, 3 and 7)    $  254,782  $  285,554
    Accounts receivable                                      68,114      72,824
    Prepaid expenses                                         11,341      11,588
                                                         ----------  ----------
       Total Current Assets                                 334,237     369,966
                                                         ----------  ----------

Property and Equipment (Note 2):
    Land                                                  1,670,129   1,670,129
    Capital improvements                                     26,175      26,175
    Buildings                                             3,276,870   3,276,870
    Furniture and equipment                                 756,837     742,531
                                                         ----------  ----------
                                                          5,730,011   5,715,705
    Accumulated depreciation and amortization            (2,826,379) (2,674,215)
                                                         ----------  ----------
       Property and Equipment, Net                        2,903,632   3,041,490
                                                         ----------  ----------

          Total Assets                                   $3,237,869  $3,411,456
                                                         ==========  ==========


                        LIABILITIES AND PARTNERS' EQUITY

Current Liabilities:
    Current portion of note payable (Note 5)             $     -     $   77,963
    Accounts payable and accrued liabilities                 62,020      85,032
    Due to related parties                                    1,765        -
                                                         ----------  ----------
       Total Current Liabilities                             63,785     162,995

Long-term Liabilities, Net of Current Portion:
    Note payable (Note 5)                                      -         75,493
                                                         ----------  ----------

          Total Liabilities                                  63,785     238,488
                                                         ----------  ----------


Partners' Equity:
    General Partner                                          19,205      19,194
    Limited Partners                                      3,154,879   3,153,774
                                                         ----------  ----------
       Total Partners' Equity                             3,174,084   3,172,968
                                                         ----------  ----------

          Total Liabilities and Partners' Equity         $3,237,869  $3,411,456
                                                         ==========  ==========

                See accompanying notes to financial statements.











                                      F-4

<PAGE>



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




                                                  Years Ended December 31:
                                             ----------------------------------
                                                1996        1995        1994
                                             ----------  ----------  ----------
Income:
    Guest room                               $1,464,850  $1,526,742  $1,625,581
    Telephone and vending                        34,128      32,654      33,352
    Interest                                      8,288      10,071       8,727
    Other                                         2,996       1,644       3,363
                                             ----------  ----------  ----------
       Total Income                           1,510,262   1,571,111   1,671,023
                                             ----------  ----------  ----------

Expenses:
    Motel operations (Notes 4 and 6)          1,189,294   1,174,475   1,274,570
    General and administrative (Note 4)          74,474      57,956      54,428
    Depreciation and amortization (Note 2)      162,569     164,599     172,398
    Interest                                      7,765      27,290      52,932
    Property management fees (Note 4)            75,044      78,041      82,844
                                             ----------  ----------  ----------
       Total Expenses                         1,509,146   1,502,361   1,637,172
                                             ----------  ----------  ----------

          Net Income                         $    1,116  $   68,750  $   33,851
                                             ==========  ==========  ==========


Net Income Allocable to General Partner             $11        $688        $339
                                                =======     =======     =======

Net Income Allocable to Limited Partners         $1,105     $68,062     $33,512
                                                =======     =======     =======


Net Income Per Partnership Unit (Note 1)           $.19      $11.46       $5.64
                                                =======     =======     =======

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





                See accompanying notes to financial statements.

                                      F-5

<PAGE>



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





                                                  Years Ended December 31:
                                             ----------------------------------
                                                1996        1995        1994
                                             ----------  ----------  ----------
General Partner:
    Balance, beginning of year               $   19,194  $   18,506  $   18,167
    Net income                                       11         688         339
                                             ----------  ----------  ----------
       Balance, End of Year                      19,205      19,194      18,506
                                             ----------  ----------  ----------

Limited Partners:
    Balance, beginning of year                3,153,774   3,085,712   3,052,200
    Net income                                    1,105      68,062      33,512
                                             ----------  ----------  ----------
       Balance, End of Year                   3,154,879   3,153,774   3,085,712
                                             ----------  ----------  ----------

       Total Partners' Equity                $3,174,084  $3,172,968  $3,104,218
                                             ==========  ==========  ==========
























                See accompanying notes to financial statements.

                                      F-6

<PAGE>



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





                                                  Years Ended December 31:
                                             ----------------------------------
                                                1996        1995        1994
                                             ----------  ----------  ----------


Cash Flows From Operating Activities:
 Received from motel operations              $1,505,571  $1,575,015  $1,678,452
 Expended for motel operations and
   general and administrative expenses       (1,359,033) (1,313,408) (1,419,657)
 Interest received                                9,401       9,154       8,649
 Interest paid                                   (9,044)    (29,666)    (54,476)
                                             ----------  ----------  ----------
   Net Cash Provided by Operating Activities    146,895     241,095     212,968
                                             ----------  ----------  ----------

Cash Flows From Investing Activities:
 Proceeds from sale of equipment                    500       5,366       3,550
 Purchases of property and equipment            (24,711)    (45,880)    (64,261)
                                             ----------  ----------  ----------
   Net Cash Used by Investing Activities        (24,211)    (40,514)    (60,711)
                                             ----------  ----------  ----------

Cash Flows From Financing Activities:
 Payments on notes payable                     (153,456)   (285,134)   (185,326)
                                             ----------  ----------  ----------
   Net Cash Used by Financing Activities       (153,456)   (285,134)   (185,326)
                                             ----------  ----------  ----------

   Net Increase (Decrease) in Cash and
     Temporary Investments                      (30,772)    (84,553)    (33,069)

Cash and Temporary Investments:
 Beginning of year                              285,554     370,107     403,176
                                             ----------  ----------  ----------

   End of Year                               $  254,782  $  285,554  $  370,107
                                             ==========  ==========  ==========






                See accompanying notes to financial statements.

                                      F-7

<PAGE>



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




                                                   Years Ended December 31:
                                              ---------------------------------
                                                 1996        1995        1994
                                              ----------  ----------  ---------

Reconciliation of Net Income to Net Cash
 Provided by Operating Activities:
  Net income                                  $    1,116  $   68,750  $  33,851
                                              ----------  ----------  ---------

  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation and amortization                162,569     164,599    172,398
    (Gain) loss on disposition of property
     and equipment                                  (500)        433      1,860
    Decrease in accounts receivable                4,710      13,058     16,078
    (Increase) decrease in prepaid expenses          247        (866)    (1,957)
    Increase (decrease) in accounts payable
     and accrued liabilities                     (23,012)      3,033     (8,246)
    Increase (decrease) in due to
     related parties                               1,765      (7,912)    (1,016)
                                              ----------  ----------  ---------
      Total Adjustments                          145,779     172,345    179,117
                                              ----------  ----------  ---------

      Net Cash Provided by
       Operating Activities                   $  146,895  $  241,095  $ 212,968
                                              ==========  ==========  =========

















                See accompanying notes to 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.  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 in San Bernardino or Bakersfield.

The general  partner is  Grotewohl  Management  Services,  Inc.,  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,  1996).  As of December  31,  1996 the  Partnership  had working  capital of
$270,452.  During the year ended  December  31,  1996,  $26,598  ($297,050  less
$270,452)  of the  reserves,  plus  additional  amounts,  were used to make loan
repayments on the mortgage payable.

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.

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.

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

NOTE 3 - CASH AND TEMPORARY INVESTMENTS

Cash and temporary  investments as of December 31, 1996 and 1995 consists of the
following:                                                     1996       1995
      Cash in bank                                          $ 43,305   $ 45,031
      Money market accounts                                  211,477    140,523
      Certificates of deposit and commercial paper              -       100,000
                                                            --------   --------
         Total Cash and Temporary Investments               $254,782   $285,554
                                                            ========   ========
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 - 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 ($73,242,  $76,337
and $81,077 for the years ended December 31, 1996, 1995 and 1994,  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 $29,297,
$30,535  and  $32,431  for the years ended  December  31,  1996,  1995 and 1994,
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 $75,044,  $78,041 and $82,844 for the years ended  December 31,
1996, 1995 and 1994, 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, 1996, 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, 1996, the cumulative  amount of these
fees was $421,787.                    F-10
<PAGE>


                           SUPER 8 MOTELS III, LTD.
                      (A California Limited Partnership)
                   NOTES TO FINANCIAL STATEMENTS (Continued)



NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)

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,
1996, there had been no such sales or refinancings.

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,  and   administrative   salaries.   The
administrative   expenses   allocated  to  the  Partnership  were  approximately
$225,000,  $223,000 and $207,000  during the years ended December 31, 1996, 1995
and 1994, 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 three  employees who are
related  to  Philip B.  Grotewohl,  a fifty  percent  stockholder  of  Grotewohl
Management Services, Inc., the General Partner.


NOTE 5 - NOTE PAYABLE

The note payable  consisted of a note due to a bank and was  collateralized by a
first deed of trust on real property in  Bakersfield,  California.  During 1995,
the note,  which was held in trust by Wells Fargo Bank for Mr.  Bruce J. Bailey,
was  split  into two  notes,  one due to Wells  Fargo  and the  other due to Mr.
Bailey.  The combined  balances of the new notes were equal to the prior balance
of the original Wells Fargo note.

During 1996, the Partnership paid off the balances of the two notes payable.



                                      F-11


<PAGE>


                           SUPER 8 MOTELS III, LTD.
                      (A California Limited Partnership)
                   NOTES TO FINANCIAL STATEMENTS (Continued)



NOTE 6 - MOTEL OPERATING EXPENSES

The following table summarizes the major components of motel operating costs for
the following years:

                                                1996        1995        1994
                                             ----------  ----------  ----------

Salaries and related costs                   $  447,181  $  441,334  $  514,133
Franchise and advertising fees                   73,242      76,337      78,077
Utilities                                       111,366     121,969     130,871
Allocated costs, mainly
  indirect salaries                             184,064     181,607     169,656
Renovations and replacements                     46,007      35,740      50,906
Other operating expenses                        327,434     317,488     330,927
                                             ----------  ----------  ----------

  Total motel operating expenses             $1,189,294  $1,174,475  $1,274,570
                                             ==========  ==========  ==========


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, 1996 follows:

         Total cash in all California banks           $ 264,771
         Portion insured by the FDIC                   (238,087)
                                                      ---------
            Uninsured cash balances                   $  26,684
                                                      =========














                                      F-12


<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.  A 50%  shareholder,  director and the principal  officer of the General
Partner is Mr. Grotewohl.

Mr.  Grotewohl,  age 78, 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 of Mr.  Brown  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 is managing and will manage all motel properties of the Partnership.
The fee for this service is 5% of the gross proceeds from the operations of each
motel.  This  compensation  is 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.

The  Partnership  accrued  and paid such fees to the  Manager  in the  amount of
$75,044 during the year ended December 31, 1996.



                                       16
<PAGE>

Franchise Fees and Advertising Fees

The  Partnership  operates 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,  pays 4% of its gross room
revenues  to the  franchisor.  One-half  of the  franchise  fee is  paid  to the
Manager.  In addition to the franchise fee, the Partnership pays 1% of its gross
room revenues to the  franchisor as an  advertising  fee. No part of this fee is
paid to the Manager.

The total of franchise  fees accrued  during the year ended December 31, 1996 to
Super 8 Motels, Inc. was $58,594,  of which $29,297 accrued to the Manager.  The
total advertising fees paid to Super 8 Motels,  Inc. was $14,648.  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 10% per annum  cumulative on
their adjusted capital contributions.

No such cash  distributions were paid by the Partnership to the General Partner,
the Brown  Trust,  Robert J. Dana,  or their  affiliates  during the fiscal year
ended  December  31,  1996. A total of $421,787 has been accrued to such persons
since  commencement of the  Partnership,  but is not set forth as a liability in
the  Partnership's  financial  statements due to the uncertainty of payment.  In
order for this amount to be payable the Limited Partners must receive $5,190,589
in prior years' preference distributions and $594,100 in each future year before
any payments can be made to management.

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

The proceeds from the sale or refinancing of properties not reinvested are to be
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 is to 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,  the Brown trust,  Robert J. Dana or their affiliates during the fiscal
year covered by this report.



                                       17
<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

No person is known by the Partnership to be the beneficial owner of more than 5%
of the Units.

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.

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.










                                       18
<PAGE>

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 and administrative  salaries. The administrative
expenses  allocated to the Partnership were  approximately  $225,000 in 1996 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 three employee who are related to Philip B. Grotewohl,
the 50%  shareholder of the General  Partner.  The  Partnership  purchased motel
supplies for approximately $8,000 from one of these employees.











































                                       19
<PAGE>


                                     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, 1996 and 1995
       Statements of Operations for the Years Ended December 31, 1996,
         1995 and 1994
       Statements of Partners' Equity for the Years Ended December 31, 1996,
         1995 and 1994
       Statements of Cash Flow for the Years Ended December 31, 1996,
         1995 and 1994
       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.

 (b)  Reports on Form 8-K
       Inapplicable.












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<PAGE>


                                   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  March 28, 1997


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. Grotewohl
                              ---------------------------
                              Philip B. Grotewohl,
                              Chief   executive   officer,    chief
                              financial  officer,  chief accounting
                              officer   and   sole    director   of
                              Grotewohl Management Services,  Inc.,
                              General Partner

Date March 28, 1997

























                                       21
<PAGE>


                                  EXHIBIT INDEX

     Exhibit                                              Sequentially
     Number                          Exhibit              Numbered Page
     -------                       ----------             -------------
       28.1                        Prospectus


















































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