SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                  FORM 10-K/A-1


                   ANNUAL REPORT UNDER SECTION 13 or 15(d) of
                       THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996




Commission file number 0-20151
Commission file number 33-35868-01


                       PARTICIPATING INCOME PROPERTIES III
                               LIMITED PARTNERSHIP
                                       AND
                   FFCA/PIP III INVESTOR SERVICES CORPORATION
               ---------------------------------------------------
               (Exact Name of Co-Registrants as Specified in Their
                            Organizational Documents)



             Delaware                                          86-0665681
------------------------------------                   -------------------------
(Partnership State of Organization)                    (Partnership IRS Employer
                                                           Identification No.)

             Delaware                                          86-0555605
------------------------------------                   -------------------------
(Corporation State of Incorporation)                   (Corporation IRS Employer
                                                           Identification No.)

        The Perimeter Center                                            85255
     17207 North Perimeter Drive                                      ----------
         Scottsdale, Arizona                                          (Zip Code)
----------------------------------------
(Address of Principal Executive Offices)

Co-Registrants' telephone number, including area code:      (602) 585-4500
<PAGE>
                                     PART I

Item 1.  Business.

         Participating  Income  Properties III Limited  Partnership,  a Delaware
limited partnership (the "Partnership"), was organized on July 9, 1990 under the
Delaware Revised Uniform Limited  Partnership Act. The Partnership was organized
primarily to purchase new but also existing travel plaza  facilities,  including
land,  buildings and equipment,  and to lease such  facilities on a net basis to
one or more qualified operators.  The general partner of the Partnership is FFCA
Participating  Management  Company  Limited  Partnership,   a  Delaware  limited
partnership (the "General Partner"). The managing general partner of the General
Partner is Franchise Finance Corporation of America III, a Delaware  corporation
("FFCA III"). Travel Plaza Management, Inc. ("TMI"), a subsidiary of PaineWebber
Group, Inc., and Morton H. Fleischer and Paul Bagley are general partners of the
General Partner.

         FFCA/PIP III Investor Services Corporation, a Delaware corporation, was
incorporated  on June 23,  1986 to serve as the initial  limited  partner of the
Partnership and the owner of record of the limited partnership  interests in the
Partnership,  the rights and  benefits of which are  assigned  by  FFCA/PIP  III
Investor  Services  Corporation  to investors in the  Partnership.  FFCA/PIP III
Investor  Services  Corporation   conducts  no  other  business  activity.   The
Partnership  and  FFCA/PIP  III Investor  Services  Corporation  are referred to
collectively as the "Co-Registrants."

         The  statements  contained  in  this  report,  if not  historical,  are
forward-looking  statements and involve risks and uncertainties that could cause
actual results to differ materially from the results, financial or otherwise, or
other  expectations   described  in  such  forward-looking   statements.   These
statements are identified with the words "anticipated" or "expected". Therefore,
forward-looking  statements  should not be relied upon as a prediction of actual
future results or occurrences.

         On April 10, 1991, the  Co-Registrants  commenced a public  offering of
$100,000,000  of  limited  partnership  assignment  units (the  "Units")  in the
Partnership  pursuant  to a  Registration  Statement  on  Form  S-11  under  the
Securities Act of 1933, as amended.  The  Co-Registrants  sold a total of 26,709
Units to investors at $1,000 per Unit for a total of $26,709,000.  Purchasers of
the Units (the "Holders")  acquired the following  number of Units from FFCA/PIP
III Investor Services  Corporation on each of the following dates:  14,119 Units
on August 30, 1991 and 12,590  Units on February 28,  1992.  Subsequent  to that
date, no Holder has made any additional capital contribution.  The Holders share
in the benefits of ownership of the Partnership's assets, including its real and
personal  property  investments,  according  to the  number  of  Units  held  in
substantially the same manner as limited partners in the Partnership.

         After deducting  organizational and offering expenses,  including sales
commissions,  the net proceeds of the offering of the Units totaled $23,236,830.
During the fiscal years ended December 31, 1993,  1992 and 1991, the Partnership
distributed cash to the limited partners aggregating $957,268,  which represents
a partial  return of the  limited  partners'  initial  $1,000  per
<PAGE>
unit capital  contribution.  After deducting this return of capital from the net
proceeds of the  offering  of units,  the  remaining  cash  proceeds  were fully
invested by the  Partnership in three "Flying J Travel  Plazas",  one located in
Wytheville, Virginia, one located in Bakersfield,  California and one located in
Ehrenberg,  Arizona.  "Flying J Travel Plaza"  facilities  offer a  full-service
operation, generally including fuel facilities, a restaurant,  convenience store
and other  amenities for use by the trucking  industry and  traveling  public in
general.  The Wytheville property was acquired in December 1991, the Bakersfield
property was acquired in January 1993 and the Ehrenberg property was acquired in
June 1993. With respect to the Ehrenberg property, the travel plaza was acquired
by  purchasing  the land and making a loan to the  franchisee  for financing the
travel plaza building.

         As of  August  25,  1997,  two  of  the  travel  plazas  owned  by  the
Partnership were leased to CFJ Properties, a general partnership formed pursuant
to a joint venture  between  Flying J Inc.,  through its subsidiary Big West Oil
Company ("Big  West"),  and Douglas Oil Company of  California,  a subsidiary of
Conoco Inc.  ("Douglas  Oil").  With respect to the remaining  travel plaza, the
land is leased to TFJ, a Utah general partnership.  In addition, the Partnership
made a loan to TFJ to finance the travel plaza  building.  TFJ is a  partnership
owned 49.9% by Flying J and 50.1% by Pacific  Sunstone,  Inc.,  an  affiliate of
Flying J. The  operation of this travel  plaza  represents  TFJ's sole  business
activity.  The Partnership is not affiliated with CFJ Properties,  TFJ, Flying J
Inc. or Flying J Franchise Inc. ("FJFI"), a subsidiary of Flying J Inc.

         The Partnership's principal objectives are to (i) preserve, protect and
enhance   Partnership   capital,   (ii)  provide  partially   tax-deferred  cash
distributions to investors, (iii) provide the potential for increased income and
protection against inflation through  participation in the operating revenues of
travel plaza facilities owned by the Partnership,  and (iv) to provide potential
long-term  appreciation  in the  value of its  properties  through  real  estate
ownership.

         Real estate owned by the  Partnership is leased for a term of 20 years.
If a  franchisee-lessee,  however,  ceases to be a  franchisee  of Flying J Inc.
prior to the expiration of its 20-year lease term,  the  Partnership is entitled
in its sole discretion to terminate the lease with such  franchisee-lessee.  Two
of the travel  plazas also lease  equipment  for a term of eight years.  Lessees
must pay the Partnership annual rental payments (in monthly  installments) equal
to a percentage of the  Partnership's  total  investment  in the property.  With
respect to the property located in Ehrenberg, the Partnership leases the land to
the travel plaza  operator and made a loan for the travel  plaza  building.  The
loan  provides  for monthly  installments  of interest at a rate of 7% per annum
until June 30, 2003 at which time the entire principal  balance is due. The loan
may not be prepaid in full or in part,  except  upon  exercise  of the  purchase
option on the related  travel plaza land. As additional  rent under the terms of
the lease,  the  Partnership  is entitled to receive a portion of the  operating
revenues from the travel plazas  subject to the lease equal to (i) up to 3.5% of
annual  gross  receipts  derived  from the  non-fuel  sales of such travel plaza
facility and (ii) up to 3/10 of $.01 per gallon of fuel sold.  Reference is made
to Note (3) of the 
                                       3
<PAGE>
notes to the financial  statements  filed with this Report for a schedule of the
minimum  future  lease  payments  to be  received  by  the  Partnership  on  its
properties.

         In connection with leases to CFJ Properties and franchisees of Flying J
Inc., the General  Partner  granted to the lessee and to Flying J Inc. an option
(the "Option  Agreement") to purchase the leased equipment and real estate.  The
Option Agreement generally provides that upon expiration of its equipment lease,
and if the  lessee is not in  default  under its  lease,  a lessee  will have an
option to purchase its leased  equipment at its appraised fair market value.  In
addition, provided that the lessee is not in default under its lease at the time
of exercise,  a lessee will have an option exercisable from the end of the tenth
year  until the end of the  fifteenth  year of the lease  term to  purchase  its
leased  real  estate at the greater of (i) the  appraised  fair market  value of
land, building and equipment,  or (ii) the Partnership's total investment in the
property  plus a pro rata  portion of certain  fees and less any amounts paid by
such lessee to the Partnership for equipment under the Option Agreement.

         The  Partnership is dependent upon CFJ Properties and TFJ, its lessees,
since an adverse  change in the financial  condition of CFJ  Properties  and TFJ
could materially affect their ability to make lease and loan payments.

         On February 1, 1991,  Flying J Inc.,  through its  subsidiary Big West,
entered into a joint venture with Douglas Oil to form CFJ  Properties.  Flying J
Inc. (and subsidiaries) is a fully integrated oil and gas company and is engaged
in the production, refining, transportation, wholesaling and retail marketing of
petroleum  products and other  services  through its travel  plazas and gasoline
stations.  CFJ Properties is the franchisor and operator of the Flying J network
of  interstate  travel  plazas,  which  included 72 properties as of January 31,
1997. The Partnership owns two of these properties. Under the terms of the joint
venture agreement,  Big West sold to Douglas Oil certain Flying J Travel Plazas,
which  Douglas  Oil  contributed  back to CFJ  Properties.  In  addition to this
initial  contribution,  Douglas Oil also made  additional  contributions  to CFJ
Properties. As its initial contribution,  Big West transferred to CFJ Properties
certain  leasehold  interests  and  Flying J  Travel  Plazas,  and  subsequently
contributed  to  CFJ  Properties   various  assets  including  working  capital,
inventories and future development  sites.  Flying J Inc. assigned its leasehold
interests in the travel plazas owned by the  Partnership  to CFJ  Properties and
was  released by the  Partnership  with respect to its  obligations  under those
leases.

         The Partnership's  leases with CFJ Properties are with full recourse to
the assets of CFJ Properties, but without recourse to Big West or Douglas Oil. A
default  on one  lease  constitutes  a default  on all other  leases to the same
lessee by the Partnership and two prior partnerships  sponsored by affiliates of
the General  Partner,  all of whose travel plazas are leased to CFJ  Properties,
Flying J Inc. or franchisees of FJFI.
                                       4
<PAGE>
         For the fiscal year ended January 31, 1997, CFJ Properties reported net
income of $1.8  million on  revenues  of $1.2  billion.  Revenues  rose 25% from
$937.4 million the prior year. The higher revenues  resulted from the opening of
six new units and  increases in fuel  prices.  Net income  decreased  from $17.2
million in the prior year due to higher interest  expense and lower gross profit
margins.

         During the fiscal year ended January 31, 1997, CFJ Properties  reported
$22.3 million in net cash  provided by operating  activities.  This cash,  along
with  the cash  provided  by  financing  activities,  was  used to make  capital
expenditures.  As of January 31, 1997, CFJ Properties  reported cash balances of
approximately  $2.1 million,  with  liquidity  supported by net cash provided by
operating activities and a $150 million revolving line of credit with a bank. As
of January 31, 1997, CFJ Properties reported partners' capital of $139.5 million
and total assets of $412.9 million.

         CFJ Properties leases travel plazas and equipment under  non-cancelable
operating  leases,  which expire at various  dates over the next 10 to 16 years.
Payments  under  these  leases were $17.3  million in 1997 and $17.6  million in
1996,   including   percentage  lease  payments.   Future  minimum  annual  rent
obligations  under  non-cancelable  leases,  as projected  through 2002,  remain
comparable to 1997 expense amounts.

         The two travel plaza properties operated by CFJ Properties  generated a
combined   fuel  and  non-fuel   gross  profit   (including   other  income)  of
approximately $6.8 million during the year ended January 31, 1997 as compared to
$7.4  million  in 1996.  Total  travel  plaza  unit-level  income  for these two
properties  (before  depreciation  and  allocated  corporate  overhead)  totaled
approximately  $844,000 in 1997 with both of these properties reporting positive
unit-level  income.  The combined result of the travel plaza  unit-level  income
before depreciation and allocated corporate overhead decreased from $1.4 million
in the prior year.  This is primarily  due to a decrease in fuel sales volume at
the Bakersfield, California travel plaza and decreased fuel gross profit margins
at the  Wytheville,  Virginia  travel plaza due to increases in fuel costs while
maintaining  competitive  market prices.  For CFJ Properties'  fiscal year ended
January  31,  1997,  the  average   unit-level  base  and  participating   rents
approximated 13.0% of the original cost of these properties.

         The Partnership's  third property is operated by TFJ. Fuel and non-fuel
gross  profits and other  income  generated by this  property  decreased to $6.2
million in 1997 from $6.4  million in 1996 due to reduced  fuel  margins  caused
from  increased fuel costs while  maintaining  competitive  market  prices.  The
property's income before  depreciation and allocated corporate overhead for 1997
was $1.2  million as compared to $1.3  million in 1996.  Base and  participating
rents remained  comparable to 1996 at  approximately  9% of the original cost of
the property during TFJ's fiscal year ended January 31, 1997.
                                       5
<PAGE>
         The travel  plaza/truckstop  industry,  although highly fragmented,  is
highly competitive.  The Partnership's lessees are competing with, among others,
National  Auto/Truckstops,  Petro  and  Pilot  Corporation,  as  well  as  other
national,  regional  and  local  truckstop  operators,  some of  which  may have
substantially  greater financial  resources than the lessees.  The Partnership's
lessees also compete with other  entities  which provide  hospitality  goods and
services to the trucking  industry and  traveling  public in general.  The major
competitive  factors  include,  among others,  location,  ease of access,  brand
identification, pricing, product and service selections, customer service, store
appearance,  cleanliness and safety.  The Flying J Travel Plaza facilities owned
by the  Partnership  offer a full-service  operation,  generally  including fuel
facilities, a restaurant, a convenience store and other amenities for use by the
trucking  industry and traveling  public in general.  Flying J Inc. reports that
the Flying J Travel Plaza network  consists of more than 100  facilities  across
the U.S.  interstate  highway system.  The travel plaza sites have been selected
based on traffic patterns and volumes, and access to interstate highways,  among
other criteria.

         According to the American Trucking  Association,  the trucking industry
grosses  more than  $340  billion  annually,  representing  78% of the  nation's
freight bill. The 20 million  commercial  trucks registered in the United States
consume  approximately  39 billion  gallons of fuel  annually.  The  Partnership
believes  that the  trucking  industry is  sensitive  to certain  aspects of the
general economic  environment,  such as retail sales;  the level,  direction and
rate of change in inventories; international trade; vendor performance; the cost
and availability of fuel; labor issues; and technology. The trucking industry is
also affected by various government  policies,  including economic  regulations;
vehicle  size and weight  regulations;  and  health,  safety  and  environmental
protection regulations. These factors also may influence the competitive posture
of one mode of transportation compared to others; however, the trucking industry
has presented itself as an affordable and timely alternative to other methods of
transportation such as air freight and rail, particularly for short hauls.

         Through  ownership of the travel plazas,  the Partnership is subject to
the risks associated with the underground  storage of petroleum products such as
gasoline.  In this  regard,  the  Partnership's  lessees  are subject to various
federal,  state and local  regulations and  environmental  laws.  These laws and
regulations affect the storing,  dispensing and discharge of petroleum and other
wastes  and affect the  lessees  both in the  securing  of permits  for  fueling
operations and in the ongoing conduct of such operations.

         Federal,  state and local regulatory  agencies have adopted regulations
governing  underground  storage tanks  ("UST's") that require the  Partnership's
lessees to make certain  expenditures  for  compliance.  In  particular,  at the
federal  level,  the  Resource   Conservation  and  Recovery  Act  requires  the
Environmental  Protection Agency ("EPA") to establish a comprehensive regulatory
program for the detection,  prevention and cleanup of leaking UST's. Regulations
enacted  by the EPA in 1988  established  requirements  for (i)  installing  UST
systems; (ii) upgrading UST systems;  (iii) taking corrective action in response
to releases; (iv) closing 
                                       6
<PAGE>
UST systems;  (v) keeping appropriate  records; and (vi) maintaining evidence of
financial  responsibility  for taking corrective  action and compensating  third
parties for bodily injury and property  damage  resulting from  releases.  These
regulations  permit  states  to  develop,   administer  and  enforce  their  own
regulatory programs,  incorporating requirements which are at least as stringent
as the  federal  standards.  By 1998,  all UST's  must be  corrosion  protected,
overfill/spill  protected  and have leak  detection.  These  environmental  laws
impose strict  liability for owners and operators of faulty and leaking  storage
tanks resulting in damage to the environment or third parties.

         The  General  Partner  has taken  various  steps to (i) ensure that the
lessees  comply  with  applicable  rules  and  regulations;  (ii)  mitigate  any
potential  liabilities,  including the  establishment of storage tank monitoring
procedures;  and (iii) require that lessees  indemnify the  Partnership  for all
such liabilities and obtain liability insurance,  if reasonably  available.  The
General Partner  requires each lessee to obtain an annual  environmental  audit,
performed by an  environmental  consulting and engineering  firm, which includes
the following  procedures,  among others:  month-end  cumulative  fuel inventory
variance  analysis;  tank  tightness  tests;  automatic  tank  gauging  and leak
detection   system   operation  and  calibration   tests;  UST  excavation  zone
groundwater and/or soil vapor monitoring well analysis;  piping system tightness
tests;  piping  excavation zone  groundwater  and/or soil vapor  monitoring well
analysis;  pipe  leak  detector  inspection  and  calibration  tests;  corrosion
protection  system  tests;  on-site  sanitary  sewer  treatment  plant  effluent
analysis;  and oil/water separator  inspections.  The consulting and engineering
firm hired by the General  Partner to conduct such audits also  reviews  on-site
environmental correspondence;  visually inspects the UST system, tank and piping
excavation zone monitoring wells,  areas adjacent to all petroleum  above-ground
tanks,  the  stormwater  and wastewater  control  systems,  and the travel plaza
facility;  and  discusses  employee  training  procedures,   recent  significant
environmental events (if any), repair and maintenance activities, and regulatory
compliance with travel plaza personnel.

         The  Partnership  believes that its lessees are in compliance  with all
applicable  regulatory  requirements  and that its lessees have all governmental
licenses and permits required for their business operations. Management knows of
no pending or threatened  proceedings or investigations,  under federal or state
environmental  laws;  however,  management  cannot  predict  the  impact  on the
Partnership's lessees of new governmental regulations and requirements. Although
the General  Partner has taken necessary  steps,  as discussed  above, to ensure
lessee compliance with environmental regulations, there can be no assurance that
significant cleanup or compliance costs may not be incurred which may affect the
lessees' ability to make their scheduled lease payments to the Partnership.

         As of August 25,  1997,  the  Partnership  has  invested in real estate
located in one state in the  southeastern  portion of the United  States and two
states in the western United States,  and no real estate investments are located
outside of the United States. A presentation of revenues or 
                                       7
<PAGE>
assets by geographic  region is not  applicable  and would not be material to an
understanding of the Partnership's business taken as a whole.

         The  Partnership  does not believe  that any aspect of its  business is
significantly seasonal in nature.

         No portion of the Partnership's business is subject to renegotiation of
profits or  termination  of  contracts  or  subcontracts  at the election of the
United States Government.  The Partnership does not manufacture any products and
therefore do not require any raw materials in order to conduct its business.

         The  Partnership is managed by the General Partner and therefore has no
employees  of  its  own.  FFCA/PIP  III  Investor  Services  Corporation  has no
employees because it does not conduct any business operations.
                                       8
<PAGE>
                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

         (a) The following documents are filed as part of this Report:

                  1. Financial  Statements.  The following financial  statements
         are included in the response to item 8 of this report:

                     The Partnership

                     Report of independent public accountants  
                     Balance Sheets as of December 31, 1996 and 1995 
                     Statements of Income for the year ended December 31, 1996,
                       1995 and 1994
                     Statements of Changes in Partners' Capital for the
                       years ended December 31, 1996, 1995 and 1994
                     Statements of Cash Flows for the years ended
                       December 31, 1996, 1995 and 1994
                     Notes to Financial Statements

                     FFCA/PIP III Investor Services Corporation

                     Report of independent public accountants
                     Balance Sheet as of December 31, 1996
                     Notes to Balance Sheet

                     CFJ Properties
                     (A General Partnership)

                     Independent Auditors' Report 
                     Balance Sheets as of January  31, 1997 and 1996  
                     Statements  of Income and Partners' Capital for the
                       years ended January 31, 1997, 1996 and 1995
                     Statements of Cash Flows for the years ended
                       January 31, 1997, 1996 and 1995
                     Notes to Financial Statements

                     Wytheville Travel Plaza

                     Independent Auditors' Report 
                     Statements  of  Revenues  and  Direct  Operating  Costs and
                       Expenses for the years ended  January 31, 1997,  1996 and
                       1995

                                 9
<PAGE>
                     Statements  of Cash Flows for the years  ended  January 31,
                       1997, 1996 and 1995
                     Note to Finacial Statements

                     Bakersfield Travel Plaza

                     Independent Auditors' Report 
                     Statements  of  Revenues  and  Direct  Operating  Costs and
                       Expenses for the years ended  January 31, 1997,  1996 and
                       1995
                     Statements  of Cash Flows for the years  ended  January 31,
                       1997, 1996 and 1995
                     Note to Finacial Statements

                     Ehrenberg Travel Plaza

                     Independent Auditors' Report 
                     Statements  of  Revenues  and  Direct  Operating  Costs and
                       Expenses for the years ended  January 31, 1997,  1996 and
                       1995
                     Statements  of Cash Flows for the years  ended  January 31,
                       1997, 1996 and 1995
                     Note to Finacial Statements

                  2. Financial Statement Schedules.

                     Schedule   III-Schedule  of  Real  Estate  and  Accumulated
                       Depreciation as of December 31, 1996

                     All  other   schedules  are  omitted  since  they  are  not
                       required,  are inapplicable,  or the required information
                       is included in the financial statements or notes thereto.

                  3. Exhibits.

                     99.      Annual Portfolio  Valuation of Cushman & Wakefield
                              as of December 31, 1996

                          Pursuant to  Rule 12b-32 under the Securities Exchange
                  Act of 1934, as amended, the following  documents,  filed with
                  the  Securities  and  Exchange  Commission  as exhibits to the
                  Co-Registrants'  Form 10-K for the fiscal year ended  December
                  31, 1991, are incorporated herein by this reference.
<TABLE>
<CAPTION>
                                                                                             1991 Form 10-K
                                                                                               Exhibit No.
                           <S>                                                                     <C>
                           The  Agreement of Limited  Partnership  of the General                  3-A
</TABLE>
                                       10
<PAGE>
<TABLE>
                           <S>                                                                     <C>
                           Partner

                           The  Certificate  of  Incorporation  of  FFCA/PIP III                   3-B
                           Investor  Services  Corporation,  as  filed  with the
                           Secretary of State Delaware on December 5, 1988

                           Bylaws of FFCA/PIP III Investor Services Corporation                    3-C
</TABLE>
                           Pursuant to Rule 12b-32 under the Securities Exchange
                  Act of 1934, as amended,  the following  document,  filed with
                  the Securities and Exchange Commission, is incorporated herein
                  by this reference.

                           The  Amended  and   Restated   Agreement  of  Limited
                  Partnership of the Partnership.

         (b)      Reports on Form 8-K.

                  No reports on Form 8-K were filed by the Co-Registrants during
                  the last quarter of the fiscal year ended December 31, 1996.
                                       11
<PAGE>
                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the co-registrants  have duly caused this amendment to be signed on their behalf
by the undersigned, thereunto duly authorized.

                       PARTICIPATING INCOME PROPERTIES III
                       LIMITED PARTNERSHIP

                             By:   FFCA PARTICIPATING MANAGEMENT COMPANY
                                   LIMITED PARTNERSHIP, Managing General Partner

                                   By:   FRANCHISE FINANCE CORPORATION OF
                                         AMERICA III, Managing General Partner


Date:  September 17, 1997                By:  /s/ Morton H. Fleischer
                                              ------------------------
                                              Morton H. Fleischer, President and
                                              Chief Executive Officer

                              FFCA/PIP III INVESTOR SERVICES CORPORATION


Date:  September 17, 1997     By:   /s/ John Barravecchia
                                    --------------------------
                                    John Barravecchia, President, Secretary,
                                    Treasurer, Principal Financial Officer and 
                                    Principal Accounting Officer
<PAGE>
Independent Auditors' Report

================================================================================

The Board of Directors
CFJ Properties:

We have audited the  accompanying  balance  sheets of CFJ  Properties (a general
partnership)  as of January 31, 1997 and 1996,  and the  related  statements  of
income  and  partners'  capital  and cash  flows  for  each of the  years in the
three-year  period ended January 31, 1997.  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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit  also  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 CFJ Properties as of January
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the years in the three-year period ended January 31, 1997, in conformity with
generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP

Salt Lake City, Utah
March 31, 1997
                                        1
<PAGE>
Balance Sheets

CFJ PROPERTIES
(A General Partnership)
January 31, 1997 and 1996
(In thousands)

<TABLE>
<CAPTION>
               Assets                                                   1997           1996
                                                                                  
Current assets:                                                                   
<S>                                                                  <C>            <C>     
  Cash and cash equivalents                                          $  2,138       $  2,314
  Trade receivables, net of allowance for doubtful accounts of                    
    of $129 in 1997 and $165 in 1996 (note 8)                          11,400         11,836
  Inventories (note 2)                                                 20,308         15,832
  Prepaid expenses                                                      2,141          2,229
                                                                     --------       --------
               Total current assets                                    35,987         32,211
                                                                     --------       --------
Land, buildings, and equipment:                                                   
  Land and improvements                                               129,270        111,053
  Buildings                                                           145,875        119,632
  Equipment                                                           105,561         86,939
  Leasehold improvements                                               24,317         24,494
  Construction-in-progress                                             29,454         33,687
                                                                     --------       --------
                                                                      434,477        375,805
  Less accumulated depreciation and amortization                       58,932         40,095
                                                                     --------       --------
               Net land, buildings, and equipment                     375,545        335,710
                                                                     
Long-term notes receivable                                                395            535
Other assets (note 3)                                                     957            930
                                                                     --------       --------
                                                                     $412,884       $369,386
                                                                     ========       ========
               Liabilities and Partners' Capital                                  
                                                                                  
Current liabilities:                                                              
  Accounts payable (note 8)                                          $ 58,395       $ 48,313
  Accrued liabilities (notes 4 and 8)                                  20,995         23,466
                                                                     --------       --------
               Total current liabilities                               79,390         71,779
Long-term debt (note 5)                                               190,000        156,500
Other liabilities                                                       4,016          3,409
                                                                     --------       --------
               Total liabilities                                      273,406        231,688
                                                                     --------       -------- 
Partners' capital                                                     139,478        137,698
Commitments and contingencies (notes 5, 6 and 10)                    
                                                                     --------       --------
                                                                     $412,884       $369,386
                                                                     ========       ========
</TABLE>                                                                  
See accompanying notes to financial statements.
                                            2
<PAGE>
Statements of Income and Partners' Capital

CFJ PROPERTIES
(A  General  Partnership)  
Years ended January 31, 1997, 1996 and 1995 
(In thousands)

<TABLE>
<CAPTION>
                                                       1997              1996              1995
                                                                                   
<S>                                               <C>               <C>               <C>        
Sales (note 1(f))                                 $ 1,171,813       $   937,370       $   703,430
Cost of sales                                         985,377           755,852           563,519
                                                  -----------       -----------       ----------- 
               Gross profit                           186,436           181,518           139,911
                                                  -----------       -----------       -----------
Operating, general, and administrative expense:                                    
  Operating                                           162,236           145,959           112,882
  General and administrative                           11,732            11,753             9,533
                                                  -----------       -----------       -----------
                                                      173,968           157,712           122,415
                                                  -----------       -----------       -----------
               Income from operations                  12,468            23,806            17,496
                                                  -----------       -----------       -----------
Other income (expense):                                                            
  Interest income                                         134                93               147
  Interest expense, net                               (10,659)           (6,642)           (1,483)
  Loss on sale of fixed assets, net                      (163)              (52)              (19)
                                                  -----------       -----------       -----------
                                                      (10,688)           (6,601)           (1,355)
                                                  -----------       -----------       -----------
               Net income                               1,780            17,205            16,141
Partners' capital, beginning of year                  137,698           120,493           104,352
                                                  -----------       -----------       -----------
Partners' capital, end of year                    $   139,478       $   137,698       $   120,493
                                                  ===========       ===========       ===========
</TABLE>                                                                       
See accompanying notes to financial statements.
                                       3
<PAGE>
Statements of Cash Flows

CFJ PROPERTIES
(A General Partnership)
Years ended January 31, 1997, 1996 and 1995
(In thousands)

<TABLE>
<CAPTION>
                                                                        1997            1996            1995
Cash flows from operating activities:
<S>                                                                 <C>             <C>             <C>    
  Net income                                                        $   1,780       $  17,205       $  16,141
  Adjustments to reconcile  net income to net cash provided by
   operating activities:
     Depreciation and amortization                                     19,080          14,933           9,827
     Provision for losses on accounts receivable                            0               0              51
     Loss on sale of fixed assets                                         163              52              19
     Change in assets and liabilities:
       Receivables                                                        436          (3,803)         (1,302)
       Inventories                                                     (4,476)         (3,034)         (4,065)
       Prepaid expenses                                                    88          (1,025)           (164)
       Other assets                                                      (106)           (128)          1,636
       Accounts payable and accrued liabilities                         4,723           8,817          16,713
       Other liabilities                                                  607           2,739             268
                                                                    ---------       ---------       ---------
           Net cash provided by operating activities                   22,295          35,756          39,124
                                                                    ---------       ---------       ---------
Cash flows from investing activities:
  Capital expenditures (note 8)                                       (56,111)       (104,107)        (90,258)
  Note receivable funded                                                  140            (535)              0
                                                                    ---------       ---------       ---------
           Net cash used in investing activities                      (55,971)       (104,642)        (90,258)
                                                                    ---------       ---------       ---------
Cash flows from financing activities:
  Proceeds from issuance of notes payable                                   0          25,000          75,000
  Net proceeds (payments) under line of credit agreements              33,500          44,500         (29,000)
                                                                    ---------       ---------       ---------
           Net cash provided by financing activities                   33,500          69,500          46,000
                                                                    ---------       ---------       ---------
Increase (decrease) in cash and cash equivalents                         (176)            614          (5,134)
Cash and cash  equivalents,  beginning  of  year                        2,314           1,700           6,834
                                                                    ---------       ---------       ---------
Cash  and cash equivalents, end of year                             $   2,138       $   2,314       $   1,700
                                                                    =========       =========       =========

Supplemental Disclosure of Cash Flow Information
  Cash paid for interest, net of capitalized amounts                $  10,854       $   6,387       $     916

Supplemental Disclosure of Noncash Investing Activities 
  The capital expenditures noted above are net of accounts 
  payable increases  (decreases)  related to the acquisiton of 
  building and equipment of $2,888,  ($4,403), and $2,477 in 
  1997, 1996, and 1995, respectively.
</TABLE>
See accompanying notes to financial statements.
                                       4
<PAGE>
Notes to Financial Statements

================================================================================

CFJ PROPERTIES
(A General Partnership)
January 31, 1997,  1996 and 1995

(1)  Summary of Significant Accounting Policies

The following  significant  accounting  policies are followed by CFJ  Properties
(the Partnership) in preparing and presenting its financial statements:

(a)  Organization  and Line of  Business  - The  Partnership  is a Utah  general
partnership with its principal business being the development and operation of a
national network of interstate travel plazas in North America.  A typical travel
plaza offers a 24-hour  service  operation  which  includes fuel  facilities,  a
restaurant or deli,  convenience store, and other amenities designed to meet the
needs of the trucking industry and traveling public.  Some travel plazas include
lodging and truck service centers. The Partnership operated 72, 66 and 54 travel
plazas, as of January 31, 1997, 1996 and 1995, respectively.

(b) Cash  Equivalents  - For  purposes  of the  statements  of cash  flows,  the
Partnership  considers all investments with original  maturities of three months
or less to be cash equivalents.

(c) Inventories - Inventories include gasoline, diesel,  ready-to-use additives,
related petroleum products, food and miscellaneous merchandise.  Inventories are
stated at the  lower of cost or  market  value as  determined  by the  first-in,
first-out (FIFO) method.

(d) Land, Buildings, and Equipment - Land, buildings and equipment are stated at
cost for  constructed  and  purchased  assets and fair market  value at the date
contributed  for  contributions  from  the  general  partners.  Depreciation  is
provided using the  straight-line  method over the estimated useful lives of the
assets. Leasehold improvements are amortized using the straight-line method over
the lesser of the lease term or the estimated useful life of the related assets.

Interest is capitalized in connection  with the  construction  of travel plazas.
The  interest  capitalized  is recorded as part of the asset to which it relates
and is amortized  over the lesser of its useful life or lease term.  Interest of
$1,634,000,  $2,925,000, and $2,993,000 was capitalized for 1997, 1996, and 1995
respectively.

(e) Income Taxes - The Partnership is not directly subject to income taxes. Each
partner is  responsible  for any income tax related to their  portion of taxable
income.

(f) Retail  Fuel Sales - The  Partnership  does not include  related  federal or
state  excise  taxes in petroleum  product  retail sales or cost of sales.  Such
taxes amounted to approximately $516,381,000,  $475,900,000 and $361,243,000 for
1997, 1996 and 1995, respectively.

(g) New Plaza  Opening Costs - Opening  costs are expensed  when  incurred.  The
costs associated with new travel plaza openings were  approximately  $2,100,000,
$4,000,000 and $4,100,000 in 1997, 1996 and 1995, respectively.

(h)  Concentration  of Credit Risk -  Financial  instruments  which  potentially
subject the Partnership to concentrations of credit risk consist  principally of
cash and cash equivalents,  and trade  receivables.  The Partnership  places its
cash  and  cash  equivalent  investments  with  high  quality  credit  financial
institutions  and  limits  the amount of credit  exposure  to any one  financial
institution. Concentrations of credit risk with respect to trade receivables are
limited  due to the  large  number of  customers  comprising  the  Partnership's
customer base, and their dispersion across many different  geographical regions.
The  Partnership  routinely  performs  credit  evaluations  of its customers and
maintains allowances for potential credit losses.

(i) Use of  Estimates  - The  Partnership  has made a number  of  estimates  and
assumptions  relating  to the  reporting  of  assets  and  liabilities  and  the
disclosure  of contingent  assets and  liabilities  to prepare  these  financial
statements in conformity with generally accepted accounting  principles.  Actual
results could differ from those estimates.

(2)  Inventories

Inventories are summarized as follows (in thousands):

                                             1997        1996
                                             ----        ----
Store merchandise and restaurant food      $16,368     $13,002
Petroleum products                           3,940       2,830
                                           -------     -------
                                           $20,308     $15,832
                                           =======     =======
                                       5
<PAGE>
(3)  Other Assets

Other assets consist of the following (in thousands):

                                    1997           1996
                                    ----           ----
Land deposits                       $630           $590
Lease deposits                       232            232
Loan origination fees, net            95            108
                                    ----           ----
                                    $957           $930
                                    ====           ====

(4)  Accrued Liabilities

Accrued liabilities are summarized as follows (in thousands):

                                   1997           1996
                                   ----           ----
Fuel taxes                       $14,285        $15,078
Expense incurred by           
    Operator (note 8)              4,222          5,677
Other                              2,488          2,711
                                 -------        -------
                                 $20,995        $23,466
                                 =======        =======
                            
(5)      Long-term Debt

Subsequent to year-end,  the Partnership replaced its line-of-credit  agreement.
Under  the new  revolving  line of  credit  the  Partnership  may  borrow  up to
$150,000,000.  Interest is computed at the  Partnership's  option,  at the Libor
rate plus plus .5 to 1 percent,  or the higher of the federal funds rate plus .5
percent and the administrative agent bank's prime rate. The agreement requires a
commitment  fee. The  Partnership had $90,000,000 and $56,500,000 in outstanding
borrowings  under a  revolving  line of credit as of January  31, 1997 and 1996,
respectively.  Interest rates on outstanding  borrowings range from 6.04 to 8.25
percent. In addition to the borrowings under the line of credit, the Partnership
had letters of credit totaling $5,177,000 outstanding as of January 31, 1997.

Under a fiscal 1995 Master Shelf Agreement,  the Partnership issued $100,000,000
in long-term notes payable to an insurance company. The notes bear interest from
7.37 to 9.45 percent and require quarterly interest  payments.  Annual principal
payments are  required  beginning  March 1998 with the final  payment in January
2005. In addition to the $100,000,000, the Partnership has an option to issue an
additional  $25,000,000 in long-term notes payable to the same insurance company
contingent upon meeting certain conditions.

Aggregate maturities of long-term debt are summarized as follows (in thousands):

1998                              $      0
1999                                10,000
2000                                15,000
2001                                17,000
2002                                16,000
Thereafter                         132,000
                                  --------
          Total                   $190,000
                                  ========

(6)  Lease Commitments

The Partnership leases travel plazas and equipment under noncancelable operating
leases,  which expire at various dates over the next 10 to 16 years.  The leases
are obligations of the Partnership without recourse to the general partners. The
operating  leases include  minimum and percentage  (contingent)  lease payments.
Contingent rents are based upon gallons sold,  restaurant and merchandise sales,
and other revenues.

Minimum lease payments under  noncancelable  operating leases were  $13,173,000,
$13,266,000 and $13,277,000 for the years ended January 31, 1997, 1996 and 1995,
respectively.  Percentage  lease payments under  noncancelable  operating leases
were $4,105,000, $4,348,000 and $4,213,000 for the years ended January 31, 1997,
1996 and 1995, respectively.

Future minimum payments under  noncancelable  operating leases as of January 31,
1997 are as follows (in thousands):

1998                             $  12,696
1999                                12,432
2000                                12,250
2001                                12,156
2002                                12,142
Thereafter                          92,608
                                   -------
          Total                  $ 154,284
                                   =======

(7)  Pension and Profit Sharing Plans

Currently, the Partnership has chosen to have all eligible employees participate
in the noncontributory  defined contribution pension and profit sharing plans of
Flying J Inc.  (Flying J), the parent  company of one of the  general  partners.
Contributions  to these plans,  which are made at the  discretion  of Flying J's
Board of Directors,  may be in cash or qualifying  common stock of Flying J. The
Partnership's expenses related to these plans amounted to $1,591,000, $1,212,000
and $998,000 for the years ended January 31, 1997, 1996 and 1995, respectively.
                                       6
<PAGE>
(8)  Related Party Transactions

Flying J operates all travel plazas and related  facilities for the Partnership.
Under the terms of the operations agreement, the Partnership reimburses Flying J
for the cost of  operations  plus a  monthly  amount  for  overhead  costs.  The
overhead  cost  reimbursements  amounted to $960,000,  $916,000 and $801,000 for
1997,  1996 and  1995,  respectively.  Flying J paid the  Partnership  $686,000,
$668,000 and $651,000  during 1997,  1996 and 1995,  respectively,  for services
performed by the Partnership for certain franchisees of Flying J.

During  its normal  course of  business,  the  Partnership  purchases  petroleum
products from the general  partners under supply  agreements.  It is the general
partners'  opinion that such  agreements  are under terms similar to those which
could be received  under  arms-length  contracts.  Purchases  from the partners'
amounted to approximately $882,884,000,  $662,900,000 and $494,800,000 for 1997,
1996 and 1995, respectively.

Included in accounts  receivable at January 31, 1997 and 1996 is $1,827,000  and
$1,317,000, respectively, due from affiliates.

Included  in  accounts  payable  and  accrued  liabilities  is  $38,256,000  and
$31,250,000  as of January  31,  1997 and 1996,  respectively,  due the  general
partners and their  affiliates  resulting from petroleum  product  purchases and
management services.

The  Partnership  periodically  contracts with Flying J for the  development and
construction of travel plazas.  Capitalized  expenditures under these agreements
were  $45,326,000  and  $70,326,000  in 1997 and 1996,  respectively.  It is the
general  partners'  opinion that such purchases are under terms similar to those
which could be received under arms-length contracts.

(9)  Disclosure About the Fair Value of Financial Instruments

The carrying value for certain short-term  financial  instruments that mature or
reprice frequently at market rate, approximates their fair value. Such financial
instruments  include:  cash and cash equivalents,  trade receivables,  revolving
line of credit, accounts payable, and accrued liabilities. The carrying value of
the long-term notes payable also approximates fair market value.

(10) Commitments and Contingencies

(a) Environmental Laws and Regulations - In connection with the operation of its
network of fuel  facilities,  the Partnership has become subject to increasingly
demanding   environmental   standards  imposed  by  federal,  state,  and  local
environmental  laws and  regulations.  It is the  policy of the  Partnership  to
comply with applicable environmental laws and regulations.

An estimated amount related to the remediation of environmental  issues has been
accrued  as  management's  best  estimate  of the  cost.  However,  governmental
regulations covering  environmental issues are highly complex and are subject to
change. Accordingly, changes in the regulations or interpretations thereof could
result in future costs to the Partnership in excess of the amounts accrued.

Management  believes that preventative  measures in addition to proper attention
to  these  regulations  will  minimize  costs  related  to  compliance  to  such
regulations.  Furthermore,  the Partnership  routinely  succeeds in recovering a
significant  portion of the cost of remediation from the states which administer
environmental clean up funds for in-state fuel retailers.

(b) Litigation - The Partnership is involved in legal actions resulting from the
ordinary  course of  business.  Such  actions  relate to  routine  travel  plaza
operations and other general matters.  Management  believes that the Partnership
has adequate legal defenses or insurance coverage and reserves and, accordingly,
the ultimate  outcome of such actions will not have a material adverse effect on
the Partnership's financial position.
                                       7

<PAGE>
Independent Auditors' Report



================================================================================






To the General Partners
CFJ Properties:


We have audited the  accompanying  statements  of revenues and direct  operating
costs and expenses  and the  statements  of cash flows from direct  travel plaza
operations  for each of the years in the  three-year  period  ended  January 31,
1997, of the Wytheville  Travel Plaza  operated by CFJ Properties  (see note 1).
The land  and  related  plaza  facilities  are  owned  by  Participating  Income
Properties III L. P. These statements are the responsibility of management.  Our
responsibility is to express an opinion on these 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 audit to obtain
reasonable   assurance  about  whether  the  statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements.  An audit also includes assessing
the accounting principles used and significant estimates made by management,  as
well as  evaluating  the overall  statement  presentation.  We believe  that our
audits provide a reasonable basis for our opinion.

The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange  Commission and are not
intended  to be a  complete  representation  of the  Wytheville  Travel  Plaza's
statements of income and cash flows.

In our opinion, the statements referred to above present fairly, in all material
respects,  the  revenues  and direct  operating  costs and expenses and the cash
flows from direct  travel plaza  operations of the  Wytheville  Travel Plaza for
each of the years in the three-year period ended January 31, 1997, in conformity
with generally accepted accounting principles.


                                        /s/ KPMG Peat Marwick LLP

Salt Lake City, Utah
March 20, 1997
                                        1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses


================================================================================
WYTHEVILLE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
                                                                                         1997      1996      1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>       <C>       <C>    
Revenues                                                                               $22,151   $20,007   $18,958
------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
  Cost of sales                                                                         18,748    16,241    15,143
  Labor costs                                                                            1,023     1,013     1,064
  Controllable operating expenses                                                          509       555       502
  Occupancy expenses                                                                     1,144     1,142     1,128
------------------------------------------------------------------------------------------------------------------
              Travel Plaza revenues in excess of direct operating costs and expenses   $   727   $ 1,056   $ 1,121
==================================================================================================================
</TABLE>
See accompanying note to financial statements.
                                       2
<PAGE>
Statements of Cash Flows


================================================================================
WYTHEVILLE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
                                                                            1997     1996     1995
---------------------------------------------------------------------------------------------------
<S>                                                                        <C>      <C>      <C>   
Cash flows from operating activities:
  Travel Plaza revenues in excess of direct operating costs and expenses   $  727   $1,056   $1,121
  Add amortization of leasehold improvements and depreciation                  74       68       64
---------------------------------------------------------------------------------------------------
              Cash provided by direct Travel Plaza operations              $  801   $1,124   $1,185
===================================================================================================
</TABLE>
See accompanying note to financial statements.
                                       3
<PAGE>
Note to Financial Statements



================================================================================
WYTHEVILLE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995


(1)   Summary of Significant Accounting Policies

(a) Organization and Business - The Wytheville  Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities,  restaurant, convenience
store and other  amenities  designed to meet the needs of the trucking  industry
and  traveling  public in  general.  The Travel  Plaza,  located in  Wytheville,
Virginia,  commenced  operations in April 1991 and is operated by CFJ Properties
(CFJ).   The  land  and  related  plaza   facilities  are  leased  by  CFJ  from
Participating Income Properties III, L.P. (PIP III) .

The  accompanying   statements  have  been  prepared  to  facilitate  PIP  III's
compliance  with the  rules  and  regulations  of the  Securities  and  Exchange
Commission.  The statements include only revenues and direct operating costs and
expenses.  Certain overhead costs such as corporate  administrative  allocations
are excluded.

(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies,  repairs  and  maintenance,   cleaning,   advertising  and  promotion,
telephone and utilities,  insurance,  credit card charges and travel incurred at
the Travel Plaza level.

(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP III.

(d) Leasehold  Improvements  Amortization - Leasehold improvements are amortized
using  the  straight-line  method  over  the  lesser  of the  lease  term or the
estimated useful lives of the related assets.

(e) Federal and State  Income  Taxes - Federal and state  income  taxes have not
been allocated to the Travel Plaza.
                                       4
<PAGE>
Independent Auditors' Report



================================================================================
To the General Partners
CFJ Properties:


We have audited the  accompanying  statements  of revenues and direct  operating
costs and expenses  and the  statements  of cash flows from direct  travel plaza
operations  for each of the years in the  three-year  period  ended  January 31,
1997, of the  Bakersfield  Travel Plaza operated by CFJ Properties (see note 1).
The land  and  related  plaza  facilities  are  owned  by  Participating  Income
Properties III L.P. These statements are the  responsibility of management.  Our
responsibility is to express an opinion on these 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 audit to obtain
reasonable   assurance  about  whether  the  statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements.  An audit also includes assessing
the accounting principles used and significant estimates made by management,  as
well as  evaluating  the overall  statement  presentation.  We believe  that our
audits provide a reasonable basis for our opinion.

The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange  Commission and are not
intended  to be a complete  representation  of the  Bakersfield  Travel  Plaza's
statements of income and cash flows.

In our opinion, the statements referred to above present fairly, in all material
respects,  the  revenues  and direct  operating  costs and expenses and the cash
flows from direct travel plaza  operations of the  Bakersfield  Travel Plaza for
each of the years in the three-year period ended January 31, 1997, in conformity
with generally accepted accounting principles.


                                        /s/ KPMG Peat Marwick LLP


Salt Lake City, Utah
March 20, 1997
                                        1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses


================================================================================
BAKERSFIELD TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995 
(In thousands)
<TABLE>
<CAPTION>
                                                                                        1997      1996      1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>       <C>       <C>    
Revenues                                                                               $16,936   $17,486   $18,319
------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
  Cost of sales                                                                         13,540    13,814    14,553
  Labor costs                                                                            1,166     1,226     1,264
  Controllable operating expenses                                                          641       624       583
  Occupancy expenses                                                                     1,028     1,039     1,031
------------------------------------------------------------------------------------------------------------------
              Travel Plaza revenues in excess of direct operating costs and expenses   $   561   $   783   $   888
==================================================================================================================
</TABLE>
See accompanying note to financial statements.
                                       2
<PAGE>
Statements of Cash Flows


================================================================================
BAKERSFIELD TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
                                                                           1997   1996   1995
---------------------------------------------------------------------------------------------
<S>                                                                        <C>    <C>    <C> 
Cash flows from operating activities:
  Travel Plaza revenues in excess of direct operating costs and expenses   $561   $783   $888
  Add amortization of leasehold improvements                                100     93     82
---------------------------------------------------------------------------------------------
              Cash provided by direct Travel Plaza operations              $661   $876   $970
=============================================================================================
</TABLE>
See accompanying note to financial statements.
                                       3
<PAGE>
Note to Financial Statements



================================================================================
BAKERSFIELD TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995


(1)   Summary of Significant Accounting Policies

(a) Organization and Business - The Bakersfield Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities,  restaurant, convenience
store and other  amenities  designed to meet the needs of the trucking  industry
and  traveling  public in general.  The Travel  Plaza,  located in  Bakersfield,
California,  commenced  operations  in  February  1992  and is  operated  by CFJ
Properties  (CFJ).  The land and related plaza facilities are leased by CFJ from
Participating Income Properties III, L.P. (PIP III).

The  accompanying   statements  have  been  prepared  to  facilitate  PIP  III's
compliance  with the  rules  and  regulations  of the  Securities  and  Exchange
Commission.  The statements include only revenues and direct operating costs and
expenses.  Certain overhead costs such as corporate  administrative  allocations
are excluded.

(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies,  repairs  and  maintenance,   cleaning,   advertising  and  promotion,
telephone and utilities,  insurance,  credit card charges and travel incurred at
the Travel Plaza level.

(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP III.

(d) Leasehold  Improvements  Amortization - Leasehold improvements are amortized
using  the  straight-line  method  over  the  lesser  of the  lease  term or the
estimated useful lives of the related assets.

(e) Federal and State  Income  Taxes - Federal and state  income  taxes have not
been allocated to the Travel Plaza.
                                       4
<PAGE>
Independent Auditors' Report



================================================================================






To the General Partners
TFJ Properties:


We have audited the  accompanying  statements  of revenues and direct  operating
costs and expenses  and the  statements  of cash flows from direct  travel plaza
operations  for each of the years in the  three-year  period  ended  January 31,
1997, of the Ehrenberg  Travel Plaza operated by FJ Properties (see note 1). The
land is owned by Participating  Income  Properties III L.P. These statements are
the responsibility of management. Our responsibility is to express an opinion on
these 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 audit to obtain
reasonable   assurance  about  whether  the  statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements.  An audit also includes assessing
the accounting principles used and significant estimates made by management,  as
well as  evaluating  the overall  statement  presentation.  We believe  that our
audits provide a reasonable basis for our opinion.

The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange  Commission and are not
intended  to be a  complete  representation  of  the  Ehrenberg  Travel  Plaza's
statements of income and cash flows.

In our opinion, the statements referred to above present fairly, in all material
respects,  the  revenues  and direct  operating  costs and expenses and the cash
flows from direct travel plaza operations of the Ehrenberg Travel Plaza for each
of the years in the three-year period ended January 31, 1997, in conformity with
generally accepted accounting principles.


                                        /s/ KPMG Peat Marwick LLP

Salt Lake City, Utah
March 20, 1997
                                        1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses


================================================================================
EHRENBERG TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
                                                                                         1997      1996      1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>       <C>       <C>    
Revenues                                                                               $31,786   $26,922   $23,976
------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
  Cost of sales                                                                         25,624    20,545    17,665
  Labor costs                                                                            2,278     2,292     2,280
  Controllable operating expenses                                                          946     1,198     1,190
  Occupancy expenses                                                                     1,340     1,170       868
------------------------------------------------------------------------------------------------------------------
              Travel Plaza revenues in excess of direct operating costs and expenses   $ 1,598   $ 1,717   $ 1,973
==================================================================================================================
</TABLE>
See accompanying note to financial statements.
                                       2
<PAGE>
Statements of Cash Flows


================================================================================
EHRENBERG TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
                                                                            1997     1996     1995
---------------------------------------------------------------------------------------------------
<S>                                                                        <C>      <C>      <C>   
Cash flows from operating activities:
  Travel Plaza revenues in excess of direct operating costs and expenses   $1,598   $1,717   $1,973
  Add amortization of leasehold improvements and depreciation                 576      472      441
---------------------------------------------------------------------------------------------------
              Cash provided by direct Travel Plaza operations              $2,174   $2,189   $2,414
===================================================================================================
</TABLE>
See accompanying note to financial statements.
                                       3
<PAGE>
Note to Financial Statements



================================================================================
EHRENBERG TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995


(1)   Summary of Significant Accounting Policies

(a)  Organization  and Business - The Ehrenberg Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities, restaurant, motel, truck
service center, convenience store and other amenities designed to meet the needs
of the trucking  industry and  traveling  public in general.  The Travel  Plaza,
located in Ehrenberg,  Arizona, commenced operations in May 1988 and is operated
by FJ Properties. The land is leased by TFJ Properties from Participating Income
Properties III, L.P. (PIP III).

The  accompanying   statements  have  been  prepared  to  facilitate  PIP  III's
compliance  with the  rules  and  regulations  of the  Securities  and  Exchange
Commission.  The statements include only revenues and direct operating costs and
expenses.  Certain overhead costs such as corporate  administrative  allocations
are excluded.

(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies,  repairs  and  maintenance,   cleaning,   advertising  and  promotion,
telephone and utilities,  insurance,  credit card charges and travel incurred at
the Travel Plaza level.

(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP III.

(d) Leasehold  Improvements  Amortization - Leasehold improvements are amortized
using  the  straight-line  method  over  the  lesser  of the  lease  term or the
estimated useful lives of the related assets.

(e) Federal and State  Income  Taxes - Federal and state  income  taxes have not
been allocated to the Travel Plaza.
                                       4