SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                    FORM 10-K
(Mark One)

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

         For the fiscal year ended December 31, 1997

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
         OF THE SECURITIES EXCHANGE ACT OF 1934

         For the transition period from ______________ to _______________

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                                     (Partnership I.R.S.
Organization)                                            Employer Identification
                                                         No.)

       Delaware                                                 86-0555605
       --------                                                 ----------
(Corporation State of                                     (Corporation I.R.S.
Incorporation)                                           Employer Identification
                                                         No.)

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


Co-Registrants' telephone number, including area code:        (602) 585-4500


Securities Registered Pursuant to Section 12(b) of the Act:  None

Securities Registered Pursuant to Section 12(g) of the Act:

                      Limited Partnership Assignment Units
                      ------------------------------------
                                (Title of Class)

         Indicate by check mark  whether the  Co-Registrants  (1) have filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
Co-Registrants were required to file such reports), and (2) have been subject to
such 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 the Co-Registrants' 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 Co-Registrants: Not applicable.

         The  limited  partnership   assignment  units  (the  "Units")  are  not
currently traded in any market.  Therefore,  there is no market price or average
bid and  asked  price for the  Units  within  60 days  prior to the date of this
filing.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None
<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.,  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."

         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 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.
<PAGE>
         As of  December  31,  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 (a) preserve, protect and
enhance   Partnership   capital;   (b)  provide   partially   tax-deferred  cash
distributions  to investors;  (c) 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 (d) 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 (a) up to 3.5% of
annual  gross  receipts  derived  from the  non-fuel  sales of such travel plaza
facility  and (b) up to 3/10 of $.01 per gallon of fuel sold.  Reference is made
to Note (3) of the 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 (a) the  appraised  fair market  value of
land,  building and equipment,  or (b) 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
                                       2
<PAGE>
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.  Flying J Inc.  operates  all of CFJ  Properties'  travel  plazas  and
related  facilities,  which included 72 interstate travel plaza 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.

         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 generally 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  leased by CFJ  Properties  from the
Partnership 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 fiscal year 1996.  Total  travel  plaza  unit-level
income for these two properties  (before  depreciation  and allocated
                                       3
<PAGE>
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.

         On February 2, 1998,  the  Partnership  entered into a letter of intent
with Flying J Inc. to sell  substantially  all of the  Partnership's  assets for
cash of  approximately  $27 million.  The sale is subject to certain  conditions
specified in the letter of intent,  including the  negotiation  and execution of
definitive  sale and  financing  agreements  with  respect  to the assets of the
Partnership  and the  approval,  by vote,  of a majority of the limited  partner
interests.  In accordance with the Partnership's  limited partnership  agreement
(the  "Partnership  Agreement"),  sale of  substantially  all of the assets will
result  in  dissolution  of  the   Partnership   and  liquidation  of  remaining
Partnership  assets,  net of  liabilities.  There can be no  assurance as to the
final terms of the proposed  transaction,  that the conditions will be satisfied
or that the proposed transaction will be consummated.

         The  negotiated  sales price of  approximately  $27 million  would have
resulted in an  estimated  book gain of $7 million had the  proposed  sale taken
place at December 31, 1997. Subsequent to the proposed asset sale and conversion
of other  Partnership  assets into cash upon  liquidation,  a  liquidating  cash
distribution  will be made to  investors  in  accordance  with  the  Partnership
Agreement.  Had the sale (as  proposed)  occurred at December  31,  1997,  it is
estimated that the liquidating cash distribution would have been in the range of
$980 to $1000 per limited partnership unit. The actual liquidating  distribution
to be  received by  investors  will depend upon the actual date and terms of the
sale and the actual costs of liquidating the Partnership.

         The travel  plaza/truckstop  industry,  although highly fragmented,  is
also 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
                                       4
<PAGE>
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
generated more than $345 billion in gross freight revenues,  representing 82% of
the nation's  freight bill in 1996.  This was up 4% from the prior year. Over 21
million trucks  registered in the United States for business  purposes  consumed
approximately 41 billion gallons of fuel and transported over 60% of all primary
shipments made in 1996.

         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  ("USTs")  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 USTs.  Regulations
enacted  by the EPA in 1988  established  requirements  for (a)  installing  UST
systems;  (b) upgrading UST systems; (c) taking corrective action in response to
releases;  (d) closing UST systems;  (e) keeping  appropriate  records;  and (f)
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 the end of 1998, all USTs 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 (a) ensure that the
lessees comply with applicable rules and regulations; (b) mitigate any potential
liabilities,  including the establishment of storage tank monitoring procedures;
and (c) 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
                                       5
<PAGE>
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 most  recent  annual  environmental  audits  of the  travel  plazas
indicate that some remediation is necessary at one or more of the travel plazas.
Under  each  travel  plaza  lease,  the  lessee  is  responsible  for all  costs
associated with correcting  problems  identified by such audits and is obligated
to indemnify the Partnership for all liabilities related to the operation of the
travel plazas,  including those related to  remediation.  The lessees are in the
process of reviewing such  environmental  audits and have commenced  appropriate
corrective  actions.  The General  Partner does not believe that the  corrective
actions recommended in the audits will affect the lessees' ability to make their
scheduled lease and loan payments to the Partnership or have a material  adverse
effect upon the Partnership.

         The  Partnership  believes that its lessees are in compliance  with all
applicable  regulatory  requirements,  except as discussed  above,  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 December 31, 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 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 does 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.

         The  Partnership  pays an  affiliate  of the  General  Partner  for the
maintenance  of the books  and  records  of the  Partnership  and for  computer,
investor and legal services  performed for the  Partnership.  During 1997,  this
affiliate  of the  General  Partner  completed  the  design of a new  accounting
information  system  that was begun in 1996 and was  implemented  on  January 1,
1998. The new system is "Year 2000"  compliant  which means that the system will
be able
                                       6
<PAGE>
to handle any dates that refer to the 21st century.  By the end of 1998,  all of
the  affiliate's   significant   information   systems  that  would  impact  the
Partnership  will be "Year 2000"  compliant.  The affiliate is in the process of
assessing the key suppliers that it relies upon in addition to any other systems
that are sensitive to dates (such as the telephone and power systems, elevators,
security systems, and so on), and has developed a plan for any such systems that
are found to be noncompliant.

         A  five-phase  process to address the issues  associated  with the Year
2000  includes:  (1) an inventory and  assessment of the systems and  electronic
devices that maybe at risk; (2) the identification of potential  solutions;  (3)
the  implementation  of upgrades or replacements to affected systems or devices;
(4) the verification of compliance and testing of the revised  systems;  and (5)
the training of users on the new systems.  To date, the inventory and assessment
phase  of all  critical  computer  hardware  has  been  completed,  as have  the
operating  system and database  software;  statements of "Year 2000"  compliance
have been received from the related  vendors.  The  verification  of "Year 2000"
compliance  through  testing of these  systems  and  training of users is nearly
complete.

         As  discussed  previously,  the  Partnership  entered  into a letter of
intent with Flying J Inc. to sell substantially all of the Partnership's assets.
In accordance with the Partnership  Agreement,  sale of substantially all of the
assets  will  result  in  dissolution  of the  Partnership  and  liquidation  of
remaining Partnership assets, net of liabilities. Under these circumstances, the
"Year 2000" issue is not anticipated to have any affect on the Partnership.

Factors Affecting Future Operating Results

         The provisions of the Private Securities  Litigation Reform Act of 1995
(the "Act"), became effective in December 1995. The Act provides a "safe harbor"
for  companies  which  make  forward-looking  statements  providing  prospective
information. The "safe harbor" under the Act relates to protection for companies
with  respect  to  litigation  filed  on  the  basis  of  such   forward-looking
statements.

         The  Partnership   wishes  to  take  advantage  of  the  "safe  harbor"
provisions of the Act and is therefore  including  this section.  The statements
contained herein, if not historical,  are forward-looking statements and involve
risks and  uncertainties  which are  described  below  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,"  "expected,"  "intends," or "plans," or
words of similar meaning.  Therefore,  forward-looking  statements should not be
relied upon as a prediction of actual future results or occurrences.

         The  Partnership's  future  results may be subject to certain risks and
uncertainties including the following:

         o        On February 2, 1998, the Partnership  entered into a letter of
                  intent  with Flying J Inc.  to sell  substantially  all of the
                  Partnership's  assets for cash of  approximately  $27 million.
                  The sale is  subject to certain  conditions  specified  in the
                  letter of intent,  including the  negotiation and execution of
                  definitive  sale and financing  agreements with respect to the
                  assets of the Partnership and the
                                       7
<PAGE>
                  approval,  by  vote,  of a  majority  of the  limited  partner
                  interests. In accordance with the Partnership Agreement,  sale
                  of substantially  all of the assets will result in dissolution
                  of the Partnership  and  liquidation of remaining  Partnership
                  assets,  net of  liabilities.  There can be no assurance as to
                  the  final  terms  of  the  proposed  transaction,   that  the
                  conditions will be satisfied or that the proposed  transaction
                  will be consummated.

         o        Adverse  changes  in  general  or  local  economic  or  market
                  conditions may decrease  demand for products and services sold
                  at the Partnership's travel plazas.

         o        Competition  in the travel plaza  industry (see  discussion in
                  "Business"  above),  as well as competition  with  established
                  entities  and  private   investors  in  connection   with  the
                  acquisition,  sale  and  leasing  of  similar  properties  may
                  decrease sales at the Partnership's travel plazas and decrease
                  profit margins.

         o        Material  or   substantial   restrictions   on  travel   plaza
                  facilities  imposed  by  federal,  state  and  local  laws and
                  regulations  may result in  increased  operating  expenses and
                  capital  expenditures  for the operators of the  Partnership's
                  travel plazas.

         o        The  Partnership is dependent upon the financial  condition of
                  CFJ Properties and its ability to properly  operate the travel
                  plaza  facilities.  If CFJ  Properties  fails to  operate  the
                  travel plaza facilities  properly,  the Partnership's  revenue
                  stream may be adversely affected.

         o        The  Partnership  is  dependent  upon  petroleum  products and
                  factors  affecting  the  petroleum  industry,   including  the
                  following:  governmental  policies and programs  regarding oil
                  exploration,  production  and  marketing;  federal,  state and
                  local environmental laws, rules and regulations  regarding the
                  ownership,   operation  and   maintenance  of  oil  production
                  facilities,  refineries  and  petroleum  product  storage  and
                  marketing facilities; unrest in the Middle East; worldwide and
                  domestic  economic   conditions;   oil  import  quotas;  trade
                  embargoes;  the  imposition of gasoline or other energy taxes;
                  the  supply  and  price  of  oil;  and  effects  of all of the
                  foregoing on the transportation  and travel industries,  which
                  could result in smaller profit margins and volumes of sales of
                  petroleum  products  as well as  smaller  base  rental  income
                  revenues from lessees of the  properties.  This dependency may
                  decrease the availability, and increase the price of, products
                  and services sold at the Partnership's travel plazas which may
                  adversely affect its revenue stream.

         o        Condemnation  or  uninsured  losses may  adversely  affect the
                  ability of the travel plazas to profitably operate.

         o        Changing  demographics  and  changing  transport,  traffic and
                  travel  patterns  may  result  in a  decrease  in sales at the
                  Partnership's travel plazas.

         o        Relocation  and  construction  of highways  may  substantially
                  decrease  consumer demand and adversely  affect the operations
                  of the Partnership's travel plaza.

         o        Increased costs of food products would decrease profit margins
                  on food products.
                                       8
<PAGE>
         o        Failure  of  lessees  to  remediate   environmental   problems
                  identified  in recent  environmental  audits  may  affect  the
                  marketability of the travel plazas to third parties.

Item 2.  Properties.

         As of December 31, 1997, the Partnership had acquired or financed three
travel plaza properties: one located in Wytheville,  Virginia which was acquired
in 1991, one located in  Bakersfield,  California  which was acquired in January
1993, and one located in Ehrenberg,  Arizona which was acquired in June 1993. On
June 30, 1993, the Partnership became fully invested in travel plazas.

         The Partnership's travel plazas, divided into sections which serve both
the commercial and non-commercial  traveler,  generally offer a multi-use,  full
service  operation  including  fuel  facilities  for  the  storage  and  sale of
automotive and diesel fuels, a 24-hour restaurant, a convenience store, restroom
facilities with private showers,  and other amenities designed to meet the needs
of the trucking  industry and the traveling public in general.  All three of the
Partnership's properties represent over 10% of the Partnership's total assets:

        Location                              Approximate % of Total Assets
        --------                              -----------------------------
Wytheville, Virginia                                      30%
Bakersfield, California                                   23%
Ehrenberg, Arizona                                        44%

The following is a description of the properties acquired by the Partnership:

Wytheville, Virginia

         The Wytheville travel plaza is a full-service  travel plaza, built on a
parcel  consisting of  approximately  16.831 acres located at the interchange of
Frontage Road and Interstates 81 and 77.

Bakersfield, California

         The Bakersfield travel plaza is an existing  full-service travel plaza,
opened in January 1992,  located on a parcel  consisting of  approximately  15.4
acres at the Merced Avenue exit of California Highway 99.

Ehrenberg, Arizona

         Located  at  the  Arizona/California   border  on  Interstate  10,  the
Ehrenberg  travel  plaza  is an  existing  operation  opened  in May  1988.  The
two-story  travel plaza is situated on an approximate 11.7 acre tract of land in
the County of La Paz (formerly Yuma), Arizona.

         Independent  of  the  Partnership,   FFCA/PIP  III  Investor   Services
Corporation has no
                                       9
<PAGE>
interest in any real or personal property.

         Reference is made to the Annual Portfolio Valuation prepared by Cushman
& Wakefield  which is filed with this  Report as an exhibit for the  properties'
appraised value as of December 31, 1997.

Item 3.  Legal Proceedings.

         Neither  the  Co-Registrants  nor their  properties  are parties to, or
subject to, any material pending legal proceedings.

Item 4.  Submission of Matters to a Vote of Securities Holders.

         No  matter  was  submitted  to  a  vote  of  the  Holders  through  the
solicitation  of proxies or otherwise  during the fourth  quarter of fiscal year
1997.

                                     PART II

Item 5.  Market for Registrant's Units and Related Security Holder Matters.

         Market  Information.  During  1997,  there  was no  established  public
trading  market for the Units,  and it is not  anticipated  that an  established
public trading market for the Units will develop.

         Holders.  As of March 2, 1998,  there were 1,538 record  holders of the
Units.

         Distributions.  For the two most recent fiscal years,  the  Partnership
made the following cash distributions to the Holders:

                                      1997

                                           Per Unit
                                         Distribution              Total
                                     --------------------   --------------------
       Date of           Number      Cash From              Cash From
    Distribution        of Units     Operations   Capital   Operations   Capital
    ------------        --------     ----------   -------   ----------   -------

March 31                  26,709     $   21.69      --       $579,318       --
June 30                   26,709         21.70      --        579,585       --
September 30              26,709         21.69      --        579,318       --
December 31               26,709         21.69      --        579,318       --
                                       10
<PAGE>
                                      1996

                                           Per Unit
                                         Distribution              Total
                                     --------------------   --------------------
       Date of           Number      Cash From              Cash From
    Distribution        of Units     Operations   Capital   Operations   Capital
    ------------        --------     ----------   -------   ----------   -------

March 31                  26,709     $   21.70      --       $579,585       --
June 30                   26,709         21.69      --        579,318       --
September 30              26,709         21.70      --        579,585       --
December 31               26,709         21.69      --        579,318       --


         Cash from  operations,  defined as disbursable cash in the agreement of
limited  partnership  which  governs  the  Partnership,  is  distributed  to the
Holders.  Cash proceeds from the sale of property are distributed to the Holders
as a return  of  capital.  The  Adjusted  Capital  Contribution  of a Holder  is
generally  the  Holder's  initial  capital  contribution  reduced  by  the  cash
distributions to the Holders of proceeds from the sale of Partnership properties
and  reduced by any other cash  distributions  other than from  operations.  The
Adjusted  Capital  Contribution  per  Unit of the  Holders,  as  defined  in the
agreement of limited  partnership which governs the Partnership,  was $964.16 as
of December 31, 1997.

         Any differences in the amounts of distributions  set forth in the above
tables from the  information  contained  in Item 6 below are due to rounding the
amount of  distributions  payable  per Unit down to the  nearest  whole cent and
carrying  any  fractional  cents  forward  from  one  period  to the  next.  The
Partnership  expects  to  continue  making  cash  distributions  to the  Holders
pursuant to the provisions of the agreement of limited partnership which governs
the  Partnership.  The General  Partner knows of no material  restrictions  that
would limit the Partnership's ability to pay distributions to the Holders in the
future.
                                       11
<PAGE>
Item 6.  Selected Financial Data.

         The following  selected  financial  data should be read in  conjunction
with the Financial  Statements  and related notes attached as an exhibit to this
Report.
<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                      -----------------------
                                  1997          1996          1995          1994          1993
                                  ----          ----          ----          ----          ----
<S>                            <C>           <C>           <C>           <C>           <C>
Revenues                       $ 2,681,670   $ 2,636,853   $ 2,648,938   $ 2,634,461   $ 2,219,419

Net Income                       1,893,355     1,891,905     1,889,914     1,889,998     1,536,414

Net Income Per Unit                  70.18         70.13         70.05         70.05         56.95

Total Assets                    20,620,916    21,078,466    21,516,076    21,985,630    22,349,710

Distributions of Cash from
  Operations to Holders          2,317,679     2,317,702     2,317,771     2,317,855     1,742,185

Distributions of Cash from
  Operations Per Unit                86.77         86.78         86.78         86.78         65.23

Return of Capital to Holders          --            --            --            --         127,500

Return of Capital Per Unit            --            --            --            --            4.77
</TABLE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
          of Operations.

Liquidity and Capital Resources

         The Partnership  received $26,709,000 in gross proceeds from its public
offering of the Units.  After deducting  organizational  and offering  expenses,
including sales commissions, the Partnership had $23,012,902 in net proceeds for
investment  in  properties.  As of June  30,  1993,  the  Partnership  had  used
approximately  $22,390,000 to acquire or finance three travel plazas. The rental
and  mortgage  interest  payments  from  lessees  of the  travel  plazas are the
Partnership's primary sources of income.

         As of  December  31,  1997,  the  Partnership  had cash and  marketable
securities aggregating $635,446 of which $579,318 was paid out to the Holders in
January  1998 as their fourth  quarter  distribution  for fiscal year 1997.  The
Partnership uses the rental and mortgage  interest  revenues from its properties
to meet its  cash  needs,  and it is  anticipated  that  such  revenues  will be
sufficient  to meet  all of the  Partnership's  expenses  and  provide  cash for
distributions to the Limited Partners.

         On February 2, 1998,  the  Partnership  entered into a letter of intent
with Flying J Inc. to sell  substantially  all of the  Partnership's  assets for
cash of  approximately  $27 million.  The sale is subject to certain  conditions
specified in the letter of intent,  including the  negotiation  and execution of
definitive  sale and  financing  agreements  with  respect  to the assets of the
Partnership  and the  approval,  by vote,  of a majority of the limited  partner
interests. In
                                       12
<PAGE>
accordance  with the partnership  agreement,  sale of  substantially  all of the
assets  will  result  in  dissolution  of the  partnership  and  liquidation  of
remaining  Partnership assets, net of liabilities.  There can be no assurance as
to the final terms of the  proposed  transaction,  that the  conditions  will be
satisfied or that the proposed transaction will be consummated.

         The  negotiated  sales price of  approximately  $27 million  would have
resulted in an  estimated  book gain of $7 million had the  proposed  sale taken
place at December 31, 1997. Subsequent to the proposed asset sale and conversion
of other  Partnership  assets into cash upon  liquidation,  a  liquidating  cash
distribution  will be made to  investors  in  accordance  with  the  Partnership
agreement.  Had the sale (as  proposed)  occurred at December  31,  1997,  it is
estimated that the liquidating cash distribution would have been in the range of
$980 to $1000 per limited partnership unit. The actual liquidating  distribution
to be  received by  investors  will depend upon the actual date and terms of the
sale and the actual costs of liquidating the Partnership.

         The  Partnership  pays an  affiliate  of the  General  Partner  for the
maintenance  of the books  and  records  of the  Partnership  and for  computer,
investor and legal services  performed for the  Partnership.  During 1997,  this
affiliate  of the  General  Partner  completed  the  design of a new  accounting
information  system  that was begun in 1996 and was  implemented  on  January 1,
1998. The new system is "Year 2000"  compliant  which means that the system will
be able to handle any dates that refer to the 21st century.  By the end of 1998,
all of the  affiliate's  significant  information  systems that would impact the
Partnership will be "Year 2000" compliant.

         As  discussed  previously,  the  Partnership  entered  into a letter of
intent with Flying J Inc. to sell substantially all of the Partnership's assets.
In accordance with the partnership  agreement,  sale of substantially all of the
assets  will  result  in  dissolution  of the  partnership  and  liquidation  of
remaining Partnership assets, net of liabilities. Under these circumstances, the
"Year 2000" issue is not anticipated to have any affect on the Partnership.

         FFCA/PIP  III  Investor  Services  Corporation  serves  as the  initial
limited  partner  of the  Partnership  and the owner of  record  of the  limited
partner  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 has no other business
activity and has no capital resources.

Results of Operations

         The Partnership  began acquiring  travel plaza properties using the net
proceeds of the offering in 1991. As of June 30, 1993, the Partnership was fully
invested in travel plazas. The Partnership received or accrued 100% of the lease
and interest payments due it from its lessees in 1997, 1996 and 1995.

Fiscal Year Ended December 31, 1997 Compared to
   Fiscal Year Ended December 31, 1996

         The  Partnership's  total revenues for the year ended December 31, 1997
increased to $2,681,670  from  $2,636,853  for the year ended December 31, 1996.
The overall increase in
                                       13
<PAGE>
revenues is due to an increase in participating  rentals.  Participating  rental
revenues  increased  to  $536,509  in 1997 from  $492,391  in 1996 due to higher
travel plaza sales volumes.  On June 1, 1996, CFJ Properties  (the  Registrant's
only lessee) curtailed its relationship with a large third party billing company
for the trucking industry. The billing company requested changes to its contract
that were  unacceptable  to CFJ  Properties'  management due to the  significant
long-term  ramifications  of  the  proposed  change  on CFJ  Properties'  future
business.  This resulted in reduced  volume and margins,  which  contributed  to
lower participating rental revenues in 1996 as compared to 1997.

         Total  Partnership  expenses  in 1997 were  $788,315,  representing  an
increase  from  $744,948 in 1996.  The increase was the primarily a result of an
increase in general  partner  fees of $33,288.  As  described  more fully in the
Partnership agreement, the General Partner's management fee is subordinated to a
9% return to the Holders on their Adjusted Capital Contribution, as defined. The
increase in the General  Partner's  Management  fee resulted  directly  from the
increase in the  Partnership's  disbursable cash (generally,  cash receipts from
operations less cash operating expenses).

         Net income for the year ended  December 31, 1997 amounted to $1,893,355
as compared to $1,891,905 for year ended December 31, 1996.


Fiscal Year Ended December 31, 1996 Compared to
   Fiscal Year Ended December 31, 1995

         The  Partnership's  total revenues for the year ended December 31, 1996
decreased to $2,636,853  from  $2,648,938  for the year ended December 31, 1995.
Revenues  decreased  between  years as a result of a decrease  in  participating
rental  revenue of $10,707 which is  attributable  to decreased  overall  travel
plaza sales  related to the  curtailment  in June 1996 by CFJ  Properties of its
relationship with a third party billing company.

         Expenses for 1996 were $744,948 as compared to $759,024 for 1995.  This
decrease was primarily the result of decreased  operating  expenses in 1996. Net
income for 1996 was $1,891,905 as compared to net income of $1,889,914 for 1995.

Item 8.  Financial Statements and Supplementary Data.

         The financial  statements of the Co-Registrants  required by Regulation
S-X are attached to this Report. Reference is made to Item 14 below for an index
to the financial statements and financial statement schedules.

Item  9.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure.

         None.
                                       14
<PAGE>
                                    PART III

Item 10. Directors and Executive Officers.

         The  Partnership has no directors or executive  officers.  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., Morton H. Fleischer and Paul
Bagley are general  partners of the General  Partner.  FFCA III was organized in
Delaware in July 1990 for the purpose of sponsoring limited partnerships such as
the  Partnership.  Set forth below are the directors  and executive  officers of
FFCA III, TMI and FFCA/PIP III Investor Services Corporation,  and the year that
they were elected or appointed to their respective offices:

FFCA III

                                    Directors
                    Name                                   Position Held Since
                    ----                                   -------------------

Morton H. Fleischer, Chairman                                      1990
Paul Bagley                                                        1990
John R. Barravecchia                                               1993
Christopher H. Volk                                                1993

                                    Officers
<TABLE>
<CAPTION>
                                                                                                   Associated
                                                                                                      With
                                                                                                    FFCA III
               Name                                       Positions Held                              Since
               ----                                       --------------                              -----
<S>                                  <C>                                                              <C>
Morton H. Fleischer                  Chairman of the Board, President and Chief Executive             1990
                                     Officer
John R. Barravecchia                 Executive Vice President, Chief Financial Officer,               1990
                                     Treasurer and Assistant Secretary
Christopher H. Volk                  Executive Vice President, Chief Operating Officer,               1990
                                     Secretary and Assistant Treasurer
Dennis L. Ruben                      Executive Vice President, General Counsel and Assistant          1993
                                     Secretary
Stephen G. Schmitz                   Executive Vice President, Chief Investment Officer and           1995
                                     Assistant Secretary
Catherine F. Long                    Senior Vice President-Finance, Principal Accounting              1990
                                     Officer, Assistant Secretary and Assistant Treasurer
</TABLE>
                                       15
<PAGE>
Travel Plaza Management, Inc.

                                    Directors
                    Name                                  Position Held Since
                    ----                                  -------------------

Gerald F. Goertz, Jr.                                            1994
Stephen R. Dyer                                                  1994
Joseph P. Ciavarella                                             1994


                                    Officers
<TABLE>
<CAPTION>
                                                                                                 Position Held
               Name                                       Positions Held                              Since
               ----                                       --------------                              -----
<S>                                           <C>                                                     <C>
Gerald F. Goertz, Jr.                         President                                               1994
Stephen R. Dyer                               Vice President and Secretary                            1994
Joseph P. Ciavarella                          Vice President, Treasurer, Assistant Secretary          1994
                                              and Chief Financial and Accounting Officer
</TABLE>

FFCA/PIP III Investor Services Corporation

                                    Director
               Name                                     Position Held Since
               ----                                     -------------------

Morton H. Fleischer                                            1986


                                    Officers
<TABLE>
<CAPTION>
                                                                                                 Position Held
               Name                                       Positions Held                              Since
               ----                                       --------------                              -----
<S>                                           <C>                                                     <C>
Morton H. Fleischer                           Chairman of the Board of Directors                      1986
John R. Barravecchia                          President, Secretary and Treasurer                      1990
Christopher H. Volk                           Vice President, Assistant Secretary and                 1994
                                              Assistant Treasurer
</TABLE>

         All of the foregoing  directors and officers have been elected to serve
a one year term and until their successors are elected and qualified.  There are
no  arrangements  or  understandings  between  or among any of the  officers  or
directors  and any other  person  pursuant to which any officer or director  was
selected as such.  There are no family  relationships  among any  directors  and
officers.

Business Experience

         The business experience during the past five years of each of the above
directors and officers is as follows:
                                       16
<PAGE>

             FFCA III and FFCA/PIP III Investor Services Corporation

         Paul  Bagley,  age 55, has served as a director of FFCA III since 1990.
Mr.  Bagley is a founding  partner  of Stone Pine  Capital  LLC  (1994),  and is
chairman of FCM Fiduciary  Management  Co. LLC (1989 to date),  the advisor to a
mezzanine and private equity fund. For more than twenty years prior to 1990, Mr.
Bagley was engaged in investment  banking activities with Shearson Lehman Hutton
Inc. and its  predecessor,  E.F. Hutton & Company Inc., where he was responsible
for the  creation  and  management  of  over $5  billion  of  direct  investment
activities.  Mr.  Bagley  has  served on the  boards  of a number of public  and
private  companies.  Currently  he  is  on  the  boards  of  Fiduciary  Capital,
Hollis-Eden  Pharmaceuticals,  Consolidated  Capital,  Logan Machinery Corp. and
Pacific Consumer Funding.

         Morton H.  Fleischer,  age 61, has served as  Chairman  of the Board of
Directors  of FFCA/PIP  III  Investor  Services  Corporation  since 1990 and has
served as President,  Chief  Executive  Officer and a Director of FFCA III since
its formation in 1990. He was elected Chairman of the Board of FFCA III in 1994.
Mr.  Fleischer  currently  serves as  President,  Chief  Executive  Officer  and
Chairman of the Board of Franchise  Finance  Corporation of America,  a Delaware
corporation  ("FFCA"),  having previously  served as President,  Chief Executive
Officer and a Director of Franchise Finance Corporation of America I ("FFCA I"),
a predecessor of FFCA,  from 1980 to 1994.  Mr.  Fleischer is also an individual
general partner of the Partnership, and is a general partner (or general partner
of  a  general   partner)  of  the  following   public   limited   partnerships:
Participating Income Properties 1986, L.P.;  Participating Income Properties II,
L.P; and Scottsdale Land Trust Limited Partnership.

         John R.  Barravecchia,  age 42, has served as President,  Secretary and
Treasurer of FFCA/PIP  III  Investor  Services  Corporation  since 1990.  He has
served as Senior Vice  President and Chief  Financial  Officer of FFCA III since
1990, was named Treasurer in December 1993 and was named Assistant  Secretary in
1994. In 1995, Mr.  Barravecchia was named Executive Vice President of FFCA III.
Mr. Barravecchia  currently serves as Executive Vice President,  Chief Financial
Officer,  Treasurer  and  Assistant  Secretary  of FFCA and  served  in  various
capacities  for FFCA I from 1984 to 1994.  He was appointed  Vice  President and
Chief Financial Officer of FFCA I in December 1986, and Senior Vice President in
October 1989. Mr. Barravecchia was elected as a Director of FFCA I in March 1993
and Treasurer in December 1993.  Prior to joining FFCA I, Mr.  Barravecchia  was
associated with the international public accounting firm of Arthur Andersen LLP.

         Christopher  H. Volk, age 41, has served as Vice  President,  Assistant
Secretary and Assistant Treasurer of FFCA/PIP III Investor Services  Corporation
since January 1996.  During 1995, Mr. Volk was named Chief Operating Officer and
Executive Vice President of FFCA III. Mr. Volk served as Vice President-Research
of FFCA III from 1990 to 1993 and was named  Senior Vice  President-Underwriting
and Research and Secretary in December  1993.  He currently  serves as Executive
Vice President,  Chief Operating Officer,  Secretary and Assistant  Treasurer to
FFCA. He joined FFCA I in 1986 and has served in various  capacities in FFCA I's
capital   preservation  and  underwriting   areas  prior  to  being  named  Vice
President-Research in October 1989. In December 1993, he was appointed Secretary
and  Senior  Vice  President-Underwriting  and  Research  of FFCA I,  and he was
elected as a Director of FFCA I in March 1993. Prior to joining FFCA I, Mr. Volk
was  employed for six years with the  National


                                       17
<PAGE>
Bank of Georgia, where his last position was Assistant Vice President and Senior
Correspondent  Banking Credit  Officer.  Mr. Volk is a member of the Association
for  Investment  Management  and Research  and the Phoenix  Society of Financial
Analysts.

         Dennis L. Ruben,  age 45, was named Senior Vice  President  and General
Counsel  of FFCA III in  December  1993.  Mr.  Ruben  was named  Executive  Vice
President,  General  Counsel  and  Assistant  Secretary  in  February  1997.  He
currently  serves in the same  capacity for FFCA.  In 1991,  he joined FFCA I as
attorney and counsel.  In December 1993, he was appointed  Senior Vice President
and General Counsel of FFCA I. Prior to joining FFCA I, Mr. Ruben was associated
with the law firm of Kutak Rock from 1980 until March 1991.  Mr.  Ruben became a
partner of Kutak Rock in 1984. Mr. Ruben has been admitted to the Iowa, Nebraska
and Colorado bars.

         Stephen   G.   Schmitz,   age   43,   has   served   as   Senior   Vice
President-Corporate  Finance of FFCA III since  January  1996.  Mr.  Schmitz was
named Executive Vice President, Chief Investment Officer and Assistant Secretary
in February 1997. He currently serves in the same capacity for FFCA. Mr. Schmitz
served in various  positions  as an officer of FFCA I from 1986 to June 1, 1994.
Prior to joining FFCA I, Mr. Schmitz was a commercial lender with Mellon Bank in
Pittsburgh, where his last position was Vice-President and Section Manager.

         Catherine F. Long, age 41, has served as Vice President-Finance of FFCA
III since 1990 and was named  Principal  Accounting  Officer in  December  1993.
During 1994, Ms. Long was named Assistant Secretary and Assistant Treasurer.  In
February 1997, she was also named Senior Vice President. She currently serves as
Senior Vice President-Finance, Principal Accounting Officer, Assistant Secretary
and  Assistant  Treasurer  for FFCA.  In June 1990,  she  joined  FFCA I as Vice
President-Finance.  In December  1993,  she was appointed  Principal  Accounting
Officer of FFCA I. From December 1978 to May 1990, Ms. Long was associated  with
the  international  public accounting firm of Arthur Andersen LLP. Ms. Long is a
certified public  accountant and is a member of the Arizona Society of Certified
Public Accountants.

                          Travel Plaza Management, Inc.

         Gerald F. Goertz,  Jr.,  age 40, is President  and a Director of Travel
Plaza Management,  Inc. Mr. Goertz joined  PaineWebber  Incorporated in December
1990 and holds the position of Senior Vice President and Director of Specialized
Investment Services. Prior to joining PaineWebber  Incorporated,  Mr. Goertz was
associated with CG Realty Advisors and The Freeman Company.

         Stephen R. Dyer, age 38, is a Vice President, Secretary and Director of
Travel Plaza Management,  Inc. He joined  PaineWebber  Incorporated in June 1988
and is currently a Corporate Vice President and Director of Private Investments.
Mr. Dyer is a Certified Public Accountant.

         Joseph P. Ciavarella, age 42, is a Vice President, Treasurer, Assistant
Secretary,  Chief Financial  Officer,  Chief Accounting  Officer and Director of
Travel Plaza Management,  Inc. He joined PaineWebber Incorporated in May 1994 as
Corporate  Vice  President.  Prior  to  joining  PaineWebber  Incorporated,  Mr.
Ciavarella  was affiliated  with Aviation  Capital Group in the area of aircraft
finance. He was associated with Integrated Resources,  Inc. from 1983 to 1993 as
                                       18
<PAGE>
Vice President and First Vice President,  as well as Chief Financial  Officer of
various  subsidiaries  in the equipment  leasing,  aircraft  finance and venture
capital areas. Mr. Ciavarella is a Certified Public Accountant.

         Travel  Plaza  Management,  Inc.  was named as a  defendant  in a class
action lawsuit against PaineWebber Incorporated  ("PaineWebber") and a number of
its affiliates relating to PaineWebber's sale of 70 direct investment offerings,
including  the  offering  of the  Units of the  Partnership.  In  January  1996,
PaineWebber  signed a memorandum  of  understanding  with the  plaintiffs in the
class action  outlining  the terms under which the parties have agreed to settle
the case. Pursuant to that memorandum of understanding,  PaineWebber irrevocably
deposited  $125 million into an escrow fund under the  supervision of the United
States  District  Court  for the  Southern  District  of New  York to be used to
resolve the litigation in accordance with a definitive  settlement agreement and
plan of allocation,  which the parties  subsequently  submitted to the court for
its  consideration  and approval.  On July 17, 1996, a Stipulation of Settlement
was preliminarily  approved by the District Court and notice was mailed to class
members.  One  objection was asserted to the proposed  settlement.  The District
Court issued a decision  approving the  settlement  and dismissing the action on
March 31, 1997. The sole objector filed an appeal to the Second Circuit. On July
30, 1997 the Second Circuit  affirmed the judgment  approving the settlement and
dismissing  the action.  The District  Court must still  determine the extent of
attorneys fees to be awarded to plaintiffs' counsel, which will be paid from the
settlement fund, so that the remainder of the monies can be distributed to class
members.  Until a plan of allocation  is approved by the court,  there can be no
assurance what, if any, payment or non-monetary  benefits will be made available
to unitholders in the Partnership.

         In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v.  PaineWebber  Inc. in  Sacramento,  California  Superior Court against
PaineWebber   Incorporated  and  various  affiliated   entities  concerning  the
plaintiffs'  purchase of various limited  partnership  interests.  The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentations and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting  limited  partnership  investments  that were
unsuitable for the plaintiffs and by overstating the benefits,  understating the
risks and  failing to state  material  facts  concerning  the  investments.  The
complaint seeks  compensatory  damages of $15 million plus punitive damages.  In
March 1997,  the action was settled and the  Partnership  will not contribute to
the settlement.

Compliance with Section 16(a) of the
Securities Exchange Act of 1934

         Based  solely  upon a review  of Forms 3 and 4 and  amendments  thereto
furnished  to the  Co-Registrants  during  fiscal  year  1997  and  Forms  5 and
amendments  thereto furnished to the  Co-Registrants  with respect to the fiscal
year ended December 31, 1997 (the "Forms"),  and any written  representations by
the  directors  and  executive   officers  of  FFCA/PIP  III  Investor  Services
Corporation,  and FFCA III, the  Co-Registrants  have not identified  herein any
such person that failed to file on a timely basis the Forms  required by Section
16(a) of the Securities Exchange Act of 1934 for fiscal year 1997.
                                       19
<PAGE>
Item 11. Executive Compensation.

         The   Partnership  is  required  to  pay  an  acquisition   fee  and  a
subordinated  real  estate  disposition  fee  to  the  General  Partner  or  its
affiliate,  and the  General  Partner  is  entitled  to  receive a share of cash
distributions,  when and as made to the  Holders,  a share of profits and losses
and a subordinated share of any sale proceeds. Reference is made to Note (1) and
Note (6) of the Notes to Financial  Statements  which are filed with this report
for a description of the fees and distributions paid in 1997.

         FFCA/PIP  III  Investor  Services  Corporation  serves as assignor  and
initial limited partner without  compensation  from the  Partnership.  It is not
entitled  to any  share of the  profits,  losses  or cash  distributions  of the
Partnership.  The  director  and  officers of  FFCA/PIP  III  Investor  Services
Corporation  serve  without  compensation  from  FFCA/PIP III Investor  Services
Corporation or the Partnership.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

         As of March 2, 1998, no person or group was known by the Partnership to
own  directly  or  beneficially  more  than 5% of the  outstanding  Units of the
Partnership.

         Neither  the  General  Partner,  the  general  partners  of the General
Partner,  FFCA/PIP III Investor Services Corporation nor any director or officer
of FFCA/PIP III  Investor  Services  Corporation  owned any Units as of March 2,
1998. The directors and officers of FFCA III, as a group,  owned less than 1% of
the Units as of March 2, 1998.

         FFCA/PIP  III  Investor  Services  Corporation  has an  interest in the
Partnership as a limited  partner and it serves as the owner of record of all of
the limited partnership interests assigned by it to the Holders; however, it has
no  right to vote its  interest  on any  matter  and it must  vote the  assigned
interests as directed by the Holders.

Item 13. Certain Relationships and Related Transactions.

         Since  the   beginning   of  the  last  fiscal  year  of  both  of  the
Co-Registrants,   there  have  been  no  significant  transactions  or  business
relationships among the Co-Registrants, the General Partners or their affiliates
or their management, other than as described in Items 1, 10 and 11 above.

                                     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:
                                       20
<PAGE>
                  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, 1997 and 1996
                           Statements of Income for the year ended  December 31,
                             1997 1996 and 1995
                           Statements of Changes In Partners' Capital for the
                             years ended December 31, 1997, 1996 and 1995
                           Statements of Cash Flows for the years ended
                             December 31, 1997, 1996 and 1995
                           Notes to Financial Statements

                           FFCA/PIP III Investor Services Corporation

                           Report of independent public accountants
                           Balance Sheet as of December 31, 1997
                           Notes to Balance Sheet

                  2.       Financial Statement Schedules.

                           Schedule III-Schedule of Real Estate and Accumulated
                             Depreciation as of December 31, 1997

                           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.

                           The following is a complete list of exhibits filed as
                           part  of  this  Form  10-K.  For  electronic   filing
                           purposes only, this report  contains  Exhibit 27, the
                           Financial Data Schedule.  Exhibit numbers  correspond
                           to the  numbers in the  Exhibit  Table of Item 601 of
                           Regulation S-K.

                           99.      Annual  Portfolio  Valuation  of  Cushman  &
                                    Wakefield as of December 31, 1997

                           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, Commission File No. 0-20151, are incorporated herein
                  by this reference.
                                       21
<PAGE>
<TABLE>
<CAPTION>
                                                                                             1991 Form 10-K
                                                                                               Exhibit No.
                                                                                               -----------

                           <S>                                                                     <C>
                           The  Agreement of Limited  Partnership  of the General                  3-A
                           Partner

                           The Certificate of  Incorporation of FFCA/PIP III                       3-B
                           Investor  Services  Corporation,  as  filed  with the
                           Secretary of State of 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    with   the
                  Co-Registrants'   Registration   Statement   on   Form   S-11,
                  Registration  No.  33-35868,  is  incorporated  herein by this
                  reference.

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

         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, 1997.
                                       22
<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Partnership has duly caused this Report to
be signed on its behalf of the undersigned, thereunto duly authorized.

                           PARTICIPATING    INCOME    PROPERTIES   III   LIMITED
                           PARTNERSHIP

                                        By:  FFCA PARTICIPATING MANAGEMENT
                                             COMPANY LIMITED PARTNERSHIP,
                                             General Partner

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


Date:  March 27, 1998                             By /s/ Morton H. Fleischer
                                                     ---------------------------
                                                     Morton H. Fleischer,
                                                     President and Chief
                                                     Executive Officer

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

         SIGNATURES  OF REQUIRED  OFFICERS AND  DIRECTORS  OF FRANCHISE  FINANCE
         CORPORATION  OF  AMERICA  III,   MANAGING   GENERAL   PARTNER  OF  FFCA
         PARTICIPATING  MANAGEMENT COMPANY LIMITED PARTNERSHIP,  GENERAL PARTNER
         OF PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP.


Date:  March 27, 1998                        By /s/ Morton H. Fleischer
                                                --------------------------------
                                                Morton H. Fleischer, President,
                                                Chief Executive Officer and
                                                Director

Date:  March __, 1998                        By
                                                --------------------------------
                                                Paul Bagley, Director

Date:  March 27, 1998                       By /s/ John Barravecchia
                                                --------------------------------
                                                John Barravecchia, Executive
                                                Vice President, Chief Financial
                                                Officer, Treasurer, Assistant
                                                Secretary and Director
<PAGE>
Date:  March 27, 1998                        By /s/ Christopher H. Volk
                                                --------------------------------
                                                Christopher H. Volk, Executive
                                                Vice President, Chief Operating
                                                Officer, Secretary, Assistant
                                                Treasurer and Director


Date:  March 27, 1998                        By /s/ Catherine F. Long
                                                --------------------------------
                                                Catherine F. Long, Senior Vice
                                                President-Finance, Principal
                                                Accounting Officer, Assistant
                                                Secretary and Assistant
                                                Treasurer


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the Co-Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.

                                        FFCA/PIP III INVESTOR SERVICES
                                        CORPORATION


Date:  March 27, 1998                        By /s/ Morton H. Fleischer
                                                --------------------------------
                                                Morton H. Fleischer, Sole
                                                Director


Date:  March 27, 1998                        By /s/ John Barravecchia
                                                --------------------------------
                                                John Barravecchia, President,
                                                Secretary, Treasurer, Principal
                                                Financial Officer and Principal
                                                Accounting Officer
<PAGE>
                              ARTHUR ANDERSEN LLP





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Participating Income Properties III Limited Partnership:

We  have  audited  the  accompanying  balance  sheets  of  PARTICIPATING  INCOME
PROPERTIES  III LIMITED  PARTNERSHIP  (a  Delaware  limited  partnership)  as of
December 31, 1997 and 1996,  and the related  statements  of income,  changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements and the schedule referred to below
are the responsibility of the partnership's  general partner. Our responsibility
is to express an opinion on these financial statements and schedule 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 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 Participating Income Properties
III Limited Partnership as of December 31, 1997 and 1996, and the results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1997, in conformity with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken  as a  whole.  The  schedule  of  Real  Estate  and
Accumulated  Depreciation  is  presented  for  purposes  of  complying  with the
Securities  and Exchange  Commission's  rules and is not a required  part of the
basic  financial  statements.  This schedule has been  subjected to the auditing
procedures  applied in our audits of the basic financial  statements and, in our
opinion,  fairly  states  in all  material  respects  in  relation  to the basic
financial statements taken as a whole.


                                        Arthur Andersen LLP

Phoenix, Arizona,
 January 6, 1998, (except with respect to the matter discussed
 in Note 7, as to which the date is February 3, 1998).
<PAGE>
             PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
             -------------------------------------------------------

                   BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
                   -------------------------------------------


<TABLE>
<CAPTION>

                                                                            1997              1996
                                                                        ------------      ------------
                                                ASSETS
                                                ------
<S>                                                                     <C>               <C>
CASH AND CASH EQUIVALENTS                                               $    635,446      $    651,261

RECEIVABLES FROM LESSEES                                                      44,000            38,000

MORTGAGE LOAN INTEREST RECEIVABLE                                             45,208            45,208

MORTGAGE LOAN RECEIVABLE (Note 4)                                          7,750,000         7,750,000

PROPERTY SUBJECT TO OPERATING LEASES (Note 3)                             12,146,262        12,593,997
                                                                        ------------      ------------

                     Total assets                                       $ 20,620,916      $ 21,078,466
                                                                        ============      ============



                                  LIABILITIES AND PARTNERS' CAPITAL
                                  ---------------------------------

DISTRIBUTION PAYABLE TO LIMITED PARTNERS                                $    579,590      $    579,450

PAYABLE TO GENERAL PARTNER                                                      --               7,720

RENTAL DEPOSITS AND OTHER                                                    253,269           255,504
                                                                        ------------      ------------

                     Total liabilities                                       832,859           842,674
                                                                        ------------      ------------


PARTNERS' CAPITAL (DEFICIT):
      General partner                                                        (21,687)          (17,210)
      Limited partners                                                    19,809,744        20,253,002
                                                                        ------------      ------------

                     Total partners' capital                              19,788,057        20,235,792
                                                                        ------------      ------------

                     Total liabilities and partners' capital            $ 20,620,916      $ 21,078,466
                                                                        ============      ============
</TABLE>

      The accompanying notes are an integral part of these balance sheets.
<PAGE>
             PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
             -------------------------------------------------------

                              STATEMENTS OF INCOME
                              --------------------

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
              ----------------------------------------------------




                                               1997         1996         1995
                                            ----------   ----------   ----------

REVENUES:
      Rental                                $1,579,480   $1,579,480   $1,579,480
      Participating rentals                    536,509      492,391      503,098
      Mortgage loan interest                   542,500      542,500      542,500
      Interest and other                        23,181       22,482       23,860
                                            ----------   ----------   ----------

                                             2,681,670    2,636,853    2,648,938
                                            ----------   ----------   ----------

EXPENSES:
      General partner fees  (Note 6)           242,823      209,535      212,053
      Depreciation                             447,735      449,208      451,269
      Operating                                 97,757       86,205       95,702
                                            ----------   ----------   ----------

                                               788,315      744,948      759,024
                                            ----------   ----------   ----------

NET INCOME                                  $1,893,355   $1,891,905   $1,889,914
                                            ==========   ==========   ==========

NET INCOME ALLOCATED TO  (Note 1):
      General partner                       $   18,934   $   18,919   $   18,899
      Limited partners                       1,874,421    1,872,986    1,871,015
                                            ----------   ----------   ----------

                                            $1,893,355   $1,891,905   $1,889,914
                                            ==========   ==========   ==========

NET INCOME PER LIMITED PARTNERSHIP
      UNIT (based on 26,709 units held by
      limited partners)                     $    70.18   $    70.13   $    70.05
                                            ==========   ==========   ==========

        The accompanying notes are an integral part of these statements.
<PAGE>
             PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
             -------------------------------------------------------

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                   ------------------------------------------

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
              ----------------------------------------------------



                                     General        Limited
                                     Partner        Partners          Total
                                  ------------    ------------    ------------

BALANCE, December 31, 1994        $     (8,205)   $ 21,144,474    $ 21,136,269

      Net income                        18,899       1,871,015       1,889,914

      Distributions to partners        (23,412)     (2,317,771)     (2,341,183)
                                  ------------    ------------    ------------

BALANCE, December 31, 1995             (12,718)     20,697,718      20,685,000

      Net income                        18,919       1,872,986       1,891,905

      Distributions to partners        (23,411)     (2,317,702)     (2,341,113)
                                  ------------    ------------    ------------

BALANCE, December 31, 1996             (17,210)     20,253,002      20,235,792

      Net income                        18,934       1,874,421       1,893,355

      Distributions to partners        (23,411)     (2,317,679)     (2,341,090)
                                  ------------    ------------    ------------

BALANCE, December 31, 1997        $    (21,687)   $ 19,809,744    $ 19,788,057
                                  ============    ============    ============

        The accompanying notes are an integral part of these statements.
<PAGE>
             PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
             -------------------------------------------------------

                            STATEMENTS OF CASH FLOWS
                            ------------------------

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
              ----------------------------------------------------


<TABLE>
<CAPTION>
                                                                  1997           1996           1995
                                                              -----------    -----------    -----------
<S>                                                           <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                $ 1,893,355    $ 1,891,905    $ 1,889,914
    Adjustments to net income:
       Depreciation                                               447,735        449,208        451,269
       Change in assets and liabilities:
          Decrease (increase) in receivables from lessees          (6,000)         1,257          1,743
          Increase (decrease) in payable to general partner        (7,720)         7,720           --
          Increase (decrease) in rental deposits
              and other                                            (2,235)         3,984        (18,250)
                                                              -----------    -----------    -----------

          Net cash provided by operating activities             2,325,135      2,354,074      2,324,676
                                                              -----------    -----------    -----------

CASH FLOWS FOR FINANCING ACTIVITIES:
    Partner distributions declared (Note 1)                    (2,341,090)    (2,341,113)    (2,341,183)
    Increase (decrease) in distribution payable                       140           (106)           (35)
                                                              -----------    -----------    -----------

          Net cash used in financing activities                (2,340,950)    (2,341,219)    (2,341,218)
                                                              -----------    -----------    -----------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                              (15,815)        12,855        (16,542)

CASH AND CASH EQUIVALENTS,
    beginning of year                                             651,261        638,406        654,948
                                                              -----------    -----------    -----------

CASH AND CASH EQUIVALENTS, end of year                        $   635,446    $   651,261    $   638,406
                                                              ===========    ===========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements.
<PAGE>
             PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
             -------------------------------------------------------

                          Notes to Financial Statements
                          -----------------------------

                           December 31, 1997 and 1996
                           --------------------------

1)  ORGANIZATION:
    ------------

         Participating   Income   Properties   III  Limited   Partnership   (the
Partnership)  was  formed on July 9, 1990  under the  Delaware  Revised  Uniform
Limited  Partnership  Act to purchase new and existing  "Flying J Travel  Plaza"
facilities,  including land, buildings and equipment to be leased on a net basis
to  affiliates  of  Flying J Inc.  The  Partnership  has also  made a loan to an
affiliate of Flying J Inc. to provide  financing for a travel plaza building and
equipment (the  underlying  land is owned by the  Partnership  and leased to the
affiliate).  The  "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 general partner of the Partnership is FFCA Participating Management
Company  Limited  Partnership,  a  Delaware  limited  partnership  (the  General
Partner).  The  Partnership  will  expire  December  31,  2030,  or  sooner,  in
accordance with the terms of the Partnership agreement.

         Investors acquired units of assigned limited partnership  interest (the
limited  partnership  units)  in the  Partnership  from  FFCA/PIP  III  Investor
Services  Corporation  (the Initial  Limited  Partner),  a Delaware  corporation
wholly-owned by an affiliate of the General  Partner.  Holders of the units have
all of the  economic  benefits and  substantially  the same rights and powers of
limited partners; therefore, they are referred to herein as "limited partners."

         The Partnership agreement provides for allocation of profits and losses
and cash distributions among its partners as follows:

         Profits and Losses: Allocated 99% to the limited partners and 1% to the
         General Partner.

         Cash Distributions: All cash from operations, as defined, after payment
         of fees to the General Partner is allocated 99% to the limited partners
         and 1% to the General  Partner.  In addition to cash  distributed  from
         operations,   a  portion  of  the  limited  partners'  initial  capital
         contributions has been distributed as return of capital, therefore, the
         limited  partner  Adjusted  Capital  Contribution,  as  defined  in the
         Partnership agreement, at December 31, 1997 is $964.16 per unit.

         The following is a reconciliation  of net income to cash  distributions
from operations as defined in the Partnership agreement:

<TABLE>
<CAPTION>
                                                                 1997          1996          1995
                                                              ----------    ----------    ----------
<S>                                                           <C>           <C>           <C>
     Net income                                               $1,893,355    $1,891,905    $1,889,914
     Adjustment to reconcile net income to cash
        distributions declared:
           Depreciation                                          447,735       449,208       451,269
                                                              ----------    ----------    ----------

               Cash distributions declared from operations    $2,341,090    $2,341,113    $2,341,183
                                                              ==========    ==========    ==========
</TABLE>

2)  SIGNIFICANT ACCOUNTING POLICIES:
    -------------------------------

         Financial  Statements - The financial statements of the Partnership are
prepared on the accrual basis of  accounting.  The  preparation of the financial
statements in conformity with generally accepted accounting  principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial  statements and the reported
amounts of revenues and expenses during the
<PAGE>
reporting  period.  Although  management  believes its estimates are reasonable,
actual results could differ from those estimates.

         Cash and Cash  Equivalents  -  Investment  securities  that are  highly
liquid and have  maturities  of three months or less at the date of purchase are
classified as cash equivalents.  Cash equivalents include United States Treasury
securities of $451,567 and $474,865 at December 31, 1997 and 1996, respectively.
Short-term  investments  are  recorded  at cost  plus  accrued  interest,  which
approximates market value.

         Leases - The Partnership leases its property under long-term net leases
which are classified as operating  leases.  Rental revenue from operating leases
is recognized as it is earned.

         Depreciation  -  Depreciation   on  buildings  is  provided  using  the
straight-line method based upon an estimated useful life of 32 years.  Equipment
is depreciated  over an estimated  useful life of eight years,  assuming a 12.5%
salvage  value at the end of its useful life.  The cost of  properties  includes
miscellaneous acquisition and closing costs.

3)  PROPERTY SUBJECT TO OPERATING LEASES:
    ------------------------------------

         The following is an analysis of the Partnership's  investment, at cost,
in property  subject to operating leases by major class at December 31, 1997 and
1996:

                                                 1997            1996
                                             -----------     -----------
         Land                                $ 2,684,138     $ 2,684,138
         Buildings                            11,010,862      11,010,862
         Equipment                               947,838         947,838
                                             -----------     -----------
                                              14,642,838      14,642,838
         Less - Accumulated depreciation       2,496,576       2,048,841
                                             -----------     -----------

                                             $12,146,262     $12,593,997
                                             ===========     ===========

         Lease agreements provide for monthly base rentals equal to a percentage
of the property's cost. As additional  rent, the Partnership  receives a portion
of the operating  revenues of the lessee equal to a percentage of gross receipts
(participating rentals) from travel plaza facilities and fuel sales. The term of
the leases is eight  years for  equipment  and 20 years for land and  buildings.
Generally,  the lessee  has the option to  purchase  equipment  (at fair  market
value) at the end of the lease term and land and  buildings  (at the  greater of
fair  market  value or cost) at any time after the first ten years of the lease.
All Partnership property is leased to affiliates of Flying J Inc.

          Minimum  future  rentals  (excluding   participating   rentals)  under
noncancellable operating leases as of December 31, 1997, are as follows:

         Year Ending December 31,
         -----------------------
         1998                                 $ 1,579,000
         1999                                   1,579,000
         2000                                   1,579,000
         2001                                   1,579,000
         2002                                   1,579,000
         Thereafter                            15,148,000
                                              -----------

         Total minimum future rentals         $23,043,000
                                              ===========
<PAGE>
4)  MORTGAGE LOAN RECEIVABLE:
    ------------------------

         At December 31, 1997, the  Partnership had a first mortgage loan on the
building and  equipment of a  Partnership  travel  plaza  located in  Ehrenberg,
Arizona.  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. The cost of the mortgage for
Federal  income tax  purposes  is the same as the cost for  financial  reporting
purposes.

         The fair value of the first  mortgage loan is estimated by  discounting
the future cash flows using the  prevailing  interest rate at December 31, 1997,
and is lower than its carrying amount by $180,000.  Changes in the fair value of
the first mortgage loan do not result in the  realization or expenditure of cash
unless the loan is actually prepaid.

5)  INCOME TAXES:
    ------------

         The Partnership is not directly subject to income taxes;  rather,  each
partner is subject to income taxes on his distributable share of taxable income.
The Partnership tax returns and the amount of distributable  partnership profits
or losses are subject to examination by Federal and state taxing authorities. If
examinations  by  taxing   authorities   result  in  changes  to   distributable
partnership  profits or losses,  the tax  liabilities  of the partners  could be
changed accordingly.

         The following is a reconciliation of net income for financial reporting
purposes to income  reported for Federal income tax purposes for the years ended
December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                             1997             1996             1995
                                                         -----------      -----------      -----------
<S>                                                      <C>              <C>              <C>
         Net income for financial reporting purposes     $ 1,893,355      $ 1,891,905      $ 1,889,914
         Differences for tax purposes in:
            Depreciation                                     110,017           67,797           28,828
            Organization cost amortization and other          (7,901)         (10,719)         (11,552)
                                                         -----------      -----------      -----------
         Taxable income to partners                      $ 1,995,471      $ 1,948,983      $ 1,907,190
                                                         ===========      ===========      ===========
</TABLE>

For  Federal  income tax  reporting  purposes,  taxable  income to  partners  is
reported  on the  accrual  basis of  accounting  and is  classified  as ordinary
income.

         At December 31,  1997,  the tax bases of the  Partnership's  assets and
liabilities  exceed the amounts  recorded for  financial  reporting  purposes by
$230,299.  This difference  results  primarily from  differences in depreciation
methods and the treatment of property  acquisition costs for financial reporting
and tax reporting purposes.

6)  TRANSACTIONS WITH RELATED PARTIES:
    ---------------------------------

         Under the terms of the  Partnership  agreement,  the General Partner is
entitled to  compensation  for certain  services  performed in  connection  with
managing the affairs of the  Partnership.  During 1997, 1996 and 1995, fees paid
to the General Partner were as follows:
<TABLE>
<CAPTION>
                                                                    1997          1996          1995
                                                                  --------      --------      --------
<S>                                                               <C>           <C>           <C>
           Disbursable cash fee                                   $136,483      $104,960      $107,050
           Property management fee (4% of the
               Partnership's gross annual property revenues)       106,340       104,575       105,003
                                                                  --------      --------      --------

                                                                  $242,823      $209,535      $212,053
                                                                  ========      ========      ========
</TABLE>
<PAGE>
         The General Partner is entitled to a disbursable cash fee equal to nine
percent of all revenues  received by the Partnership less Partnership  operating
expenses, only to the extent the limited partners have received an annual return
of nine percent on their Adjusted Capital Contribution,  as defined. The General
Partner or its  affiliate  may also be  entitled to a  subordinated  real estate
disposition  fee and an  incentive  share of sale  proceeds,  as  defined in the
Partnership agreement.

         An affiliate of the General  Partner  incurs  expenses on behalf of the
Partnership for maintenance of the books and records and for computer,  investor
and  legal  services   performed  for  the   Partnership.   These  expenses  are
reimbursable in accordance with the Partnership  agreement and are less than the
amount  which  the  Partnership  would  have  paid to  independent  parties  for
comparable services.  The Partnership  reimbursed the affiliate $28,113 in 1997,
$22,689 in 1996 and $23,777 in 1995 for such expenses.

7) SUBSEQUENT EVENT - POSSIBLE SALE OF SUBSTANTIALLY ALL ASSETS:
   ------------------------------------------------------------

         On February 2, 1998,  the  Partnership  entered into a letter of intent
with Flying J. Inc. to sell  substantially all of the  Partnership's  assets for
cash of  approximately  $27 million.  The sale is subject to certain  conditions
specified in the letter of intent,  including the  negotiation  and execution of
definitive  sale and  financing  agreements  with  respect  to the assets of the
Partnership  and the  approval,  by vote,  of a majority of the limited  partner
interests.  In accordance with the partnership agreement,  sale of substantially
all of the assets will result in dissolution of the  partnership and liquidation
of remaining  Partnership assets, net of liabilities.  There can be no assurance
as to the final terms of the proposed  transaction,  that the conditions will be
satisfied or that the proposed transaction will be consummated.

         The negotiated  sales price of approximately  $27 million,  net of book
value of the assets to be sold,  would have resulted in an estimated  gain of $7
million had the proposed  sale taken place at December 31, 1997.  Subsequent  to
the proposed  asset sale and  conversion of other  Partnership  assets into cash
upon  liquidation,  a liquidating cash distribution will be made to investors in
accordance with the Partnership  agreement.  Had the sale (as proposed) occurred
at December 31, 1997, it is estimated  that the  liquidating  cash  distribution
would have been in the range of $980 to $1000 per limited  partnership unit. The
actual liquidating distribution to be received by investors will depend upon the
actual  date  and  terms of the sale and the  actual  costs of  liquidating  the
Partnership.
<PAGE>
                                                                    SCHEDULE III
                                                                     Page 1 of 2

             PARTICIPATION INCOME PROPERTIES III LIMITED PARTNERSHIP
             -------------------------------------------------------

              SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
              ----------------------------------------------------

                             AS OF DECEMBER 31, 1997
                             -----------------------
<TABLE>
<CAPTION>
                                              Initial Cost to Partnership and
                                             Gross Amount at December 31, 1997
                                   ------------------------------------------------------

    Travel Plaza Location             Land        Buildings      Equipment       Total
    ---------------------          ----------    -----------     ---------    -----------

<S>                 <C>            <C>           <C>             <C>          <C>
EHRENBERG,          ARIZONA        $1,250,000    $      --       $    --      $ 1,250,000
BAKERSFIELD,        CALIFORNIA        101,050      5,195,950       495,838      5,792,838
WYTHEVILLE,         VIRGINIA        1,333,088      5,814,912       452,000      7,600,000
                                   ----------    -----------     ---------    -----------

                       TOTAL       $2,684,138    $11,010,862     $ 947,838    $14,642,838
                                   ==========    ===========     =========    ===========

<CAPTION>
                                           Accumulated Depreciation
                                   -----------------------------------------
                                                                                    Date
    Travel Plaza Location           Buildings       Equipment       Total         Acquired
    ---------------------          -----------      ---------    -----------     ----------

<S>                 <C>            <C>              <C>          <C>             <C>
EHRENBERG,          ARIZONA        $      --        $    --      $      --       June  1993
BAKERSFIELD,        CALIFORNIA         811,867        288,968      1,100,835     Jan.  1993
WYTHEVILLE,         VIRGINIA         1,105,439        290,302      1,395,741     Dec.  1991
                                   -----------      ---------    -----------

                       TOTAL       $ 1,917,306      $ 579,270    $ 2,496,576
                                   ===========      =========    ===========
</TABLE>
<PAGE>
                                                                    SCHEDULE III
                                                                     Page 2 of 2

             PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
             -------------------------------------------------------

              SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
              ----------------------------------------------------

                             AS OF DECEMBER 31, 1997
                             -----------------------

NOTES:

(1)      There are no encumbrances on properties.

(2)      Cost for Federal  income tax purposes is the same as cost for financial
         reporting purposes.

(3)      All buildings and equipment are depreciated over estimated useful lives
         of 32 and eight years,  respectively.  The buildings and equipment were
         purchased as new properties.

(4)      Transactions  in real estate,  equipment and  accumulated  depreciation
         during 1997, 1996 and 1995 are summarized as follows:

                                                                 Accumulated
                                                   Cost          Depreciation
                                               ------------      ------------

         Balance, December 31, 1994            $ 14,642,838      $  1,148,364
              Depreciation expense                     --             451,269
                                               ------------      ------------

         Balance, December 31, 1995              14,642,838         1,599,633
              Depreciation expense                     --             449,208
                                               ------------      ------------

         Balance, December 31, 1996              14,642,838         2,048,841
              Depreciation expense                     --             447,735
                                               ------------      ------------

         Balance, December 31, 1997            $ 14,642,838      $  2,496,576
                                               ============      ============
<PAGE>
                              ARTHUR ANDERSEN LLP





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To FFCA/PIP III Investor Services Corporation:

We have audited the accompanying balance sheet of FFCA/PIP III INVESTOR SERVICES
CORPORATION  (a Delaware  corporation)  as of December 31, 1997.  This financial
statement is the responsibility of the Company's management.  Our responsibility
is to express an opinion on this financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material  misstatement.  An
audit includes examining,  on a test basis,  evidence supporting the amounts and
disclosures  in  the  balance  sheet.  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
audit provides a reasonable basis for our opinion.

In our opinion,  the balance sheet  referred to above  presents  fairly,  in all
material  respects,  the  financial  position of FFCA/PIP III Investor  Services
Corporation  as of December 31, 1997,  in  conformity  with  generally  accepted
accounting principles.




                                        Arthur Andersen LLP

Phoenix, Arizona,
 January 6, 1998.
<PAGE>
                   FFCA/PIP III INVESTOR SERVICES CORPORATION
                   ------------------------------------------

                        BALANCE SHEET - DECEMBER 31, 1997
                        ---------------------------------


                                     ASSETS

Cash                                                                        $100
Investment in Participating Income Properties III Limited
     Partnership, at cost                                                    100
                                                                            ----

                    Total Assets                                            $200
                                                                            ====

                                    LIABILITY

Payable to Parent (Note 2)                                                  $100
                                                                            ----

                              STOCKHOLDER'S EQUITY


Common Stock; $l par value; 100 shares authorized,
     issued and outstanding                                                  100
                                                                            ----

                    Liability and Stockholder's Equity                      $200
                                                                            ====

       The accompanying notes are an integral part of this balance sheet.
<PAGE>
                   FFCA/PIP III INVESTOR SERVICES CORPORATION
                   ------------------------------------------

                             NOTES TO BALANCE SHEET
                             ----------------------

                                DECEMBER 3l, l997
                                -----------------


(l) Operations:

           FFCA/PIP III Investor Services  Corporation (a Delaware  corporation)
(the  Corporation)  was incorporated on December 5, 1988, and amended on July 9,
l990 to act as the assignor limited partner in Participating  Income  Properties
III Limited Partnership (PIP III).

           The  assignor  limited  partner is the owner of record of the limited
partnership units of PIP III. All rights and powers of the Corporation have been
assigned to the holders,  who are the registered  and  beneficial  owners of the
units.  Other than to serve as assignor limited partner,  the Corporation has no
other  business  purpose and will not engage in any other  activity or incur any
debt.

(2) Related Parties:

           Morton H. Fleischer is the sole stockholder of the Corporation.
<PAGE>
                       PARTICIPATING INCOME PROPERTIES III
                               LIMITED PARTNERSHIP
                                       and
                   FFCA/PIP III INVESTOR SERVICES CORPORATION

                          ----------------------------

                                  Exhibit Index
                          ----------------------------

         The following is a complete list of exhibits filed as part of this Form
         10-K. For electronic filing purposes only, this report contains Exhibit
         27, the Financial  Data  Schedule.  Exhibit  numbers  correspond to the
         numbers in the Exhibit Table of Item 601 of Regulation S-K.

                                                                   Sequentially
                                            Exhibit                Numbered Page
                                            -------                -------------

                  99.      Annual Portfolio  Valuation of Cushman &
                           Wakefield as of December 31, 1997

                  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,   Commission   File
         No.0-20151, 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
                           Partner

                           The Certificate of  Incorporation of FFCA/PIP III                       3-B
                           Investor  Services  Corporation,  as  filed  with the
                           Secretary of State of 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  documents,  filed with the Securities
         and Exchange Commission with the Co-Registrants' Registration Statement
         on Form S-11, Registration No. 33-35868, is incorporated herein by this
         reference.

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