SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                    FORM 10-Q

                  Quarterly Report Under Section 13 or 15(d) of
                       The Securities Exchange Act of 1934



         For the Period ended September 30, 1998 Commission File 0-10134


                             SUPER 8 MOTELS III, LTD

             (Exact name of registrant as specified in its charter)


         CALIFORNIA                                       94-2664921
-------------------------------                      -------------------
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                        Identification No.)


2030 J Street
Sacramento, California                                       95814
--------------------------------------                    ----------
Address of principle executive offices                     Zip Code


Registrant's telephone number,
Including area code                                    (916) 442 - 9183

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.


Yes  XX     No __







<PAGE>


                             SUPER 8 MOTELS III, LTD

                       (A California Limited Partnership)

                                      INDEX


Financial Statements:                                                 PAGE

Balance Sheet - September 30, 1998 and December 31, 1997                2

Statement of Operations - Nine Months Ended
September 30, 1998 and 1997                                             3

Statement of Changes in Partners' Equity -
Nine Months Ended September 30, 1998 and 1997                           4

Statement of Cash Flows - Nine Months Ended
September 30, 1998 and 1997                                             5

Notes to Financial Statements                                           6

Management Discussion and Analysis                                    7 - 8

Other Information and Signatures                                      9 - 10
































<PAGE>















                            SUPER 8 MOTELS III, LTD.

                       (A California Limited Partnership)

                              FINANCIAL STATEMENTS

                           SEPTEMBER 30, 1998 AND 1997





































<PAGE>

                            Super 8 Motels III, Ltd.
                       (A California Limited Partnership)
                                  Balance Sheet
                    September 30, 1998 and December 31, 1997

                                                       9/30/98        12/31/97
                                                     -----------    -----------
                                     ASSETS
Current Assets:
   Cash and temporary investments                   $    383,080   $    362,215
   Accounts receivable                                    84,188        100,184
   Prepaid expenses                                       17,214          9,229
                                                     -----------    -----------
    Total current assets                                 484,482        471,628
                                                     -----------    -----------

Property and Equipment:
   Land                                                1,670,129      1,670,129
   Capital improvements                                   26,175         26,175
   Buildings                                           3,276,870      3,276,870
   Furniture and equipment                               804,870        782,439
                                                     -----------    -----------
                                                       5,778,044      5,755,613
   Accumulated depreciation                           (3,075,301)    (2,968,172)
                                                     -----------    -----------

    Property and equipment, net                        2,702,743      2,787,441
                                                     -----------    -----------

    Total Assets                                    $  3,187,225   $  3,259,069
                                                     ===========    ===========

                        LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
   Accounts payable and accrued liabilities         $    103,611        116,417
                                                     -----------    -----------
    Total current liabilities                            103,611        116,417
                                                     -----------    -----------

    Total liabilities                                    103,611        116,417
                                                     -----------    -----------

Contingent Liabilities (See Note 1)

Partners' Equity:
   General Partners                                       22,014         20,376
   Limited Partners (12,900 units authorized,
     5,941 units issued and outstanding)               3,061,600      3,122,276
                                                     -----------    -----------
    Total partners' equity                             3,083,614      3,142,652
                                                     -----------    -----------

Total Liabilities and Partners' Equity              $  3,187,225   $  3,259,069
                                                     ===========    ===========

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

                                      - 2 -
<PAGE>
                            Super 8 Motels III, Ltd.
                       (A California Limited Partnership)
                             Statement of Operations
             For the Nine Months Ending September 30, 1998 and 1997

                              Three Months  Nine Months Three Months Nine Months
                                  Ended        Ended        Ended        Ended
                                 9/30/98      9/30/98      9/30/97      9/30/97
                               ----------   ----------   ----------   ----------

Income:
 Guest room                   $   416,090  $ 1,230,379  $   407,133  $ 1,236,746
 Telephone and vending              8,055       21,381        9,360       25,704
 Interest                           2,528        8,211        2,964        6,753
 Other                              6,946        9,411          821        5,783
                               ----------   ----------   ----------   ----------
  Total Income                    433,619    1,269,382      420,278    1,274,986
                               ----------   ----------   ----------   ----------

Expenses:
 Motel operating expenses
  (Note 2)                        335,329      895,786      307,710      877,176
 General and administrative        19,177       39,977       11,646       44,273
 Depreciation and amortization     35,715      107,129       37,245      114,487
 Property management fees          21,270       62,740       20,866       63,257
                               ----------   ----------   ----------   ----------
  Total Expenses                  411,491    1,105,632      377,467    1,099,193
                               ----------   ----------   ----------   ----------

 Net Income (Loss)            $    22,128  $   163,750  $    42,811  $   175,793
                               ==========   ==========   ==========   ==========

Net Income (Loss) Allocable
 to General Partners                 $221       $1,638         $428       $1,758
                               ==========   ==========   ==========   ==========

Net Income (Loss) Allocable
 to Limited Partners              $21,907     $162,112      $42,383     $174,035
                               ==========   ==========   ==========   ==========

Net Income (Loss)
 per Partnership Unit               $3.69       $27.29        $7.13       $29.29
                               ==========   ==========   ==========   ==========

Distribution to Limited Partners
 per Partnership Unit              $12.50       $37.50       $12.50       $12.50
                               ==========   ==========   ==========   ==========








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


                                      - 3 -
<PAGE>
                            Super 8 Motels III, Ltd.
                       (A California Limited Partnership)
                          Statement of Partners' Equity
             For the Nine Months Ending September 30, 1998 and 1997


                                                          1998          1997
                                                       ----------    ----------
General Partners:
 Balance at beginning of year                         $    20,376   $    19,205
 Net income (loss)                                          1,638         1,758
                                                       ----------    ----------
  Balance at end of period                                 22,014        20,963
                                                       ----------    ----------


Limited Partners:
 Balance at beginning of year                           3,122,276     3,154,879
 Net income (loss)                                        162,112       174,035
 Less: Cash distributions                                (222,788)      (74,263)
                                                       ----------    ----------
  Balance at end of period                              3,061,600     3,254,651
                                                       ----------    ----------

  Total balance at end of period                      $ 3,083,614   $ 3,275,614
                                                       ==========    ==========






























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

                                      - 4 -
<PAGE>
                            Super 8 Motels III, Ltd.
                       (A California Limited Partnership)
                             Statement of Cash Flows
             For the Nine Months Ending September 30, 1998 and 1997

                                                          1998          1997
                                                       ----------    ----------
Cash Flows From Operating Activities:
  Received from motel revenues                        $ 1,277,167   $ 1,241,612
  Expended for motel operations
   and general and administrative expenses             (1,019,294)     (965,972)
  Interest received                                         8,211         6,753
                                                       ----------    ----------
    Net cash provided (used) by operating activities      266,084       282,393
                                                       ----------    ----------

Cash Flows From Investing Activities:
  Purchases of property and equipment                     (22,431)      (28,563)
  Proceeds from sale of equipment                             -             120
                                                       ----------    ----------
    Net cash provided (used) by investing activities      (22,431)      (28,443)
                                                       ----------    ----------

Cash Flows From Financing Activities:
  Distributions paid to Limited Partners                 (222,788)      (74,263)
                                                       ----------    ----------
    Net cash provided (used) by financing activities     (222,788)      (74,263)
                                                       ----------    ----------

    Net increase (decrease) in cash
      and temporary investments                            20,865       179,687

Cash and temporary investments:
  Beginning of year                                       362,215       254,782
                                                       ----------    ----------
  End of period                                       $   383,080   $   434,469
                                                       ==========    ==========

Reconciliation of Net Income to Net Cash Provided by Operating Activities:

   Net income (loss)                                  $   163,750   $   175,793
                                                       ----------    ----------
   Adjustments  to  reconcile  net  income  to net cash  provided  by  operating
    activities:
     Depreciation and amortization                        107,129       114,487
     Gain on disposition of property                          -            (120)
     (Increase) decrease in accounts receivable            15,996       (26,621)
     (Increase) decrease in prepaid expenses               (7,985)       (6,595)
     Increase (decrease) in accounts payable
      and accrued liabilities                             (12,806)       25,449
                                                       ----------    ----------
        Total adjustments                                 102,334       106,600
                                                       ----------    ----------

        Net cash provided by operating activities     $   266,084   $   282,393
                                                       ==========    ==========
    The accompanying notes are an integral part of the financial statements.

                                      - 5 -
<PAGE>
                            Super 8 Motels III, Ltd.
                       (A California Limited Partnership)
                          Notes to Financial Statements
                           September 30, 1998 and 1997

Note 1:
The attached interim financial  statements include all adjustments which are, in
the opinion of management,  necessary to a fair statement of the results for the
period presented.

Users  of  these  interim  financial  statements  should  refer  to the  audited
financial  statements  for the year  ended  December  31,  1997  for a  complete
disclosure  of  significant  accounting  policies and practices and other detail
necessary for a fair presentation of the financial statements.

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

In accordance  with the  partnership  agreement,  the following  information  is
presented  related to fees paid or accrued to the General  Partner or affiliates
for the period.

          Property Management Fees                  $62,740
          Franchise Fees                            $24,608

Note 2:
The following table summarizes the major components of motel operating  expenses
for the periods reported:
                             Three Months  Nine Months Three Months  Nine Months
                                 Ended        Ended        Ended        Ended
                                9/30/98      9/30/98      9/30/97      9/30/97
                              ----------   ----------   ----------   ----------
Salaries and related costs   $   116,000  $   348,468  $   116,033  $   342,723
Franchise and advertising         20,804       61,519       20,357       61,837
Utilities                         40,802       84,801       38,135       87,993
Allocated costs,
 mainly indirect salaries         49,964      147,481       43,878      132,302
Maintenance, repairs &
 replacements                     46,852       83,816       30,422       79,614
Property taxes                    14,549       43,341       14,663       43,609
Property insurance                 7,777       23,873        7,181       25,249
Other operating expenses          38,581      102,487       37,041      103,849
                              ----------   ----------   ----------   ----------
Total motel operating
 expenses                    $   335,329  $   895,786  $   307,710  $   877,176
                              ==========   ==========   ==========   ==========

There are certain administrative  expenses allocated between the Partnership and
other  partnerships  managed by the General  Partner and its  affiliates.  These
expenses,  which are based on usage,  are telephone,  data  processing,  rent of
administrative office and administrative salaries.  Management believes that the
methods used to allocate shared administrative expenses are accurate.

The following  additional material  contingencies are required to be restated in
interim reports under federal securities law: None.

                                      - 6 -
<PAGE>
                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                       MANAGEMENT DISCUSSION AND ANALYSIS
                 OF FINANCIAL CONDITION AND RESULTS OF OPERATION
                               SEPTEMBER 30, 1998

LIQUIDITY AND CAPITAL RESOURCES

         The  Partnership's  current  assets  of  $484,482  exceed  its  current
liabilities of $103,611 by $380,871.  This excess of current assets over current
liabilities  constitutes an operating  reserve that is greater than the $297,050
operating reserve requirement in the Partnership Agreement.

         The  Partnership  has no major  commitments  for capital  expenditures.
During the nine months  ended  September  30,  1998,  the  Partnership  expended
$66,103  in such  expenditures  which is equal  to 5.4% of guest  room  revenue.
Included in that amount was $17,320 for replacement guest room carpets,  $18,917
in roof repairs, $5,264 for pool repairs and $4,341 for replacement lamps.

RESULTS OF OPERATIONS

         The  following is a  comparison  of the first nine months of the fiscal
year ending  December 31, 1998 with the  corresponding  period of the  preceding
fiscal year.

         Total revenues  decreased $5,604 (or 0.4%) for the nine month period as
compared to the previous fiscal year. The decrease in total revenue was due to a
$6,367 (or 0.5%) decrease in room revenue.  Motel occupancy  decreased  slightly
from 72.1% in 1997 to 71.8% in 1998 and the  average  room rate  decreased  from
$36.73 in 1997 to $36.68 in 1998.  The  decrease  was due to a reduction  in the
corporate business market segment at the San Bernardino motel.

         The Partnership's  expenses  increased by $6,439 or 0.6%.  Minimum wage
requirements  were the cause of the salaries and wages cost  increases.  Repairs
and maintenance expenses increased due to the requirements for meeting the Super
8  inspection  program   requirements.   Allocated  expenses  increased  due  to
additional legal expenses related to the proposed sale of the motels.

FUTURE TRENDS

         The General Partners expect that overall  occupancy for the fiscal year
ending  December  31,  1998 will be no greater or the same as that  achieved  in
1997.  The General  Partners  expect income for the current fiscal year to be no
greater  than the  previous  fiscal  year.  Expenses  are  subject  to both cost
inflation and to the deferred  maintenance  associated  with the effects of high
occupancy  in previous  years.  The net effect  should be net income equal to or
slightly less than the previous fiscal year result.

         As discussed in more detail in the  following  section  labeled  "Legal
Proceedings,"  the General Partners have agreed to offer the motels for sale and
to present  any offer that equal or exceeds 75% of the  appraised  value for the
approval of the Limited Partners.





                                      - 7 -
<PAGE>


                            SUPER 8 MOTELS III, LTD.
                       (A California Limited Partnership)
                       MANAGEMENT DISCUSSION AND ANALYSIS
                 OF FINANCIAL CONDITION AND RESULTS OF OPERATION
                         SEPTEMBER 30, 1998 (Continued)

         In 1996 the computers used by the  Partnership at the Managing  General
Partner's  offices in Sacramento  were  updated.  In the process of updating its
hardware and software,  the Managing  General  Partner  eliminated any potential
Year 2000  problem  with  respect to such  computers.  Similarly,  the  Managing
General  Partner does not  anticipate  any  material  Year 2000 problem with the
computers  in  use  at  the  motels.   The  Managing  General  Partner  has  not
investigated and does not know whether any Year 2000 problems may arise from its
third party vendors.  Because the motels are "budget" motels,  the Partnership's
most  significant  vendors are its utility  providers  and banks.  To the extent
banking services,  utility services and other goods and services are unavailable
as a result of Year 2000 problems  with the computer  systems of such vendors or
otherwise,  the  ability of the  Partnership  to conduct  business at its motels
would be compromised. No contingency plans have been developed in this regard.

         In the opinion of management,  these financial  statements  reflect all
adjustments  which were necessary to a fair statement of results for the interim
periods presented. All adjustments are of a normal recurring nature.

































                                      - 8 -
<PAGE>



                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

         On October 27, 1997 a complaint was filed in the United States District
Court,  Eastern  District of California by the registrant,  the Managing General
Partner, and four other limited partnerships (together with the registrant,  the
"Partnerships")  as to which the  Managing  General  Partner  serves as  general
partner (i.e.,  Super 8 Motels,  Ltd.,  Super 8 Motels II, Ltd., Super 8 Economy
Lodging IV, Ltd. and Famous Host Lodging V, L.P.), as plaintiffs.  The complaint
named as defendants  Everest/Madison  Investors, LLC, Everest Lodging Investors,
LLC, Everest Properties, LLC, Everest Partners, LLC, Everest Properties II, LLC,
Everest  Properties,  Inc., W. Robert  Kohorst,  David I. Lesser,  The Blackacre
Capital Group,  L.P.,  Blackacre Capital  Management  Corp.,  Jeffrey B. Citron,
Ronald J.  Kravit,  and  Stephen P.  Enquist ( the  "Everest  Defendants").  The
factual basis underlying the plaintiffs'  causes of actions  pertained to tender
offers  directed  by  certain  of the  defendants  to  limited  partners  of the
Partnerships,  and to  indications of interest made by certain of the defendants
in purchasing  the property of the  Partnerships.  The  complaint  requested the
following  relief:  (i) a declaration  that each of the  defendants had violated
Sections  13(d),  14(d) and 14(e) of the  Securities  Exchange  Act of 1934 (the
"Exchange Act"), and the rules and regulations promulgated by the Securities and
Exchange  Commission  thereunder;   (ii)  a  declaration  that  certain  of  the
defendants  had  violated  Section  15(a) of the  Exchange Act and the rules and
regulations thereunder; (iii) an order permanently enjoining the defendants from
(a)  soliciting  tenders  of  or  accepting  for  purchase   securities  of  the
Partnerships,  (b)  exercising  any voting  rights  attendant to the  securities
already acquired, (c) soliciting proxies, and (d) violating Sections 13 or 14 of
the Exchange Act or the rules and regulations  promulgated  thereunder;  (iv) an
order enjoining  certain of the defendants  from violating  Section 15(a) of the
Exchange Act and the rules and regulations promulgated thereunder;  (v) an order
directing  certain of the defendants to offer to each person who sold securities
to such  defendants the right to rescind such sale; and (vi) a declaration  that
the  Partnerships  need not provide to the defendants a list of limited partners
in the Partnerships or any other information  respecting the Partnerships  which
is not publicly available.

         On October 28, 1997 a complaint was filed in the Superior  Court of the
State of California,  Sacramento  County by Everest Lodging  Investors,  LLC and
Everest/Madison  Investors,  LLC, as plaintiffs,  against  Philip B.  Grotewohl,
Grotewohl Management Services,  Inc., Kenneth M. Sanders,  Robert J. Dana, Borel
Associates,  and BWC  Incorporated,  as  defendants,  and the  Partnerships,  as
nominal defendants.  The factual basis underlying the causes of action pertained
to the  receipt  by the  defendants  of  franchise  fees  and  reimbursement  of
expenses,  the  indications of interest made by the plaintiffs in purchasing the
properties of the nominal defendants,  and the alleged refusal of the defendants
to provide  information  required by the terms of the Partnerships'  partnership
agreements and California law. The complaint requested the following relief: (i)
a  declaration  that the action has a proper  derivative  action;  (ii) an order
requiring the defendants to discharge their fiduciary duties to the Partnerships
and to enjoin them from breaching their fiduciary duties;  (iii) disgorgement of
certain profits; (iv) appointment of a receiver; and (v) an award for damages in
an amount to be determined.


                                      - 9 -
<PAGE>



                     PART II. OTHER INFORMATION (Continued)


         On February 20, 1998, the parties  entered into a settlement  agreement
and both of the above  complaints were  dismissed.  Pursuant to the terms of the
settlement  agreement,  among other  things,  the General  Partner has agreed to
proceed with the marketing for sale of the properties of the Partnerships, if by
June 30,  1998,  it receives an offer to purchase one or more  properties  for a
cash price equal to 75% or more of the appraised value. In addition, the General
Partner has agreed to submit the offer for  approval to the limited  partners as
required by the  partnership  agreements and applicable law. The General Partner
has also  agreed  that upon the sale of one or more  properties,  to  distribute
promptly  the proceeds of the sale after  payment of payables  and  retention of
reserves  to pay  anticipated  expenses.  The Everest  Defendants  agreed not to
generally  solicit the acquisition of any additional  units of the  Partnerships
without first filing  necessary  documents  with the SEC. Under the terms of the
settlement  agreement,  the  Partnerships  have agreed to reimburse  the Everest
Defendants for certain costs not to exceed  $60,000,  to be allocated  among the
Partnerships.  Of this amount,  the Partnership will pay  approximately  $12,000
during the year covered by this report.

Item 2.  Changes in Securities

            None

Item 3.  Defaults upon Senior Securities

            None

Item 4.  Submission of Matter to the Vote of Security Holders

            None

Item 5.  Other Information

            See Notes to Financial Statements

Item 6.  Exhibits and Reports on Form 8-K

            None















                                     - 10 -
<PAGE>





                                   SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.





                                            SUPER 8 MOTELS, III Ltd.

11-14-98                                By /S/ Philip B. Grotewohl
--------                                   --------------------------------
  Date                                     Philip B. Grotewohl,
                                           Chairman of Grotewohl Management
                                           Services, Inc.,
                                           Managing General Partner

11-14-98                                By /S/ Philip B. Grotewohl
--------                                   --------------------------------
  Date                                     Philip B. Grotewohl,
                                           Chief executive officer,
                                           chief financial officer,
                                           chief accounting officer
                                           and sole director of
                                           Grotewohl Management Services, Inc.,
                                           Managing General Partner