FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                 For the quarterly period ended March 31, 2002
   --------------------------------------------------------------------------

                                       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
                                     0-16850
                     ---------------------------------------


                            CNL Income Fund III, Ltd.
-----------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


            Florida                                           59-2809460
---------------------------------                   ---------------------------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                             Identification No.)


   450 South Orange Avenue
      Orlando, Florida                                          32801
---------------------------------                   --------------------------
(Address of principal executive offices)                     (Zip Code)


Registrant's telephone number
(including area code)                                      (407) 540-2000
                                                    --------------------------


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by  Sections  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 X No _____



<PAGE>


                                    CONTENTS




                                                                       Page
Part I.

     Item 1.   Financial Statements:

                   Condensed Balance Sheets                             1

                   Condensed Statements of Income                       2

                   Condensed Statements of Partners' Capital            3

                   Condensed Statements of Cash Flows                   4

                   Notes to Condensed Financial Statements              5-8

     Item 2.   Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                  9-13

     Item 3.   Quantitative and Qualitative Disclosures About
                   Market Risk                                          13


Part II.

     Other Information                                                  14-15





<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>


                                                                              March 31,             December 31,
                                                                                 2002                   2001
                                                                          -------------------    -------------------

 <c>
                              ASSETS

  Land and buildings on operating leases, net                                    $ 8,807,378            $ 8,374,746
  Net investment in direct financing leases                                          276,500                772,309
  Real estate held for sale                                                          901,317                950,000
  Investment in joint ventures                                                     2,083,421              2,196,170
  Cash and cash equivalents                                                        1,255,696              1,242,931
  Receivables, less allowance for doubtful accounts
      of $36,441 and $28,216, respectively                                             8,183                 27,528
  Due from related parties                                                               515                  9,754
  Accrued rental income                                                               79,914                 74,755
  Other assets                                                                        41,032                 31,923
                                                                          -------------------    -------------------

                                                                                $ 13,453,956           $ 13,680,116
                                                                          ===================    ===================

                 LIABILITIES AND PARTNERS' CAPITAL

  Accounts payable                                                                $   16,933             $   12,786
  Real estate taxes payable                                                            2,060                 12,050
  Distributions payable                                                              975,000                437,500
  Due to related parties                                                             140,513                128,985
  Rents paid in advance                                                               14,438                  3,943
                                                                          -------------------    -------------------
      Total liabilities                                                            1,148,944                595,264

  Minority interest                                                                  126,584                127,430

  Partners' capital                                                               12,178,428             12,957,422
                                                                          -------------------    -------------------

                                                                                $ 13,453,956           $ 13,680,116
                                                                          ===================    ===================

</TABLE>
           See accompanying notes to condensed financial statements.



<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                         CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                                          Quarter Ended
                                                                                            March 31,
                                                                                     2002                2001
                                                                                ---------------     ---------------

 <c>
Revenues:
    Rental income from operating leases                                              $ 289,362           $ 335,563
    Earned income from direct financing leases                                          19,767              31,140
    Contingent rental income                                                            27,020              10,381
    Interest and other income                                                            5,891              10,205
                                                                                ---------------     ---------------
                                                                                       342,040             387,289
                                                                                ---------------     ---------------

Expenses:
    General operating and administrative                                                50,282              71,678
    Professional services                                                               11,817              10,307
    Real estate taxes                                                                      366                  --
    State and other taxes                                                               21,030              10,627
    Depreciation                                                                        57,820              64,666
                                                                                ---------------     ---------------
                                                                                       141,315             157,278
                                                                                ---------------     ---------------
Income Before Minority Interest in Income of
    Consolidated Joint Venture and Equity in Earnings
    of Unconsolidated Joint Ventures                                                   200,725             230,011

Minority Interest in Income of Consolidated
    Joint Venture                                                                       (4,203 )            (4,279 )

Equity in Earnings of Unconsolidated Joint Ventures                                     50,630              49,221
                                                                                ---------------     ---------------

Income from Continuing Operations                                                      247,152             274,953
                                                                                ---------------     ---------------

Discontinued Operations (Note 3):
    Income (loss) from discontinued operations, net                                     (4,790 )            33,960
    Loss on disposal of discontinued operations, net                                   (46,356 )                --
                                                                                ---------------     ---------------
                                                                                       (51,146 )            33,960
                                                                                ---------------     ---------------

Net Income                                                                           $ 196,006           $ 308,913
                                                                                ===============     ===============

Income (Loss) per Limited Partner Unit
    Continuing operations                                                             $   4.94            $   5.50
    Discontinued operations                                                              (1.02 )              0.68
                                                                                ---------------     ---------------
                                                                                      $   3.92            $   6.18
                                                                                ===============     ===============

Weighted Average Number of Limited Partner
    Units Outstanding                                                                   50,000              50,000
                                                                                ===============     ===============
</TABLE>
           See accompanying notes to condensed financial statements.

<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                    CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>


                                                  Quarter Ended           Year Ended
                                                    March 31,            December 31,
                                                       2002                  2001
                                                -------------------    ------------------

 <c>
General partners:
    Beginning balance                                  $   371,371            $  371,371
    Net income                                                  --                    --
                                                -------------------    ------------------
                                                           371,371               371,371
                                                -------------------    ------------------

Limited partners:
    Beginning balance                                   12,586,051            14,068,004
    Net income                                             196,006               918,047
    Distributions ($19.50 and $48.00 per
       limited partner unit, respectively)                (975,000 )          (2,400,000 )
                                                -------------------    ------------------
                                                        11,807,057            12,586,051
                                                -------------------    ------------------

Total partners' capital                               $ 12,178,428          $ 12,957,422
                                                ===================    ==================
</TABLE>
           See accompanying notes to condensed financial statements.



<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                    Quarter Ended
                                                                                      March 31,
                                                                               2002                2001
                                                                          ----------------     --------------

 <c>
Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                                   $ 348,793          $ 418,862
                                                                          ----------------     --------------

    Cash Flows from Investing Activities:
       Liquidating distribution from joint venture                                106,521                 --
                                                                          ----------------     --------------
              Net cash provided by investing activities                           106,521                 --
                                                                          ----------------     --------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                                         (437,500 )         (437,500 )
       Distributions to holders of minority interests                              (5,049 )           (4,987 )
                                                                          ----------------     --------------
              Net cash used in financing activities                              (442,549 )         (442,487 )
                                                                          ----------------     --------------

Net Increase (Decrease) in Cash and Cash Equivalents                               12,765            (23,625 )

Cash and Cash Equivalents at Beginning of Quarter                               1,242,931            578,746
                                                                          ----------------     --------------

Cash and Cash Equivalents at End of Quarter                                    $1,255,696          $ 555,121
                                                                          ================     ==============

Supplemental Schedule of Non-Cash Financing
    Activities:

       Distributions declared and unpaid at end of
          quarter                                                               $ 975,000          $ 437,500
                                                                          ================     ==============
</TABLE>
           See accompanying notes to condensed financial statements.

<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                     Quarters Ended March 31, 2002 and 2001


   1.    Basis of Presentation:

         The accompanying  unaudited  condensed  financial  statements have been
         prepared in accordance  with the  instructions  to Form 10-Q and do not
         include  all  of the  information  and  note  disclosures  required  by
         generally  accepted  accounting  principles.  The financial  statements
         reflect all adjustments,  consisting of normal  recurring  adjustments,
         which are, in the opinion of management,  necessary to a fair statement
         of the results for the interim periods presented. Operating results for
         the quarter  ended March 31, 2002 may not be  indicative of the results
         that may be expected for the year ending December 31, 2002.  Amounts as
         of December 31, 2001,  included in the financial  statements  have been
         derived from audited financial statements as of that date.

         These unaudited financial statements should be read in conjunction with
         the financial statements and notes thereto included in Form 10-K of CNL
         Income Fund III, Ltd. (the  "Partnership")  for the year ended December
         31, 2001.

         The Partnership  accounts for its 69.07%  interest in Tuscawilla  Joint
         Venture using the consolidation  method.  Minority interests represents
         the minority joint venture partners'  proportionate share of the equity
         in  the  Partnership's  consolidated  joint  venture.  All  significant
         intercompany accounts and transactions have been eliminated.

         Effective  January  1,  2002,  the  Partnership  adopted  Statement  of
         Financial  Accounting  Standards No. 144 "Accounting for the Impairment
         or Disposal of  Long-Lived  Assets."  This  statement  requires  that a
         long-lived  asset be  tested  for  recoverability  whenever  events  or
         changes in  circumstances  indicate that its carrying amount may not be
         recoverable.   The  carrying  amount  of  a  long-lived  asset  is  not
         recoverable  if it  exceeds  the  sum of the  undiscounted  cash  flows
         expected to result from the use and eventual  disposition of the asset.
         The assessment is based on the carrying amount of the asset at the date
         it is tested for recoverability.  An impairment loss is recognized when
         the carrying amount of a long-lived asset exceeds its fair value. If an
         impairment is recognized,  the adjusted carrying amount of a long-lived
         asset is its new cost  basis.  The  statement  also  requires  that the
         results of  operations of a component of an entity that either has been
         disposed  of or is  classified  as  held  for  sale  be  reported  as a
         discontinued   operation  if  the  disposal   activity  was   initiated
         subsequent to the adoption of the Standard.

2.       Reclassification:

         Certain  items in the  prior  year's  financial  statements  have  been
         reclassified to conform to 2002 presentation.  These  reclassifications
         had no effect on total partners' capital or net income. CNL INCOME FUND
         III, LTD. (A Florida Limited  Partnership) NOTES TO CONDENSED FINANCIAL
         STATEMENTS Quarters Ended March 31, 2002 and 2001


3.       Discontinued Operations:

         During the quarter  ended March 31, 2002,  Houlihan's,  Inc.  filed for
         bankruptcy and rejected the one lease it had with the Partnership. As a
         result,  the Partnership is seeking a purchaser for the vacant property
         and has  reclassified  the asset from land and  building  on  operating
         leases  to real  estate  held for  sale.  The  reclassified  asset  was
         recorded at the lower of its carrying  amount or fair value,  less cost
         to  sell,  which  resulted  in  a  loss  on  disposal  of  discontinued
         operations  of $46,356  during the  quarter  ended March 31,  2002.  In
         addition,  the  Partnership  stopped  recording  depreciation  once the
         property  was  placed  up for  sale.  The  financial  results  for this
         property are reflected as Discontinued  Operations in the  accompanying
         financial statements.

         The operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>

                                                                Quarter Ended March 31,
                                                                2002               2001
                                                           ----------------   ---------------

 <c>
              Rental revenues                                    $  11,169         $  38,829
              Expenses                                             (15,959 )          (4,869 )
              Loss on disposal of assets                           (46,356 )              --
                                                           ----------------   ---------------
              Income (loss) from discontinued operations        $  (51,146 )       $  33,960
                                                           ----------------   ---------------
</TABLE>

4.       Net Investment in Direct Financing Leases:

         In January 2002, Paragon of Michigan,  Inc., the tenant of the property
         in Canton Township,  Ohio, filed for bankruptcy,  and in February 2002,
         rejected the one lease it had with the  Partnership.  As a result,  the
         Partnership  reclassified  the  asset  from net  investment  in  direct
         financing  leases  to  land  and  buildings  on  operating  leases.  In
         accordance  with  Statement of Financial  Accounting  Standards No. 13,
         "Accounting  for Leases,"  the  Partnership  recorded the  reclassified
         asset at the lower of original  cost,  present  fair value,  or present
         carrying  amount.  No loss on termination of direct financing lease was
         recorded.


<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                     Quarters Ended March 31, 2002 and 2001


5.       Investment in Joint Ventures:

         In January 2002,  Titusville  Joint Venture,  in which the  Partnership
         owned a 73.4% interest, sold its property,  which had been vacant since
         1997,  to an unrelated  third party for $180,000 and received net sales
         proceeds of approximately $165,600 resulting in a gain of approximately
         $4,900 to the joint  venture.  The  Partnership  and the joint  venture
         partner  dissolved  the  joint  venture  in  accordance  with the joint
         venture agreement and the Partnership received  approximately  $106,500
         representing  its pro rata  share of the  joint  venture's  liquidating
         distribution.  No gain or loss was recorded relating to the dissolution
         of the joint venture.

         As of March  31,  2002,  RTO Joint  Venture,  and the  Partnership  and
         affiliates,  as  tenants-in-common  in four separate  tenancy-in-common
         arrangements,  each owned and  leased  one  property  to  operators  of
         national fast-food or family-style restaurants.  The following presents
         the joint ventures' condensed financial information at:
<TABLE>
<CAPTION>

                                                                       March 31, 2002          December 31,
                                                                                                   2001
                                                                      -----------------      -----------------

 <c>
           Land and buildings on operating leases, net                     $ 4,218,421            $ 4,393,909
           Net investment in direct financing leases                         3,340,527              3,347,560
           Cash                                                                 10,523                  9,669
           Receivables                                                               -                 67,370
           Accrued rental income                                               338,452                316,362
           Other assets                                                          1,458                  2,590
           Liabilities                                                          27,688                 38,192
           Partners' capital                                                 7,881,693              8,099,268

                                                                              Quarter Ended March 31,
                                                                            2002                   2001
                                                                      -----------------      -----------------

           Revenues                                                            211,103                213,177
           Expenses                                                             24,290                 21,790
           Net income                                                          186,813                191,387

</TABLE>

         The  Partnership  recognized  income of $50,630 and $49,221  during the
         quarters ended March 31, 2002 and 2001, respectively,  from these joint
         ventures.


<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                     Quarters Ended March 31, 2002 and 2001


6.       Concentration of Credit Risk:

         The  following  schedule  presents  total rental and earned income from
         individual   lessees,   each   representing   more   than  10%  of  the
         Partnership's   total   rental  and  earned   income   (including   the
         Partnership's share of rental and earned income from joint ventures and
         the properties held as tenants-in-common with affiliates of the general
         partners) for each of the quarters ended March 31:

                                          2002                2001
                                     ---------------     ---------------

          IHOP Properties, Inc.        $ 69,922            $ 70,064
          Golden Corral Corp.            42,433              80,509

         In addition,  the following  schedule  presents total rental and earned
         income from individual  restaurant chains,  each representing more than
         10% of the Partnership's  total rental and earned income (including the
         Partnership's share of rental and earned income from joint ventures and
         the properties held as tenants-in-common with affiliates of the general
         partners) for each of the quarters ended March 31:

                                             2002               2001
                                          -------------     -------------

             Golden Corral Family
                 Steakhouse Restaurants       $ 69,927         $ 108,004
             IHOP                               69,922            70,064
             KFC                                70,971            62,566
             Pizza Hut                          48,582               N/A
             Taco Bell                          43,167               N/A

         The  information   denoted  by  N/A  indicates  that  for  each  period
         presented,   the  chains  did  not  represent  more  than  10%  of  the
         Partnership's total rental and earned income.

         Although  the  Partnership's   properties  are  geographically  diverse
         throughout the United States and the  Partnership's  lessees  operate a
         variety of restaurant concepts,  default by any one of these lessees or
         restaurant chains could significantly  impact the results of operations
         of the  Partnership  if the  Partnership  is not able to  re-lease  the
         properties in a timely manner.




<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         CNL Income Fund III,  Ltd.  (the  "Partnership")  is a Florida  limited
partnership  that was  organized  on June 1, 1987 to  acquire  for cash,  either
directly or through  joint  venture  arrangements,  both newly  constructed  and
existing restaurant  properties,  as well as land upon which restaurants were to
be constructed  (the  "Properties"),  which are leased primarily to operators of
selected national and regional fast-food restaurant chains. The leases generally
are  triple-net  leases,  with  the  lessees  responsible  for all  repairs  and
maintenance,  property taxes, insurance and utilities. As of March 31, 2002, the
Partnership  owned 24 Properties,  either  directly or indirectly  through joint
venture or tenancy in common arrangements.

Capital Resources

         The  Partnership's  primary  source of capital for the  quarters  ended
March 31, 2002 and 2001, was cash from operations  (which includes cash received
from tenants,  distributions from joint ventures,  and interest and other income
received,  less cash paid for expenses).  Cash from  operations was $348,793 and
$418,862  for the  quarters  ended  March 31, 2002 and 2001,  respectively.  The
decrease in cash from  operations  for the  quarter  ended  March 31,  2002,  as
compared to the quarter  ended March 31, 2001 was  primarily a result of changes
in the Partnership's income and expenses, as described below.

         Other  sources and uses of capital  included the  following  during the
quarter ended March 31, 2002.

         In January 2002,  Titusville  Joint Venture,  in which the  Partnership
owned a 73.40% interest, sold its Property, which had been vacant since 1997, to
an  unrelated  third  party for  $180,000  and  received  net sales  proceeds of
approximately  $165,600 resulting in a gain of approximately $4,900 to the joint
venture.  The  Partnership  and the joint  venture  partner  dissolved the joint
venture in  accordance  with the joint  venture  agreement  and the  Partnership
received  approximately  $106,500  representing  its pro rata share of the joint
venture's liquidating distribution. No gain or loss was recorded relating to the
dissolution of the joint venture.  The  Partnership  distributed the liquidation
proceeds as a special distribution to the limited partners, as described below.

         Currently,  rental income from the Partnership's Properties and any net
sales  proceeds  from the  sales of  Properties  are  invested  in money  market
accounts or other short-term,  highly liquid  investments such as demand deposit
accounts at commercial banks,  money market accounts and certificates of deposit
with less than a 90-day  maturity date,  pending the  Partnership's  use of such
funds to pay Partnership  expenses or to make distributions to the partners.  At
March 31, 2002,  the  Partnership  had  $1,255,696  invested in such  short-term
investments, as compared to $1,242,931 at December 31, 2001. The funds remaining
at March 31, 2002, after payment  distributions and other  liabilities,  will be
used to meet the Partnership's working capital needs.



<PAGE>


Short Term Liquidity

         The Partnership's  short-term liquidity  requirements consist primarily
of the operating expenses of the Partnership.

         The Partnership's  investment strategy of acquiring Properties for cash
and  leasing  them under  triple-net  leases to  operators  who  generally  meet
specified financial  standards  minimizes the Partnership's  operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.

         The general  partners have the right,  but not the obligation,  to make
additional capital  contributions if they deem it appropriate in connection with
the operations of the Partnership.

         The Partnership  generally  distributes cash from operations  remaining
after the payment of operating  expenses of the Partnership,  to the extent that
the general partners  determine that such funds are available for  distribution.
Based on  current  and  anticipated  future  cash from  operations,  and for the
quarter ended March 31, 2002,  the net sales  proceeds from the 2001 sale of the
Property in Washington,  Illinois and the liquidating distribution received from
Titusville  Joint Venture,  the Partnership  declared  distributions  to limited
partners of $975,000  and  $437,500  for the  quarters  ended March 31, 2002 and
2001,  respectively.  This represents distributions of $19.50 and $8.75 per unit
for the quarters ended March 31, 2002 and 2001, respectively.  Distributions for
the quarter ended March 31, 2002 included a special  distribution of $600,000 as
a result of the distribution of the net sales proceeds from the 2001 sale of the
Property in Washington,  Illinois and the liquidating distribution received from
Titusville Joint Venture.  This special distribution was effectively a return of
a portion of the limited partners' investment,  although, in accordance with the
Partnership agreement, it was applied to the limited partner's unpaid cumulative
10% Preferred Return. As a result of the sale of several  Properties in 2002 and
2001,  the  Partnership's  total  revenue  was reduced and is expected to remain
reduced in subsequent periods, while the majority of the Partnership's operating
expenses remained and are expected to remain fixed. Therefore,  distributions of
net cash flow were adjusted  commencing during the quarter ended March 31, 2002.
No distributions  were made to the general partners for the quarters ended March
31,  2002 and 2001.  No amounts  distributed  to the  limited  partners  for the
quarters  ended March 31, 2002 and 2001 are  required to be or have been treated
by the  Partnership  as a return of capital  for  purposes  of  calculating  the
limited   partners'  return  on  their  adjusted  capital   contributions.   The
Partnership  intends to continue to make  distributions  of cash  available  for
distribution to the limited partners on a quarterly basis.

         Total liabilities of the Partnership,  including distributions payable,
increased to  $1,148,944  at March 31, 2002 from  $595,264 at December 31, 2001.
The  increase  in  liabilities  at  March  31,  2002  was  primarily  due to the
Partnership declaring a special distribution of $600,000 to the limited partners
at March 31, 2002, as described  above.  The general  partners  believe that the
Partnership  has  sufficient  cash on hand to meet its current  working  capital
needs.



<PAGE>


Long-Term Liquidity

         The  Partnership  has no long-term  debt or other  long-term  liquidity
requirements.

Results of Operations

         During the  quarter  ended  March 31,  2001,  the  Partnership  and its
consolidated   joint  venture  owned  and  leased  20  wholly  owned  Properties
(including  two  Properties  which were sold in 2001 and  excluding one Property
which was  classified as real estate held for sale) and during the quarter ended
March 31, 2002, the  Partnership  and its  consolidated  joint venture owned and
leased 18 wholly owned  Properties  (excluding one Property which was classified
as real  estate held for sale),  to  operators  of  fast-food  and  family-style
restaurant chains. In connection therewith,  during the quarters ended March 31,
2002 and 2001, the Partnership  earned $309,129 and $366,703,  respectively,  in
rental  income from  operating  leases and earned  income from direct  financing
leases from these  Properties.  Rental and earned  income  decreased  during the
quarter  ended March 31, 2002,  as compared to the quarter ended March 31, 2001,
as a result of the 2001 sales of two Properties.

         The decrease in rental and earned income during the quarter ended March
31, 2002,  as compared to the quarter ended March 31, 2001,  was also  partially
due to the fact that in January 2002, one of the Partnership's tenants,  Paragon
of Michigan,  Inc., filed for bankruptcy and in February 2002,  rejected the one
lease it had with the Partnership and ceased rental payments. As a result of the
rejected lease,  the Partnership  stopped  recording  rental revenue relating to
this Property.  The Partnership  will not recognize any rental and earned income
from this vacant  Property  until the  Property is  re-leased  or sold,  and the
proceeds are reinvested in an additional  Property.  The lost revenues resulting
from  the  rejected  lease  could  have an  adverse  effect  on the  results  of
operations  of the  Partnership  if the  Partnership  is unable to re-lease  the
Property  in a timely  manner.  The general  partners  are  currently  seeking a
replacement tenant or purchaser for the vacant Property.

         In  addition,  the  decrease  in rental  and earned  income  during the
quarter  ended March 31, 2002,  as compared to the quarter ended March 31, 2001,
was  partially  attributable  to the fact that  during  2001,  the tenant of the
Property in Montgomery,  Alabama experienced financial difficulties. As of March
31,  2002,  the  Partnership  has  continued  receiving  a portion of the rental
payments  relating to this lease.  The general  partners will continue to pursue
collection of past due rental amounts relating to this Property.

         During the quarters ended March 31, 2002 and 2001, the Partnership also
earned  $27,020 and $10,381,  respectively,  in contingent  rental  income.  The
increase in  contingent  rental  income was primarily a result of an increase in
gross sales of certain  restaurant  Properties with leases requiring the payment
of contingent rental income.

         During the quarter  ended March 31, 2002,  Houlihan's,  Inc.  filed for
bankruptcy,  ceased  rental  payments and rejected the one lease it had with the
Partnership.  As a result,  the general partners are seeking a purchaser for the
vacant  Property.  The Partnership  expects to use the proceeds from the sale to
reinvest in an income  producing  Property.  In  accordance  with  Statement  of
Financial  Accounting  Standards  No. 144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived Assets", the Partnership reclassified the asset from land
and building on operating  leases to real estate held for sale. The  Partnership
recorded  the  reclassified  asset at the lower of its  carrying  amount or fair
value, less cost to sell, which resulted in a loss on disposal from discontinued
operations  of $46,356  during the quarter  ended March 31,  2002.  In addition,
during the quarter  ended March 31,  2002,  the  Partnership  stopped  recording
depreciation upon placing the Property up for sale. The Partnership recognized a
net loss (rental  income less Property  related  expenses) of $51,146 during the
quarter ended March 31, 2002 and net income of $33,960, during the quarter ended
March 31,  2002,  respectively  relating to this  Property.  These  amounts were
reclassified to Discontinued Operations.

         For the quarters ended March 31, 2002 and 2001, the  Partnership  owned
and leased  three  Properties  indirectly  through  joint  venture  arrangements
(including  one Property  which had been vacant since 1997 and was sold in 2002)
and  four  Properties  as  tenants-in-common  with  affiliates  of  the  general
partners. In connection therewith,  during the quarters ended March 31, 2002 and
2001, the Partnership earned $50,630 and $49,221, respectively,  attributable to
net income recorded by these joint ventures.

         Operating expenses,  including  depreciation expense, were $141,315 and
$157,278  for the  quarters  ended  March 31, 2002 and 2001,  respectively.  The
decrease in  operating  expenses  during the quarter  ended March 31,  2002,  as
compared to the quarter ended March 31, 2001, was partially due to a decrease in
the costs incurred for administrative expenses for servicing the Partnership and
its Properties and a decrease in  depreciation  expense as a result of the sales
of two  Properties  during 2001. The decrease in operating  expenses  during the
quarter  ended March 31, 2002,  as compared to the quarter ended March 31, 2001,
was partially offset by the fact that the Partnership incurred certain expenses,
such as legal fees, real estate taxes,  insurance,  and maintenance  relating to
the vacant Property,  the lease for which was rejected,  as described above. The
general  partners  anticipate that the Partnership  will continue to incur these
expenses  related to the  vacant  Property  until  such time as the  Partnership
executes  a new  lease  for the  Property  or until  the  Partnership  sells the
Property and the sales  proceeds are reinvested in an additional  Property.  The
general partners are currently  seeking either a new tenant or purchaser for the
vacant  Property.  In addition,  the decrease in operating  expenses  during the
quarter ended March 31, 2002, was partially  offset by an increase in the amount
of state tax  expense  relating  to  certain  states  in which  the  Partnership
conducts business.

         Effective  January  1,  2002,  the  Partnership  adopted  Statement  of
Financial  Accounting  Standards  No.  144  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets." This statement requires that a long-lived asset
be tested  for  recoverability  whenever  events  or  changes  in  circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived  asset is not recoverable if it exceeds the sum of the undiscounted
cash flows  expected  to result  from the use and  eventual  disposition  of the
asset.  The assessment is based on the carrying  amount of the asset at the date
it is tested for  recoverability.  An  impairment  loss is  recognized  when the
carrying  amount of a long-lived  asset exceeds its fair value. If an impairment
is recognized,  the adjusted  carrying  amount of a long-lived  asset is its new
cost basis.  The  statement  also  requires  that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a  discontinued  operation if the disposal  activity was
initiated subsequent to the adoption of the Standard.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.


<PAGE>


                           PART II. OTHER INFORMATION


Item 1.       Legal Proceedings.   Inapplicable.
              -----------------

Item 2.       Changes in Securities.  Inapplicable.
              ---------------------

Item 3.       Defaults upon Senior Securities.  Inapplicable.
              -------------------------------

Item 4.       Submission of Matters to a Vote of Security Holders. Inapplicable.
              ---------------------------------------------------

Item 5.       Other Information.  Inapplicable.
              -----------------

Item 6.       Exhibits and Reports on Form 8-K.
              --------------------------------

              (a)  Exhibits

                    3.1     Certificate  of  Limited  Partnership  of CNL Income
                            Fund III, Ltd. (Included as Exhibit 3.1 to Amendment
                            No. 1 to the Registration  Statement No. 33-15374 on
                            Form S-11 and incorporated herein by reference.)

                    3.2     Amended and Restated  Agreement and  Certificate  of
                            Limited  Partnership  of CNL Income  Fund III,  Ltd.
                            (Included as Exhibit 3.2 to Form 10-K filed with the
                            Securities and Exchange Commission on April 5, 1993,
                            and incorporated herein by reference.)

                    4.1     Certificate  of  Limited  Partnership  of CNL Income
                            Fund III, Ltd. (Included as Exhibit 4.1 to Amendment
                            No. 1 to Registration Statement No. 33-15374 on Form
                            S-11 and incorporated herein by reference.)

                    4.2     Amended and Restated  Agreement and  Certificate  of
                            Limited  Partnership  of CNL Income  Fund III,  Ltd.
                            (Included as Exhibit 3.2 to Form 10-K filed with the
                            Securities and Exchange Commission on April 5, 1993,
                            and incorporated herein by reference.)

                    10.1    Property  Management  Agreement (Included as Exhibit
                            10.1 to Form  10-K  filed  with the  Securities  and
                            Exchange   Commission   on   April  5,   1993,   and
                            incorporated herein by reference.)

                    10.2    Assignment of Property Management Agreement from CNL
                            Investment Company to CNL Income Fund Advisors, Inc.
                            (Included  as  Exhibit  10.2 to Form 10-K filed with
                            the Securities and Exchange  Commission on March 30,
                            1995, and incorporated herein by reference.)

                    10.3    Assignment of Property Management Agreement from CNL
                            Income Fund  Advisors,  Inc.  to CNL Fund  Advisors,
                            Inc.  (Included  as Exhibit  10.3 to Form 10-K filed
                            with the Securities and Exchange Commission on April
                            1, 1996, and incorporated herein by reference.)

                    10.4    Assignment  of  Management  Agreement  from CNL Fund
                            Advisors, Inc. to CNL APF Partners, LP. (Included as
                            Exhibit 10.4 to Form 10-Q filed with the  Securities
                            and  Exchange  Commission  on August 10,  2001,  and
                            incorporated herein by reference.)

                    (b)     Reports on Form 8-K

                            No reports of Form 8-K were filed during the quarter
                            ended March 31, 2002.




<PAGE>




                                   SIGNATURES



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

         DATED this 1st day of May, 2002.


                                          CNL INCOME FUND III, LTD.

                                          By: CNL REALTY CORPORATION
                                              General Partner


                                              By:/s/ James M. Seneff, Jr.
                                                 ------------------------------
                                                 JAMES M. SENEFF, JR.
                                                 Chief Executive Officer
                                                 (Principal Executive Officer)


                                              By:/s/ Robert A. Bourne
                                                 ------------------------------
                                                 ROBERT A. BOURNE
                                                 President and Treasurer
                                                 (Principal Financial and
                                                 Accounting Officer)