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 June 30, 2004
--------------------------------------------------------------------------------

                                       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 _____

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act): Yes ____ No X

<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

     Item 2.      Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                   6-8

     Item 3.      Quantitative and Qualitative Disclosures About
                      Market Risk                                           8

     Item 4.      Controls and Procedures                                   8


Part II.

     Other Information                                                      9-10


<PAGE>


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

                                                             June 30,             December 31,
                                                               2004                   2003
                                                        ------------------     ------------------
                       ASSETS

  Real estate properties with operating leases, net     $       7,049,405      $       7,153,757
  Investment in joint ventures                                  2,066,010              2,073,601
  Cash and cash equivalents                                       599,500                771,278
  Receivables                                                      63,539                 11,793
  Accrued rental income                                           129,629                118,373
  Other assets                                                     31,370                 33,865
                                                        ------------------     ------------------

                                                        $       9,939,453      $      10,162,667
                                                        ==================     ==================

          LIABILITIES AND PARTNERS' CAPITAL

  Accounts payable and accrued expenses                 $          18,551      $           4,758
  Real estate taxes payable                                         9,010                 10,070
  Distributions payable                                           351,563                351,563
  Due to related parties                                          194,214                190,544
  Rents paid in advance and deposits                               51,220                 67,831
                                                        ------------------     ------------------
      Total liabilities                                           624,558                624,766

  Minority interest                                               120,525                121,860

  Partners' capital                                             9,194,370              9,416,041
                                                        ------------------     ------------------

                                                        $       9,939,453      $      10,162,667
                                                        ==================     ==================

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

                                       1
<PAGE>


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

<TABLE>
<CAPTION>
<S> <C>
                                                            Quarter Ended                 Six Months Ended
                                                              June 30,                        June 30,
                                                          2004             2003             2004             2003
                                                     --------------   --------------   --------------   --------------
Revenues:
    Rental income from operating leases              $     257,650    $     257,650    $     515,302    $     515,302
    Contingent rental income                                84,509           22,354          102,191           45,717
    Interest and other income                                  507            1,281            1,241            1,874
                                                     --------------   --------------   --------------   --------------
                                                           342,666          281,285          618,734          562,893
                                                     --------------   --------------   --------------   --------------

Expenses:
    General operating and administrative                    55,033           40,779          113,464           94,360
    Property related                                         1,897            1,718            2,446            2,681
    State and other taxes                                    2,086               20            9,678            2,333
    Depreciation and amortization                           55,321           52,176          108,021          104,352
                                                     --------------   --------------   --------------   --------------
                                                           114,337           94,693          233,609          203,726
                                                     --------------   --------------   --------------   --------------

Income before minority interest and equity in
    earnings of unconsolidated joint ventures              228,329          186,592          385,125          359,167

Minority interest                                           (4,350)          (4,196)          (8,526)          (8,555)

Equity in earnings of unconsolidated joint ventures         52,478           52,815          104,856          106,216
                                                     --------------   --------------   --------------   --------------

Income from continuing operations                          276,457          235,211          481,455          456,828
                                                     --------------   --------------   --------------   --------------

Discontinued operations:
    Loss from discontinued operations                           --               --               --           (4,123)
    Gain on disposal of discontinued operations                 --               --               --            2,225
                                                     --------------   --------------   --------------   --------------
                                                                --               --               --           (1,898)
                                                     --------------   --------------   --------------   --------------

Net income                                           $     276,457    $     235,211    $     481,455    $     454,930
                                                     ==============   ==============   ==============   ==============

Income (loss) per limited partner unit:
    Continuing operations                            $        5.53    $        4.70    $        9.63    $        9.14
    Discontinued operations                                     --               --               --            (0.04)
                                                     --------------   --------------   --------------   --------------
                                                     $        5.53     $       4.70   $         9.63   $         9.10
                                                     ==============   ==============   ==============   ==============

Weighted average number of limited partner
    units outstanding                                       50,000           50,000           50,000           50,000
                                                     ==============   ==============   ==============   ==============
</TABLE>
           See accompanying notes to condensed financial statements.

                                       2
<PAGE>

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

                                                 Six Months Ended          Year Ended
                                                     June 30,             December 31,
                                                       2004                   2003
                                               --------------------    ------------------
General partners:
    Beginning balance                          $           371,371     $         371,371
    Net income                                                  --                    --
                                               --------------------    ------------------
                                               $           371,371     $         371,371
                                               --------------------    ------------------

Limited partners:
    Beginning balance                                    9,044,670             9,783,350
    Net income                                             481,455             1,017,572
    Distributions ($14.06 and $35.13 per
       limited partner unit, respectively)                (703,126)           (1,756,252)
                                               --------------------    ------------------
                                                         8,822,999             9,044,670
                                               --------------------    ------------------

Total partners' capital                        $         9,194,370     $       9,416,041
                                               ====================    ==================
</TABLE>

           See accompanying notes to condensed financial statements.

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
<S> <C>
                                                                            Six Months Ended
                                                                                June 30,
                                                                        2004              2003
                                                                   --------------    --------------

   Net cash provided by operating activities                       $     541,209     $     488,605
                                                                   --------------    --------------

   Cash flows from investing activities:
       Proceeds from sale of assets                                           --           383,336
                                                                   --------------    --------------
          Net cash provided by investing activities                           --           383,336
                                                                   --------------    --------------

   Cash flows from financing activities:
       Distributions to limited partners                                (703,126)       (2,059,063)
       Distributions to holders of minority interest                      (9,861)          (10,093)
                                                                   --------------    --------------
          Net cash used in financing activities                         (712,987)       (2,069,156)
                                                                   --------------    --------------

   Net decrease in cash and cash equivalents                            (171,778)       (1,197,215)

   Cash and cash equivalents at beginning of period                      771,278         1,994,246
                                                                   --------------    --------------

   Cash and cash equivalents at end of period                      $     599,500     $     797,031
                                                                   ==============    ==============

   Supplemental schedule of non-cash investing and financing
       activities:

       Deferred real estate disposition fee incurred and
          unpaid at end of period                                  $          --     $      12,375
                                                                   ==============    ==============

       Distributions declared and unpaid at end of period          $     351,563     $     351,563
                                                                   ==============    ==============
</TABLE>


           See accompanying notes to condensed financial statements.

                                       4
<PAGE>

                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 2004 and 2003


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 the general partners, necessary for a fair
         statement of the results for the interim periods  presented.  Operating
         results for the  quarter and six months  ended June 30, 2004 may not be
         indicative  of the  results  that may be  expected  for the year ending
         December  31, 2004.  Amounts as of December  31, 2003,  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, 2003.

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

         In December 2003,  the Financial  Accounting  Standards  Board issued a
         revision to FASB  Interpretation  No. 46 (originally  issued in January
         2003)  ("FIN  46R"),  "Consolidation  of  Variable  Interest  Entities"
         requiring  existing  unconsolidated  variable  interest  entities to be
         consolidated by their primary beneficiaries.  Application of FIN 46R is
         required in financial statements of public entities that have interests
         in variable  interest entities for periods ending after March 15, 2004.
         The  Partnership  adopted  FIN 46R during the  quarter  ended March 31,
         2004.  The  Partnership  was not the primary  beneficiary of a variable
         interest  entity  at the time of  adoption  of FIN 46R,  therefore  the
         adoption had no effect on the balance sheet,  partners'  capital or net
         income.

2.       Subsequent Event

         On August 9, 2004, the Partnership entered into a definitive  Agreement
         and Plan of Merger  pursuant  to which the  Partnership  will be merged
         with a subsidiary of U.S. Restaurant Properties,  Inc. (NYSE: USV). The
         merger is one of multiple concurrent  transactions pursuant to which 17
         other  affiliated  limited  partnerships  also  will be  merged  with a
         subsidiary  of  U.S.  Restaurant  Properties,  Inc.  and in  which  CNL
         Restaurant  Properties,  Inc., an  affiliate,  also will be merged with
         U.S.  Restaurant  Properties,  Inc.  CNL  Restaurant  Properties,  Inc.
         currently  provides  property  management  and  other  services  to the
         Partnership.  The merger of the  Partnership  (and each of the 17 other
         affiliated mergers) is subject to certain conditions including approval
         by a majority of the limited partners, consummation of a minimum number
         of limited partnership mergers representing at least 75.0% in value (as
         measured  by the  value of the  merger  consideration)  of all  limited
         partnerships,  consummation  of the  merger  between  U. S.  Restaurant
         Properties,  Inc. and CNL Restaurant Properties,  Inc., approval of the
         shareholders of U.S. Restaurant  Properties,  Inc., and availability of
         financing.  The  transaction is expected to be consummated in the first
         quarter of 2005.

         Under the terms of the  transaction,  the limited partners will receive
         total  consideration  of  approximately  $12.96 million,  consisting of
         approximately $10.84 million in cash and approximately $2.12 million in
         U.S. Restaurant  Properties,  Inc. Series A Convertible Preferred Stock
         that is listed on the New York Stock  Exchange.  The  general  partners
         will receive total  consideration of approximately  $289,000 consisting
         of  approximately   $242,000  in  cash  and  approximately  $47,000  in
         preferred stock.

                                       5
<PAGE>

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

         CNL Income Fund III, Ltd. (the "Partnership,"  which may be referred to
as "we," "us," or "our") 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 June 30, 2004 and 2003, we owned 14 Properties directly and six
Properties indirectly through joint venture or tenancy in common arrangements.

Capital Resources

         Net cash provided by operating activities was $541,209 and $488,605 for
the six months ended June 30, 2004 and 2003,  respectively.  The increase in net
cash provided by operating activities during the six months ended June 30, 2004,
was a  result  of  changes  in  our  working  capital,  such  as the  timing  of
transactions  relating  to the  collection  of  receivables  and the  payment of
expenses, and changes in income and expenses, such as changes in rental revenues
and changes in operating and property related expenses.

         At June 30,  2004,  we had  $599,500 in cash and cash  equivalents,  as
compared to $771,278 at December  31, 2003.  At June 30, 2004,  these funds were
held in demand deposit  accounts at a commercial  bank.  The funds  remaining at
June 30,  2004,  will be used  toward  the  payment of  distributions  and other
liabilities.

Short-Term Liquidity

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

         Our  short-term   liquidity   requirements  consist  primarily  of  our
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
our operations.

         We  generally  distribute  cash  from  operations  remaining  after the
payment of operating expenses, 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 sales  proceeds from prior years,  we declared
distributions  to limited partners of $703,126 and $1,053,126 for the six months
ended June 30, 2004 and 2003,  respectively  ($351,563  for each of the quarters
ended  June 30,  2004 and 2003).  This  represents  distributions  of $14.06 and
$21.06 per unit for the six months  ended June 30,  2004 and 2003,  respectively
($7.03 for each of the quarters ended June 30, 2004 and 2003). Distributions for
the six months ended June 30, 2003 included a special  distribution  of $350,000
as a result of the  distribution of the net sales proceeds from the 2003 sale of
the Property in  Fayetteville,  North Carolina.  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
partners' unpaid  cumulative 10% Preferred  Return.  As a result of the sales of
Properties  during previous years, our total revenue was reduced and is expected
to remain  reduced in  subsequent  periods,  while the majority of our operating
expenses  remained  and are  expected  to  remain  fixed.  Due to the  sales  of
Properties   and  current   and   anticipated   future  cash  from   operations,
distributions of net cash flow were adjusted commencing during the quarter ended
March 31,  2003.  No  distributions  were made to the general  partners  for the
quarters and six months ended June 30, 2004 and 2003. No amounts  distributed to
the  limited  partners  for the six  months  ended  June  30,  2004 and 2003 are
required  to be or have been  treated as a return of  capital  for  purposes  of
calculating   the   limited   partners'   return  on  their   adjusted   capital
contributions.  We  intend  to  continue  to make  distributions  of cash to the
limited partners on a quarterly basis.

         Total liabilities,  including  distributions  payable, were $624,558 at
June 30, 2004, as compared to $624,766 at December 31, 2003. Liabilities at June
30, 2004, to the extent they exceed cash and cash  equivalents at June 30, 2004,
will be paid from anticipated future cash from operations or from future general
partner contributions.

                                       6
<PAGE>

Long-Term Liquidity

         We have no long-term debt or other long-term liquidity requirements.

Results of Operations

         Rental  revenues  from  continuing   operations  remained  constant  at
$515,302 during each of the six months ended June 30, 2004 and 2003, $257,650 of
which was earned during each of the second  quarters of 2004 and 2003.  The only
change in the leased Property  portfolio related to a Property  accounted for as
discontinued operations.

         We earned  $102,191 in  contingent  rental income during the six months
ended June 30,  2004,  as  compared  to $45,717  during the same period of 2003,
$84,509 and $22,354 of which were earned during the second  quarters of 2004 and
2003, respectively.  The increase in contingent rental income during the quarter
and six months ended June 30, 2004 was  primarily due to an increase in reported
gross sales of a restaurant in  Stockbridge,  Georgia,  whose lease requires the
payment of contingent rental income.

         We earned $104,856  attributable to net income earned by unconsolidated
joint  ventures  during  the six months  ended June 30,  2004,  as  compared  to
$106,216  during  the same  period of 2003,  $52,478  and  $52,815 of which were
earned during the second quarters of 2004 and 2003, respectively.  These amounts
remained relatively constant, because the leased Property portfolio owned by the
joint ventures and the tenancies in common did not change.

         Operating expenses,  including  depreciation and amortization  expense,
were $233,609 during the six months ended June 30, 2004, as compared to $203,726
during the same  period of 2003,  $114,337  and  $94,693 of which were  incurred
during the second quarters of 2004 and 2003,  respectively.  Operating  expenses
were higher  during the quarter and six months ended June 30, 2004,  as compared
to the same periods of 2003,  because we incurred  additional  general operating
and  administrative  expenses,  including legal fees, and additional state taxes
relating to states in which we conduct business.

         We recognized a loss from  discontinued  operations  (property  related
expenses in excess of rental revenue) of $4,123 during the six months ended June
30, 2003, relating to the Property in Fayetteville, North Carolina. We sold this
Property  in  February  2003 and  recorded a gain on  disposal  of  discontinued
operations of approximately $2,200. We had recorded provisions for write-down of
assets in previous years relating to this Property.

         In December 2003,  the Financial  Accounting  Standards  Board issued a
revision to FASB Interpretation No. 46 (originally issued in January 2003) ("FIN
46R"),   "Consolidation  of  Variable  Interest  Entities"   requiring  existing
unconsolidated  variable  interest  entities to be consolidated by their primary
beneficiaries.  Application  of FIN 46R is required in financial  statements  of
public  entities that have interests in variable  interest  entities for periods
ending after March 15, 2004.  We adopted FIN 46R during the quarter  ended March
31, 2004. We were not the primary  beneficiary of a variable  interest entity at
the time of adoption of FIN 46R,  therefore  the  adoption  had no effect on the
balance sheet, partners' capital or net income.

         The general  partners  believe their  primary  objective is to maintain
current operations with restaurant operators as successfully as possible,  while
evaluating  strategic  alternatives,  including  alternatives  that may  provide
liquidity to the limited  partners.  Real estate  markets are strong  throughout
much of the nation,  and the performance of restaurants  has generally  improved
after several  challenging years. As a result, the general partners believe that
this is an attractive  period for a strategic event to monetize the interests of
the limited partners.

         In furtherance of this, on August 9, 2004, we entered into a definitive
Agreement  and  Plan of  Merger  pursuant  to  which  we will be  merged  with a
subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The merger is one of
multiple concurrent  transactions  pursuant to which 17 other affiliated limited
partnerships  also  will  be  merged  with  a  subsidiary  of  U.S.   Restaurant
Properties,  Inc. and in which CNL  Restaurant  Properties,  Inc., an affiliate,
also will be merged with U.S. Restaurant  Properties,  Inc. Our merger (and each
of the 17 other affiliated  mergers) is subject to certain conditions  including
approval by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as measured
by  the  value  of  the  merger  consideration)  of  all  limited  partnerships,
consummation  of the merger between U. S.  Restaurant  Properties,  Inc. and CNL


                                       7
<PAGE>

Restaurant  Properties,  Inc.,  approval of the shareholders of U.S.  Restaurant
Properties,  Inc., and availability of financing.  U.S.  Restaurant  Properties,
Inc.  is a real  estate  investment  trust  (REIT)  that  focuses  primarily  on
acquiring, owning and leasing restaurant properties. The transaction is expected
to be consummated in the first quarter of 2005.

         Under the terms of the  transaction,  our limited partners will receive
total consideration of approximately $12.96 million, consisting of approximately
$10.84  million  in cash and  approximately  $2.12  million  in U.S.  Restaurant
Properties,  Inc. Series A Convertible Preferred Stock that is listed on the New
York Stock Exchange.  The general  partners will receive total  consideration of
approximately   $289,000  consisting  of  approximately  $242,000  in  cash  and
approximately $47,000 in preferred stock.

         We received an opinion from Wachovia  Capital  Markets,  LLC that as of
August 9, 2004 the merger  consideration  to be  received  by the holders of our
general and limited  partnership  interests is fair,  from a financial  point of
view, to such holders.

         As reflected  above, the  contemplated  transactions  are complex,  and
contingent upon certain conditions. The restaurant marketplace,  the real estate
industry,  and the equities markets, all individually or taken as a whole, could
impact the  economics of this  transaction.  As a result,  there is no assurance
that we will be successful in completing the contemplated transaction.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.

ITEM 4.  CONTROLS AND PROCEDURES

         The  general  partners  maintain  a  set  of  disclosure  controls  and
procedures  designed to ensure that information  required to be disclosed in our
filings  under  the  Securities  Exchange  Act of 1934 is  recorded,  processed,
summarized and reported within the time periods  specified in the Securities and
Exchange  Commission's  rules and forms.  The principal  executive and financial
officers of the corporate general partner have evaluated our disclosure controls
and procedures as of the end of the period  covered by this Quarterly  Report on
Form 10-Q and have determined  that such disclosure  controls and procedures are
effective.

         There was no change in internal  control over financial  reporting that
occurred during the most recent fiscal quarter that has materially affected,  or
is  reasonably  likely to materially  affect,  internal  control over  financial
reporting.

                                       8
<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  between CNL Income Fund III, Ltd.
              and CNL Investment Company. (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.)

         10.5 Assignment of Management  Agreement  from CNL APF Partners,  LP to
              CNL Restaurants XVIII, Inc. (Included as Exhibit 10.5 to Form 10-Q
              filed with the  Securities  and Exchange  Commission on August 14,
              2002, and incorporated herein by reference.)

                                       9
<PAGE>

         31.1 Certification  of Chief  Executive  Officer of  Corporate  General
              Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section 302
              of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

         31.2 Certification  of Chief  Financial  Officer of  Corporate  General
              Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section 302
              of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

         32.1 Certification  of Chief  Executive  Officer of  Corporate  General
              Partner Pursuant to 18 U.S.C.  Section 1350 as Adopted Pursuant to
              Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

         32.2 Certification  of Chief  Financial  Officer of  Corporate  General
              Partner Pursuant to 18 U.S.C.  Section 1350 as Adopted Pursuant to
              Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

     (b) Reports on Form 8-K

         No  reports of Form 8-K were filed  during the  quarter  ended June 30,
         2004.


                                       10
<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 9th day of August 2004.


                              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)



<PAGE>

                                  EXHIBIT INDEX

Exhibit Number

         (c)  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  between CNL Income Fund III,
                   Ltd. and CNL Investment Company. (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.)

              10.5 Assignment of Management Agreement from CNL APF Partners,  LP
                   to CNL Restaurants  XVIII, Inc.  (Included as Exhibit 10.5 to
                   Form 10-Q filed with the Securities  and Exchange  Commission
                   on August 14, 2002, and incorporated herein by reference.)

              31.1 Certification of Chief Executive Officer of Corporate General
                   Partner  Pursuant  to Rule  13a-14  as  Adopted  Pursuant  to
                   Section  302  of  the  Sarbanes-Oxley  Act  of  2002.  (Filed
                   herewith.)

              31.2 Certification of Chief Financial Officer of Corporate General
                   Partner  Pursuant  to Rule  13a-14  as  Adopted  Pursuant  to
                   Section  302  of  the  Sarbanes-Oxley  Act  of  2002.  (Filed
                   herewith.)

              32.1 Certification of Chief Executive Officer of Corporate General
                   Partner  Pursuant  to  18  U.S.C.  Section  1350  as  Adopted
                   Pursuant  to Section 906 of the  Sarbanes-Oxley  Act of 2002.
                   (Filed herewith.)

              32.2 Certification of Chief Financial Officer of Corporate General
                   Partner  Pursuant  to  18  U.S.C.  Section  1350  as  Adopted
                   Pursuant  to Section 906 of the  Sarbanes-Oxley  Act of 2002.
                   (Filed herewith.)

<PAGE>



                                  EXHIBIT 31.1


<PAGE>



                                  EXHIBIT 31.2


<PAGE>



                                  EXHIBIT 32.1


<PAGE>



                                  EXHIBIT 32.2