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, 2003
   --------------------------------------------------------------------------

                                       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             5-6

     Item 2.      Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                 7-9

     Item 3.      Quantitative and Qualitative Disclosures About
                      Market Risk                                         9

     Item 4.      Controls and Procedures                                 9


Part II.

     Other Information                                                    10-11




<PAGE>

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

<TABLE>
<CAPTION>

                                                                               June 30,             December 31,
                                                                                 2003                   2002
                                                                          -------------------    -------------------

 <c>
                              ASSETS

  Real estate properties with operating leases, net                            $   7,258,109          $   7,362,460
  Real estate held for sale                                                               --                368,737
  Investment in joint ventures                                                     2,080,568              2,084,178
  Cash and cash equivalents                                                          797,031              1,994,246
  Receivables                                                                         18,943                 10,195
  Accrued rental income                                                              107,117                 95,861
  Other assets                                                                        34,726                 32,861
                                                                          -------------------    -------------------

                                                                               $  10,296,494          $  11,948,538
                                                                          ===================    ===================

                 LIABILITIES AND PARTNERS' CAPITAL

  Accounts payable                                                               $     9,852           $     21,199
  Real estate taxes payable                                                           11,413                 11,892
  Distributions payable                                                              351,563              1,357,500
  Due to related parties                                                             192,051                243,170
  Rents paid in advance and deposits                                                  51,996                 35,424
                                                                          -------------------    -------------------
      Total liabilities                                                              616,875              1,669,185

  Minority interest                                                                  123,094                124,632

  Partners' capital                                                                9,556,525             10,154,721
                                                                          -------------------    -------------------

                                                                               $  10,296,494          $  11,948,538
                                                                          ===================    ===================
</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                 Six Months Ended
                                                                     June 30,                        June 30,
                                                                2003            2002           2003            2002
                                                            -------------    -----------  ---------------  --------------

 <c>
Revenues:
    Rental income from operating leases                        $ 257,650      $ 272,495       $  515,302      $  541,843
    Earned income from direct financing leases                        --          5,063               --          14,039
    Contingent rental income                                      22,354          5,486           45,717          32,506
    Interest and other income                                      1,281          7,346            1,874          13,237
                                                            -------------    -----------  ---------------  --------------
                                                                 281,285        290,390          562,893         601,625
                                                            -------------    -----------  ---------------  --------------

Expenses:
    General operating and administrative                          40,779         51,006           94,360         111,808
    Property related                                               1,718          1,524            2,681           2,535
    State and other taxes                                             20          2,050            2,333          23,080
    Depreciation                                                  52,176         52,175          104,352         104,350
                                                            -------------    -----------  ---------------  --------------
                                                                  94,693        106,755          203,726         241,773
                                                            -------------    -----------  ---------------  --------------

Income Before Loss on Sale of Assets, Minority Interest
    in Income of Consolidated Joint Venture and Equity
    in Earnings of Unconsolidated Joint Ventures                 186,592        183,635          359,167         359,852

Loss on Sale of Assets                                                --         (9,945 )             --          (9,945 )

Minority Interest in Income of Consolidated
    Joint Venture                                                 (4,196 )       (4,388 )         (8,555 )        (8,591 )

Equity in Earnings of Unconsolidated Joint Ventures               52,815         51,929          106,216         102,559
                                                            -------------    -----------  ---------------  --------------

Income from Continuing Operations                                235,211        221,231          456,828         443,875
                                                            -------------    -----------  ---------------  --------------

Discontinued Operations:
    Loss from discontinued operations                                 --        (95,958 )         (4,123 )      (122,596 )
    Gain on disposal of discontinued operations                       --             --            2,225              --
                                                            -------------    -----------  ---------------  --------------
                                                                      --        (95,958 )         (1,898 )      (122,596 )
                                                            -------------    -----------  ---------------  --------------

Net Income                                                     $ 235,211      $ 125,273       $  454,930      $  321,279
                                                            =============    ===========  ===============  ==============

Income (Loss) per Limited Partner Unit:
    Continuing operations                                       $   4.70       $   4.43        $    9.13       $    8.88
    Discontinued operations                                           --          (1.92 )          (0.03 )         (2.45 )
                                                            -------------    -----------  ---------------  --------------

                                                                $   4.70       $   2.51        $    9.10       $    6.43
                                                            =============    ===========  ===============  ==============

Weighted Average Number of Limited Partner
    Units Outstanding                                             50,000         50,000           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>

                                                                           Six Months Ended          Year Ended
                                                                               June 30,             December 31,
                                                                                 2003                   2002
                                                                          --------------------    ------------------

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

Limited partners:
    Beginning balance                                                               9,783,350            12,586,051
    Net income                                                                        454,930               279,799
    Distributions ($21.06 and $61.65 per
       limited partner unit, respectively)                                         (1,053,126 )          (3,082,500 )
                                                                          --------------------    ------------------
                                                                                    9,185,154             9,783,350
                                                                          --------------------    ------------------

Total partners' capital                                                        $    9,556,525         $  10,154,721
                                                                          ====================    ==================

</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>


                                                                                     Six Months Ended
                                                                                         June 30,
                                                                                 2003                2002
                                                                            ----------------     --------------

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

       Net Cash Provided by Operating Activities                                $   488,605         $  618,661
                                                                            ----------------     --------------

       Cash Flows from Investing Activities:
          Additions to real estate properties with operating leases                      --            (16,800 )
          Proceeds from sale of assets                                              383,336             78,295
          Liquidating distribution from joint venture                                    --            106,521
                                                                            ----------------     --------------
                 Net cash provided by investing activities                          383,336            168,016
                                                                            ----------------     --------------

       Cash Flows from Financing Activities:
          Distributions to limited partners                                      (2,059,063 )       (1,412,500 )
          Distributions to holders of minority interests                            (10,093 )           (9,986 )
                                                                            ----------------     --------------
                 Net cash used in financing activities                           (2,069,156 )       (1,422,486 )
                                                                            ----------------     --------------

   Net Decrease in Cash and Cash Equivalents                                     (1,197,215 )         (635,809 )

   Cash and Cash Equivalents at Beginning of Period                               1,994,246          1,242,931
                                                                            ----------------     --------------

   Cash and Cash Equivalents at End of Period                                   $   797,031         $  607,122
                                                                            ================     ==============

   Supplemental Schedule of Non-Cash Investing and Financing
       Activities:

          Deferred real estate disposition fee incurred and unpaid
             at end of period                                                    $   12,375         $   12,000
                                                                            ================     ==============

          Mortgage note accepted in exchange for sale of assets                    $     --         $  320,000
                                                                            ================     ==============

          Distributions declared and unpaid at end of period                    $   351,563         $  375,000
                                                                            ================     ==============

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

<PAGE>

                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                     Six Months Ended June 30, 2003 and 2002


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, 2003 may not be
         indicative  of the  results  that may be  expected  for the year ending
         December  31, 2003.  Amounts as of December  31, 2002,  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, 2002.

         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  Partnership's  consolidated  joint  venture.  All  significant
         intercompany accounts and transactions have been eliminated.

         In January  2003,  FASB issued FASB  Interpretation  No. 46 ("FIN 46"),
         "Consolidation  of  Variable  Interest  Entities"  to  expand  upon and
         strengthen  existing  accounting guidance that addresses when a company
         should include the assets, liabilities and activities of another entity
         in  its  financial  statements.   To  improve  financial  reporting  by
         companies  involved  with variable  interest  entities  (more  commonly
         referred  to  as   special-purpose   entities  or   off-balance   sheet
         structures),  FIN  46  requires  that a  variable  interest  entity  be
         consolidated by a company if that company is subject to a majority risk
         of loss from the variable interest  entity's  activities or entitled to
         receive a majority of the entity's  residual  returns or both. Prior to
         FIN 46, a company generally included another entity in its consolidated
         financial  statements  only if it controlled  the entity through voting
         interests.  The consolidation  requirements of FIN 46 apply immediately
         to variable  interest  entities  created after January 31, 2003, and to
         older  entities,  in the first fiscal year or interim period  beginning
         after June 15,  2003.  The general  partners  believe  adoption of this
         standard may result in either  consolidation  or additional  disclosure
         requirements  with respect to the  Partnership's  unconsolidated  joint
         ventures,  which are currently  accounted for under the equity  method.
         However, such consolidation is not expected to significantly impact the
         Partnership's results of operations.

2.       Reclassification:

         Certain  items in the  prior  year's  financial  statements  have  been
         reclassified to conform to 2003 presentation.  These  reclassifications
         had no effect on total partners' capital or net income.


<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                     Six Months Ended June 30, 2003 and 2002


3.       Discontinued Operations:

         During 2002, the Partnership  identified for sale three properties that
         were  classified  as  Discontinued   Operations  in  the   accompanying
         financial statements.  The Partnership sold two of the three properties
         during 2002. In February 2003, the Partnership sold the third property,
         and  recorded  a gain on  disposal  of assets of  approximately  $2,200
         during the six months ended June 30, 2003. The Partnership had recorded
         provisions  for write-down of assets in previous years relating to this
         property.

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

                                                       Quarter Ended June 30,           Six Months Ended June 30,
                                                       2003              2002            2003             2002
                                                   -------------    ---------------  --------------  ----------------

 <c>
         Rental revenues                                 $   --         $   15,342         $    --        $   57,316
         Expenses                                            --            (31,651 )        (4,123 )         (53,907 )
         Provision for write-down of assets                  --            (79,649 )            --          (126,005 )
                                                   -------------    ---------------  --------------  ----------------
         Loss from discontinued operations               $   --         $  (95,958 )    $   (4,123 )     $  (122,596 )
                                                   =============    ===============  ==============  ================
</TABLE>

4.       Related Party Transactions:

         An  affiliate  of the  Partnership  is  entitled to receive a deferred,
         subordinated real estate  disposition fee, payable upon the sale of one
         or more  properties,  based on the lesser of one-half of a  competitive
         real  estate  commission  or three  percent  of the sales  price if the
         Advisor  provides a substantial  amount of services in connection  with
         the sales.  However,  if the net sales  proceeds  are  reinvested  in a
         replacement  property,  no such real  estate  disposition  fees will be
         incurred  until  such  replacement  property  is sold and the net sales
         proceeds are  distributed.  The payment of the real estate  disposition
         fee is  subordinated  to the receipt by the  limited  partners of their
         aggregate, cumulative 10% Preferred Return, plus their adjusted capital
         contributions.   During  the  six  months  ended  June  30,  2003,  the
         Partnership  incurred a deferred,  subordinated real estate disposition
         fee of $12,375 as a result of the Partnership's sale of the property in
         Fayetteville, North Carolina.



<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 June 30, 2002, the
Partnership owned 17 Properties  directly and six Properties  indirectly through
joint  venture or  tenancy  in common  arrangements.  As of June 30,  2003,  the
Partnership owned 14 Properties  directly and six Properties  indirectly through
joint venture or tenancy in common arrangements.

Capital Resources

         Cash from  operating  activities  was $488,605 and $618,661 for the six
months  ended June 30, 2003 and 2002,  respectively.  The  decrease in cash from
operating  activities  during the six months ended June 30, 2003, as compared to
the same period of 2002,  was a result of changes in the  Partnership's  working
capital.

         Other sources and uses of cash  included the  following  during the six
months ended June 30, 2003.

         In February 2003, the  Partnership  sold its Property in  Fayetteville,
North   Carolina,   to  a  third  party  and  received  net  sales  proceeds  of
approximately   $383,300,   resulting  in  a  gain  on  disposal  of  assets  of
approximately  $2,200 during the six months ended June 30, 2003. The Partnership
had recorded  provisions  for write-down of assets in previous years relating to
this asset. In connection  with the sale, the  Partnership  incurred a deferred,
subordinated real estate disposition fee of $12,375.  Payment of the real estate
disposition fee is subordinated to the receipt by the limited  partners of their
aggregate,   cumulative  10%  Preferred  Return,  plus  their  adjusted  capital
contributions.  The  Partnership  distributed  the sales  proceeds  as a special
distribution to the limited partners, as described below.

         At June  30,  2003,  the  Partnership  had  $797,031  in cash  and cash
equivalents,  as compared to  $1,994,246 at December 31, 2002. At June 30, 2003,
these funds were held in a demand  deposit  account at a  commercial  bank.  The
decrease in cash and cash  equivalents was primarily a result of the Partnership
distributing  to the limited  partners,  in the form of a special  distribution,
sales  proceeds  that were held at December 31, 2002,  as described  below.  The
funds remaining at June 30, 2003, after the payment of  distributions  and other
liabilities, will be used to meet the Partnership's working capital needs.

Short-Term Liquidity

         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  generate  net cash flow in
excess of operating expenses.

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

         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 six
months ended June 30, 2003, the net sales proceeds from the sale of the Property
in Fayetteville, North Carolina, and for the six months ended June 30, 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  $1,053,126  and
$1,350,000  for the six  months  ended  June 30,  2003 and  2002,  respectively,
($351,563  and  $375,000  for  the  quarters  ended  June  30,  2003  and  2002,
respectively).  This represents  distributions of $21.06 and $27.00 per unit for
the six months ended June 30, 2003 and 2002, respectively,  ($7.03 and $7.50 per
unit for each applicable  quarter).  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.  Distributions  for the six months ended June 30,
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 2002  liquidating  distribution  received from Titusville Joint
Venture.  These special  distributions were 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 sales of the Properties,  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.  Due to the sales of  Properties  and current and
anticipated  future cash from  operations,  distributions  of net cash flow were
adjusted  commencing  during the  quarters  ended  March 31,  2002 and 2003.  No
distributions  were made to the general partners for the quarters and six months
ended June 30, 2003 and 2002. No amounts distributed to the limited partners for
the six months  ended  June 30,  2003 and 2002 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,
were  $616,875 at June 30, 2003, as compared to $1,669,185 at December 31, 2002.
The decrease in liabilities at June 30, 2003 was due to the Partnership paying a
special  distribution to the limited  partners that had been accrued at December
31,  2002 and due to a decrease  in amounts  due to related  parties at June 30,
2003, as compared to December 31, 2002.  The general  partners  believe that the
Partnership  has  sufficient  cash on hand to meet its current  working  capital
needs.

Long-Term Liquidity

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

Results of Operations

         Total rental  revenues were  $515,302  during the six months ended June
30, 2003, as compared to $555,882  during the same period of 2002,  $257,650 and
$277,558  of which were  earned  during the  second  quarters  of 2003 and 2002,
respectively. Rental revenues were lower during the quarter and six months ended
June 30, 2003 due to the Partnership selling its Property in Montgomery, Alabama
in May 2002.  The tenant of this  Property  experienced  financial  difficulties
during 2002.  Rental  revenues were also lower during the quarter and six months
ended June 30, 2003 due to the  Partnership  terminating  the leases relating to
the Properties in Hastings, Nebraska and Wichita, Kansas during 2002. Each lease
was scheduled to expire in 2002.  The  Partnership  re-leased  these  Properties
during 2002, each to a new tenant with slightly lower rents.

         The Partnership also earned $45,717 in contingent  rental income during
the six months  ended June 30,  2003,  as  compared  to $32,506  during the same
period of 2002,  $22,354  and $5,486 of which were  earned  during the  quarters
ended June 30, 2003 and 2002,  respectively.  The increase in contingent  rental
income during the quarter and six months ended June 30, 2003, as compared to the
same periods of 2002,  was  primarily  due to an increase in the reported  gross
sales of the  restaurants  with  leases that  require the payment of  contingent
rental income.

         The Partnership also earned $106,216  attributable to net income earned
by  unconsolidated  joint ventures during the six months ended June 30, 2003, as
compared  to  $102,559  during the same  period of 2002,  $52,815 and $51,929 of
which  were  earned   during  the  quarters   ended  June  30,  2003  and  2002,
respectively.  Net income earned by unconsolidated joint ventures during the six
months ended June 30,  2003,  remained  constant,  as compared to same period in
2002,  because there were no changes in the leased Properties owned by the joint
ventures and the tenancies in common.

         The  Partnership  earned $1,874 in interest and other income during the
six months ended June 30, 2003, as compared to $13,237 during the same period of
2002,  $1,281 and $7,346 of which were earned during the quarters ended June 30,
2003 and 2002,  respectively.  During the quarter and six months  ended June 30,
2002,  interest  and other  income was higher  because  the  Partnership  earned
interest on a mortgage note  receivable held in connection with the 2002 sale of
the Property in Montgomery,  Alabama.  The mortgage note  receivable was paid in
full in August 2002. In addition,  the  Partnership  distributed  sales proceeds
during 2002 that had been held in interest bearing bank accounts.

         Operating  expenses,  including  depreciation  expense,  were  $203,726
during the six months  ended June 30, 2003,  as compared to $241,773  during the
same period of 2002,  $94,693 and  $106,755  of which were  incurred  during the
quarters  ended June 30, 2003 and 2002,  respectively.  Operating  expenses were
lower during the quarter and six months  ended June 30, 2003,  due to a decrease
in the  amount of state tax  expense  relating  to  several  states in which the
Partnership  conducts  business  and  a  decrease  in  the  costs  incurred  for
administrative expenses for servicing the Partnership and its Properties.

         During the year ended December 31, 2002, the Partnership identified for
sale three  Properties that were  classified as  Discontinued  Operations in the
accompanying financial statements.  The Partnership recognized a net rental loss
(rental revenues less Property related  expenses) of $95,958 and $122,596 during
the quarter and six months ended June 30, 2002, respectively,  relating to these
three  Properties.  The Partnership  sold the Properties in Altus,  Oklahoma and
Canton  Township,  Michigan  subsequent to June 30, 2002. In February  2003, the
Partnership sold the third Property,  located in  Fayetteville,  North Carolina,
and  recorded  a gain  on  disposal  of  assets  of  approximately  $2,200.  The
Partnership  had recorded  provisions for write-down of assets in previous years
relating  to this  Property.  The  Partnership  recognized  a net rental loss of
$4,123 during the six months ended June 30, 2003 relating to this Property.

         In January  2003,  FASB issued FASB  Interpretation  No. 46 ("FIN 46"),
"Consolidation  of Variable  Interest  Entities"  to expand upon and  strengthen
existing  accounting  guidance that  addresses when a company should include the
assets,   liabilities   and  activities  of  another  entity  in  its  financial
statements.  To improve financial  reporting by companies involved with variable
interest  entities (more  commonly  referred to as  special-purpose  entities or
off-balance sheet  structures),  FIN 46 requires that a variable interest entity
be  consolidated  by a company if that company is subject to a majority  risk of
loss from the variable  interest  entity's  activities  or entitled to receive a
majority of the entity's  residual  returns or both.  Prior to FIN 46, a company
generally included another entity in its consolidated  financial statements only
if  it  controlled  the  entity  through  voting  interests.  The  consolidation
requirements of FIN 46 apply  immediately to variable  interest entities created
after  January 31,  2003,  and to older  entities,  in the first  fiscal year or
interim  period  beginning  after June 15, 2003.  The general  partners  believe
adoption  of this  standard  may result in either  consolidation  or  additional
disclosure  requirements with respect to the Partnership's  unconsolidated joint
ventures,  which are currently  accounted for under the equity method.  However,
such  consolidation  is not expected to significantly  impact the  Partnership's
results of operations.


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 the
Partnership's  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 the
Partnership's  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.



<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.)

                     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.)


<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, 2003.




<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 4th day of August, 2003.


                                       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 (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