FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                 For the quarterly period ended March 31, 1999
   --------------------------------------------------------------------------

                                       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)
<TABLE>
<CAPTION>

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


                400 East South Street
                  Orlando, Florida                                                       32801
------------------------------------------------------              ------------------------------------------------
      (Address of principal executive offices)                                        (Zip Code)


Registrant's telephone number
(including area code)                                                               (407) 650-1000
                                                                    ------------------------------------------------
</TABLE>


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by  Sections  13 or 15(d)  of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes X No _____




<PAGE>


                                    CONTENTS




                                                                           Page
Part I.

     Item 1.      Financial Statements:

                      Condensed Balance Sheets                        

                      Condensed Statements of Income                  

                      Condensed Statements of Partners' Capital       

                      Condensed Statements of Cash Flows              

                      Notes to Condensed Financial Statements         

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

     Item 3.      Quantitative and Qualitative Disclosures About
                      Market Risk                                     


Part II.

     Other Information                                                





<PAGE>

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

<TABLE>
<CAPTION>

                                                                               March 31,             December 31,
                                                                                  1999                   1998
                                                                           -------------------    -------------------
<S> <C>
                               ASSETS

   Land and buildings on operating leases, less
       accumulated depreciation of $2,808,175 and
       $2,738,895                                                                $ 11,676,552           $ 11,418,836
   Net investment in direct financing leases, less allowance                
   for impairment in carrying value of $25,821                                      1,494,852                887,071 
   Investment in joint ventures                                                     2,153,198              2,157,147
   Cash and cash equivalents                                                        1,044,255              2,047,140
   Receivables, less allowance for doubtful accounts
       of $154,918 and $153,598                                                        64,657                 89,519
   Prepaid expenses                                                                     7,948                  6,751
   Accrued rental income, less allowance for doubtful
       accounts of $41,380                                                             75,172                 65,914
   Other assets                                                                        29,354                 29,354
                                                                           -------------------    -------------------

                                                                                 $ 16,545,988           $ 16,701,732
                                                                           ===================    ===================

                  LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                                $   31,407             $    2,072
   Accrued and escrowed real estate taxes payable                                      14,463                 15,217
   Distributions payable                                                              500,000                500,000
   Due to related party                                                               141,182                152,887
   Rents paid in advance                                                               20,982                 25,579
                                                                           -------------------    -------------------
       Total liabilities                                                              708,034                695,755

   Minority interests                                                                 135,060                135,705

   Partners' capital                                                               15,702,894             15,870,272
                                                                           -------------------    -------------------

                                                                                 $ 16,545,988           $ 16,701,732
                                                                           ===================    ===================
</TABLE>



           See accompanying notes to condensed financial statements.


<PAGE>


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

                                                                                        Quarter Ended
                                                                                          March 31,
                                                                                   1999               1998
                                                                               --------------    ---------------
<S> <C>
Revenues:
    Rental income from operating leases                                            $ 382,878          $ 421,125
    Earned income from direct financing leases                                        43,968             33,866
    Contingent rental income                                                           2,981             12,833
    Interest and other income                                                         16,470             41,182
                                                                               --------------    ---------------
                                                                                     446,297            509,006
                                                                               --------------    ---------------

Expenses:
    General operating and administrative                                              34,722             31,780
    Professional services                                                              3,288              4,610
    Real estate taxes                                                                     --              4,229
    State and other taxes                                                             12,617             11,516
    Depreciation and amortization                                                     69,280             80,417
    Transaction costs                                                                 30,882                 --
                                                                               --------------    ---------------
                                                                                     150,789            132,552
                                                                               --------------    ---------------

Income Before Minority Interest in Income of
    Consolidated Joint Venture, Equity in Earnings
    of Unconsolidated Joint Ventures, and Gain on
    Sale of Land and Buildings                                                       295,508            376,454

Minority Interest in Income of Consolidated
    Joint Venture                                                                     (4,345 )           (4,345 )

Equity in Earnings of Unconsolidated Joint Ventures                                   41,459             22,751

Gain on Sale of Land and Buildings                                                        --            583,373
                                                                               --------------    ---------------

Net Income                                                                         $ 332,622          $ 978,233
                                                                               ==============    ===============

Allocation of Net Income:
    General partners                                                               $   3,326          $   8,558
    Limited partners                                                                 329,296            969,675
                                                                               --------------    ---------------

                                                                                   $ 332,622          $ 978,233
                                                                               ==============    ===============

Net Income Per Limited Partner Unit                                                 $   6.59          $   19.39
                                                                               ==============    ===============

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


<PAGE>


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

<TABLE>
<CAPTION>

                                                                             Quarter Ended           Year Ended
                                                                               March 31,            December 31,
                                                                                  1999                  1998
                                                                           -------------------    ------------------
<S> <C>
General partners:
    Beginning balance                                                             $   354,638            $  339,611
    Net income                                                                          3,326                15,027
                                                                           -------------------    ------------------
                                                                                      357,964               354,638
                                                                           -------------------    ------------------

Limited partners:
    Beginning balance                                                              15,515,634            17,271,525
    Net income                                                                        329,296             1,721,856
    Distributions ($10.00 and $69.55 per
       limited partner unit, respectively)                                           (500,000 )          (3,477,747 )
                                                                           -------------------    ------------------
                                                                                   15,344,930            15,515,634
                                                                           -------------------    ------------------

Total partners' capital                                                          $ 15,702,894          $ 15,870,272
                                                                           ===================    ==================


</TABLE>

           See accompanying notes to condensed financial statements.
<PAGE>


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

                                                                                    Quarter Ended
                                                                                      March 31,
                                                                                1999              1998
                                                                           ---------------    --------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                                   $ 442,021         $ 501,741
                                                                           ---------------    --------------

    Cash Flows from Investing Activities:
       Proceeds from sale of land and buildings                                         --         2,424,977
       Additions to land and building on operating
          lease                                                                  (326,996 )              --
       Investment in direct financing lease                                      (612,920 )              --
       Investment in joint venture                                                     --          (415,586 )
       Collections on note receivable                                                  --             3,242
       Decrease in restricted cash                                                     --           245,377
                                                                           ---------------    --------------
              Net cash provided by (used in)
                  investing activities                                           (939,916 )       2,258,010
                                                                           ---------------    --------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                                         (500,000 )        (594,000 )
       Distributions to holders of minority interests                              (4,990 )          (5,050 )
                                                                           ---------------    --------------
              Net cash used in financing activities                              (504,990 )        (599,050 )
                                                                           ---------------    --------------

Net Increase (Decrease) in Cash and Cash                                       (1,002,885 )       2,160,701
    Equivalents

Cash and Cash Equivalents at Beginning of Quarter                               2,047,140           493,118
                                                                           ---------------    --------------

Cash and Cash Equivalents at End of Quarter                                    $1,044,255        $2,653,819
                                                                           ===============    ==============

Supplemental Schedule of Non-Cash Investing and
    Financing
    Activities:

       Deferred real estate disposition fees incurred
          and unpaid at end of quarter                                             $   --          $ 53,400
                                                                           ===============    ==============

       Distributions declared and unpaid at end of
          quarter                                                               $ 500,000        $1,977,747
                                                                           ===============    ==============

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

<PAGE>



                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                     Quarters Ended March 31, 1999 and 1998


1.     Basis of Presentation:

        The  accompanying  unaudited  condensed  financial  statements have been
        prepared in  accordance  with the  instructions  to Form 10-Q and do not
        include  all  of  the  information  and  note  disclosures  required  by
        generally  accepted  accounting  principles.  The  financial  statements
        reflect all  adjustments,  consisting of normal  recurring  adjustments,
        which are, in the opinion of  management,  necessary to a fair statement
        of the results for the interim periods presented.  Operating results for
        the quarter  ended March 31, 1999 may not be  indicative  of the results
        that may be expected for the year ending  December 31, 1999.  Amounts as
        of December 31, 1998,  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, 1998.

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

2.     Land and Buildings on Operating Leases:

        In January  1999,  the  Partnership  reinvested  the majority of the net
        sales  proceeds  from  the  1998  sale of the  property  in  Hagerstown,
        Maryland,  along with amounts collected in 1998, under a promissory note
        in a Burger King property in Montgomery, Alabama, at an approximate cost
        of $939,900.  In  accordance  with  Statement  of  Financial  Accounting
        Standards  No. 13,  "Accounting  for  Leases,"  the land portion of this
        property was classified as an operating lease while the building portion
        was classified as a capital lease.

3.      Merger Transaction:

        On March 11, 1999, the Partnership entered into an Agreement and Plan of
        Merger with CNL American  Properties  Fund,  Inc.  ("APF"),  pursuant to
        which the Partnership  would be merged with and into a subsidiary of APF
        (the "Merger"). As consideration for the Merger, APF has agreed to issue
        2,082,901  shares of its common  stock,  par value  $0.01 per share (the
        "APF   Shares")   which,   for  the   purposes  of  valuing  the  merger
        consideration,  have been  valued by APF at $10.00  per APF  Share,  the
        price paid by APF investors in three previous public offerings, the most
        recent of which was  completed in December  1998. In order to assist the
        general partners in evaluating the proposed merger


<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                     Quarters Ended March 31, 1999 and 1998


3.      Merger Transaction - Continued:

        consideration,  the general partners retained  Valuation  Associates,  a
        nationally  recognized  real estate  appraisal  firm,  to  appraise  the
        Partnership's   restaurant  property   portfolio.   Based  on  Valuation
        Associates'  appraisal,  the Partnership's  property portfolio and other
        assets were valued on a going  concern  basis  (meaning the  Partnership
        continues  unchanged) at $20,535,734 as of December 31, 1998. Legg Mason
        Wood Walker,  Incorporated  has rendered a fairness opinion that the APF
        Share  consideration,  payable by APF, is fair to the Partnership from a
        financial  point of view.  The APF Shares are  expected to be listed for
        trading  on  the  New  York  Stock   Exchange   concurrently   with  the
        consummation of the Merger, and, therefore,  would be freely tradable at
        the option of the former limited  partners.  At a special meeting of the
        partners  that is  expected  to be held in the  third  quarter  of 1999,
        limited  partners  holding  in  excess  of  50%  of  the   Partnership's
        outstanding limited partnership  interests must approve the Merger prior
        to  consummation  of the  transaction.  If the  limited  partners at the
        special  meeting  approve the merger,  APF will own the  properties  and
        other  assets  of  the  Partnership.  The  general  partners  intend  to
        recommend  that the  limited  partners  of the  Partnership  approve the
        Merger.  In connection with their  recommendation,  the general partners
        will solicit the consent of the limited partners at the special meeting.
        If the limited partners reject the Merger, the Partnership will bear the
        portion of the  transaction  costs  based upon the  percentage  of "For"
        votes and the general partners will bear the portion of such transaction
        costs based upon the percentage of "Against" votes and abstentions.

        On May 5, 1999, four limited partners in several of the CNL Income Funds
        filed a lawsuit against the general  partners and APF in connection with
        the  proposed  Merger  (see Part II - Item 1.  Legal  Proceedings).  The
        general  partners and APF believe that the lawsuit is without  merit and
        intend to defend vigorously against the claims.  Because the lawsuit was
        so recently  filed, it is premature to further comment on the lawsuit at
        this time.

4.      Subsequent Event:

        In April 1999, the Partnership sold its property in Flagstaff,  Arizona,
        to the  tenant  for  $1,103,127  and  received  net  sales  proceeds  of
        $1,091,193,  resulting  in a gain of $285,350  for  financial  reporting
        purposes.


<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, which are leased primarily to operators of selected national and
regional  fast-food  restaurant  chains.  The leases  generally  are  triple-net
leases, with the lessees  responsible for all repairs and maintenance,  property
taxes,  insurance and utilities.  As of March 31, 1999, the Partnership owned 28
Properties, which included interests in three Properties owned by joint ventures
in which the  Partnership  is a  co-venturer  and three  Properties  owned  with
affiliates as tenants-in-common.

Liquidity and Capital Resources

         During the  quarters  ended  March 31, 1999 and 1998,  the  Partnership
generated  cash from  operations  (which  includes  cash  received from tenants,
distributions from joint ventures, and interest and other income received,  less
cash paid for expenses) of $442,021 and $501,741,  respectively. The decrease in
cash from  operations for the quarter ended March 31, 1999 is primarily a result
of changes in income and expenses as described in "Results of Operations" below.

         Other  sources and uses of capital  included the  following  during the
quarter ended March 31, 1999.

         In January 1999,  the  Partnership  reinvested  the majority of the net
sales proceeds from the 1998 sale of the Property in Hagerstown, Maryland, along
with a portion of the  amounts  collected  in 1998,  under the  promissory  note
accepted in connection  with the 1997 sale of the Property in Roswell,  Georgia,
in a Burger King Property in  Montgomery,  Alabama,  at an  approximate  cost of
$939,900.

         In April 1999, the Partnership sold its Property in Flagstaff, Arizona,
to the tenant for  $1,103,127  and  received net sales  proceeds of  $1,091,193,
resulting  in  a  gain  of  $285,350  for  financial  reporting  purposes.   The
Partnership  intends  to  reinvest  the  net  sales  proceeds  in an  additional
Property.

         Currently,  rental income from the Partnership's Properties is invested
in money market accounts or other short-term,  highly liquid investments pending
the  Partnership's  use of such  funds to pay  Partnership  expenses  or to make
distributions to the partners. At March 31, 1999, the Partnership had $1,044,255
invested in such short-term  investments,  as compared to $2,047,140 at December
31, 1998.  The decrease in cash and cash  equivalents  during the quarter  ended
March 31, 1999, is primarily  attributable to the reinvestment of sales proceeds
in a Property in Montgomery,  Alabama,  during the quarter ended March 31, 1999,
as described above. The Partnership  expects to use the funds remaining at March
31,  1999  to pay  distributions  and  other  liabilities  and to  invest  in an
additional Property.



<PAGE>


Liquidity and Capital Resources - Continued

         Total liabilities of the Partnership,  including distributions payable,
increased  to  $708,034 at March 31,  1999 from  $695,755  at December  31, 1998
primarily as a result of the Partnership  accruing transaction costs relating to
the  proposed  merger  with CNL  American  Properties  Fund,  Inc.  ("APF"),  as
described  below. The increase in liabilities was partially offset by a decrease
in  amounts  due to related  parties at March 31,  1999.  The  general  partners
believe that the  Partnership  has  sufficient  cash on hand to meet its current
working capital needs.

         Based on current and anticipated  future cash from operations,  and for
the  quarter  ended  March 31,  1998,  proceeds  received  from the sales of two
Properties  during  1998,  the  Partnership  declared  distributions  to limited
partners of $500,000 and  $1,977,747  for the quarters  ended March 31, 1999 and
1998, respectively.  This represents distributions of $10.00 and $39.55 per unit
for the quarters ended March 31, 1999 and 1998, respectively.  Distributions for
the  quarter  ended  March  31,  1998  included  $1,477,747  as a result  of the
distribution of net sales proceeds from the sale of the Properties in Fernandina
Beach and Daytona Beach, Florida. The reduced number of Properties for which the
Partnership receives rental payments, as well as ongoing operations, reduced the
Partnership's  revenues  in 1998 and is  expected  to reduce  the  Partnership's
revenues in subsequent  years.  The decrease in Partnership  revenues,  combined
with the fact that a significant portion of the Partnership's expenses are fixed
in  nature,  resulted  in a  descrease  in  cash  distributions  to the  limited
partners.  No  distributions  were made to the general partners for the quarters
ended March 31, 1999 and 1998. No amounts  distributed  to the limited  partners
for the  quarters  ended March 31, 1999 and 1998 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.

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

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

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
of Merger with APF,  pursuant to which the Partnership  would be merged with and
into a subsidiary of APF (the "Merger").  APF is a real estate  investment trust
whose primary  business is the ownership of  restaurant  properties  leased on a
long-term,  "triple-net" basis to operators of national and regional  restaurant
chains.  APF has agreed to issue shares of its common stock, par value $0.01 per
share (the "APF Shares"),  as  consideration  for the Merger.  APF has agreed to
issue  2,082,901  APF Shares  which,  for the  purposes  of  valuing  the merger
consideration,  have been valued by APF at $10.00 per APF Share,  the price paid
by APF investors in three previous  public  offerings,  the most recent of which
was  completed  in December  1998.  In order to assist the  general  partners in
evaluating the proposed  merger  consideration,  the general  partners  retained
Valuation  Associates,  a nationally  recognized real estate  appraisal firm, to
appraise the Partnership's  restaurant  property  portfolio.  Based on Valuation
Associates'  appraisal,  the Partnership's  property  portfolio and other assets
were valued on a going concern basis (meaning

<PAGE>


Liquidity and Capital Resources - Continued

the  Partnership  continues  unchanged) at  $20,535,734 as of December 31, 1998.
Legg Mason Wood Walker,  Incorporated  has rendered a fairness  opinion that the
APF Share  consideration,  payable  by APF,  is fair to the  Partnership  from a
financial point of view. The APF Shares are expected to be listed for trading on
the New York Stock Exchange  concurrently  with the  consummation of the Merger,
and,  therefore,  would be freely  tradable at the option of the former  limited
partners.  At a special  meeting of the partners  that is expected to be held in
the third  quarter  of 1999,  limited  partners  holding in excess of 50% of the
Partnership's  outstanding limited partnership  interest must approve the Merger
prior to consummation of the transaction. If the limited partners at the special
meeting approve the Merger,  APF will own the Properties and other assets of the
Partnership.  The general partners intend to recommend that the limited partners
of the Partnership approve the Merger. In connection with their  recommendation,
the general  partners  will  solicit the consent of the limited  partners at the
special meeting. If the limited partners reject the Merger, the Partnership will
bear the portion of the  transaction  costs based upon the  percentage  of "For"
votes and the general partners will bear the portion of such  transaction  costs
based upon the percentage of "Against" votes and abstentions.

         On May 5,  1999,  four  limited  partners  in several of the CNL Income
Funds filed a lawsuit  against the general  partners and APF in connection  with
the  proposed  Merger  (see Part II - Item 1. Legal  Proceedings).  The  general
partners and APF believe that the lawsuit is without  merit and intend to defend
vigorously against the claims.  Because the lawsuit was so recently filed, it is
premature to further comment on the lawsuit at this time.

Results of Operations

         During the  quarter  ended  March 31,  1998,  the  Partnership  and its
consolidated joint venture, Tuscawilla Joint Venture, owned and leased 27 wholly
owned  Properties  (which included five Properties  which were sold in 1998) and
during the quarter ended March 31, 1999, the  Partnership  and its  consolidated
joint  venture  owned and leased 23 wholly  owned  Properties,  to  operators of
fast-food and family-style  restaurant chains. In connection  therewith,  during
the quarters ended March 31, 1999 and 1998, the Partnership  earned $426,846 and
$454,991, respectively, in rental income from operating leases and earned income
from direct  financing  leases from these  Properties.  Rental and earned income
decreased by  approximately  $44,000 during the quarter ended March 31, 1999, as
compared to the quarter  ended March 31,  1998,  as a result of the sale of five
Properties  during 1998.  The decrease  was  partially  offset by an increase in
rental and earned  income of  approximately  $17,300 due to the fact that during
January 1999, the  Partnership  reinvested a portion of net sales proceeds in an
additional  Property,  as described above in "Liquidity and Capital  Resources."
Rental and earned  income are expected to remain at reduced  amounts as a result
of  distributing  a  portion  of the net  sales  proceeds  from  two of the five
Properties sold during 1998.

         In  addition,  during the quarters  ended March 31, 1999 and 1998,  the
Partnership  earned  $16,470 and  $41,182,  respectively,  in interest and other
income. The decrease in interest and other income during the quarter ended March
31, 1999, as compared to the quarter ended March

<PAGE>


Results of Operations - Continued

31, 1998, is primarily attributable to a decrease in interest income as a result
of the fact that in July 1998, the  Partnership  collected the full balance of a
mortgage note receivable  that the Partnership had accepted in conjunction  with
the sale of a Property in a prior year.

         For the quarters ended March 31, 1999 and 1998, the  Partnership  owned
and leased one Property indirectly through a joint venture arrangement and three
Properties as  tenants-in-common  with  affiliates of the general  partners.  In
addition,  during the quarter ended March 31, 1999,  the  Partnership  owned and
leased one additional Property  indirectly through a joint venture  arrangement.
In connection therewith,  during the quarters ended March 31, 1999 and 1998, the
Partnership earned income of $41,459 and $22,751, respectively,  attributable to
net income recorded by these joint  ventures.  The increase in net income earned
by joint  ventures  during  the  quarter  ended  March 31,  1999,  is  primarily
attributable to the fact that in May 1998, the Partnership  reinvested net sales
proceeds from sales of Properties  during 1998,  in RTO Joint  Venture,  with an
affiliate of the Partnership which has the same general partners.

         Operating expenses,  including  depreciation and amortization  expense,
were  $150,789  and  $132,552  for the  quarters  ended March 31, 1999 and 1998,
respectively.  The increase in operating expenses during the quarter ended March
31,  1999,  as compared  to the quarter  ended  March 31,  1998,  was  primarily
attributable  to the fact that during the  quarter  ended  March 31,  1999,  the
Partnership  incurred  $30,882 in  transaction  costs  relating  to the  general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating  the proposed  Merger with APF, as described above in "Liquidity and
Capital  Resources." If the limited partners reject the Merger,  the Partnership
will bear the  portion of the  transaction  costs based upon the  percentage  of
"For" votes and the general  partners will bear the portion of such  transaction
costs based upon the percentage of "Against" votes and abstentions. The increase
in operating expenses was partially offset by a decrease in depreciation expense
of approximately $11,000, due to the sales of several Properties during 1998 and
a decrease of  approximately  $4,200,  due to the fact that,  during the quarter
ended  March 31,  1998,  the  Partnership  recognized  real  estate tax  expense
relating to the Po Folks  Property in  Hagerstown,  Maryland,  based on the fact
that payment of this amount by the former tenant was doubtful.  The  Partnership
sold this Property in June 1998.

         As a result of the sales of three  Properties  during the quarter ended
March  31,  1998,  the  Partnership  recognized  a total  gain of  $583,373  for
financial reporting  purposes.  No Properties were sold during the quarter ended
March 31, 1999.



<PAGE>


Year 2000 Readiness Disclosure

         The Year  2000  problem  concerns  the  inability  of  information  and
non-information  technology  systems to  properly  recognize  and  process  date
sensitive  information beyond January 1, 2000. The Partnership does not have any
information or  non-information  technology  systems.  The general  partners and
affiliates  of the general  partners  provide all services  requiring the use of
information  and  non-information  technology  systems  pursuant to a management
agreement  with  the  Partnership.  The  information  technology  system  of the
affiliates of the general partners  consists of a network of personal  computers
and servers built using  hardware and software from  mainstream  suppliers.  The
non-information technology systems of the affiliates of the general partners are
primarily  facility related and include building  security  systems,  elevators,
fire suppressions,  HVAC, electrical systems and other utilities. The affiliates
of the general partners have no internally  generated programmed software coding
to correct,  because  substantially  all of the software utilized by the general
partners and  affiliates is purchased or licensed from external  providers.  The
maintenance  of   non-information   technology   systems  at  the  Partnership's
Properties is the  responsibility of the tenants of the Properties in accordance
with the terms of the Partnership's leases.

         In early 1998, the general  partners and affiliates  formed a Year 2000
committee  (the "Y2K Team") for the purpose of  identifying,  understanding  and
addressing the various  issues  associated  with the Year 2000 problem.  The Y2K
Team  consists of the general  partners and members from the  affiliates  of the
general partners, including representatives from senior management,  information
systems,  telecommunications,  legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness  consists of  identifying  any systems  that are  date-sensitive  and,
accordingly,  could have potential  Year 2000  problems.  The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.

         The  information  system of the  affiliates of the general  partners is
comprised of hardware  and  software  applications  from  mainstream  suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and  manufacturers  to verify the Year 2000  compliance  of their  products.  In
addition,  the Y2K Team has also requested and is evaluating  documentation from
other   companies  with  which  the  Partnership  has  a  material  third  party
relationship,   including  the   Partnership's   tenants,   vendors,   financial
institutions and the  Partnership's  transfer agent. The Partnership  depends on
its  tenants  for  rents  and  cash  flows,   its  financial   institutions  for
availability  of cash and its  transfer  agent to  maintain  and track  investor
information.  The Y2K Team has also  requested and is  evaluating  documentation
from the  non-information  technology systems providers of the affiliates of the
general  partners.  Although the general  partners  continue to receive positive
responses  from the  Companies  with  which  the  Partnership  has  third  party
relationships regarding their Year 2000 compliance,  the general partners cannot
be assured that the  tenants,  financial  institutions,  transfer  agent,  other
vendors and system  providers have adequately  considered the impact of the Year
2000. The general  partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.


<PAGE>


Year 2000 Readiness Disclosure - Continued

         The general  partners and their  affiliates  have  identified  and have
implemented  upgrades for certain hardware equipment.  In addition,  the general
partners and their  affiliates have  identified  certain  software  applications
which will require upgrades to become Year 2000 compliant.  The general partners
expect all of these upgrades,  as well as any other necessary  remedial measures
on the  information  technology  systems  used in the  business  activities  and
operations of the Partnership,  to be completed by September 30, 1999, although,
the general  partners cannot be assured that the upgrade  solutions  provided by
the vendors have addressed all possible Year 2000 issues.  The general  partners
do not  expect  the  aggregate  cost of the Year 2000  remedial  measures  to be
material to the results of operations of the Partnership.

         The general  partners and affiliates have received  certification  from
the  Partnership's  transfer  agent  of its  Year  2000  compliance.  Due to the
material  relationship of the Partnership  with its transfer agent, the Y2K Team
is evaluating the Year 2000  compliance of the systems of the transfer agent and
expects to have the  evaluation  completed  by September  30, 1999.  Despite the
positive  response  from the transfer  agent and the  evaluation of the transfer
agent's system by the Y2K Team, the general  partners cannot be assured that the
transfer  agent has addressed  all possible Year 2000 issues.  In the event that
the  systems of the  transfer  agent are not Year 2000  compliant,  the  general
partners and their  affiliates  would have to allocate  resources to  internally
perform  the  functions  of the  transfer  agent.  The  general  partners do not
anticipate  that the additional  cost of these  resources  would have a material
impact on the Partnership.

     Based upon the progress the general  partners and  affiliates  have made in
addressing  the Year 2000 issues and their plan and  timeline  to  complete  the
compliance  program,  the  general  partners do not  foresee  significant  risks
associated  with Year 2000  compliance  at this time.  The general  partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership  being  affected  by them;  therefore,  they  have not  developed  a
comprehensive  contingency  plan.  However,  if the general  partners  and their
affiliates identify significant risks related to their Year 2000 compliance,  or
if their progress deviates from the anticipated  timeline,  the general partners
and their affiliates will develop  contingency plans as deemed necessary at that
time.

Item 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.



<PAGE>


                           PART II. OTHER INFORMATION



Item 1.       Legal Proceedings.

              On May 5, 1999, four limited partners in several of the CNL Income
              Funds  filed a  lawsuit,  Jon Hale,  Mary J.  Hewitt,  Charles  A.
              Hewitt, and Gretchen M. Hewitt v. James M. Seneff,  Jr., Robert A.
              Bourne, CNL Realty Corporation,  and CNL American Properties Fund,
              Inc., Case No.  CIO-99-0003561,  in the Circuit Court of the Ninth
              Judicial  Circuit of Orange  County,  Florida,  alleging  that the
              Messrs.  Seneff and Bourne and CNL Realty Corporation,  as general
              partners of the CNL Income Funds,  breached their fiduciary duties
              and  violated  the  provisions  of certain of the CNL Income  Fund
              partnership agreements in connection with the proposed acquisition
              of the  CNL  Income  Funds  by APF.  The  plaintiffs  are  seeking
              unspecified damages and equitable relief. The general partners and
              APF believe that the lawsuit is without merit and intend to defend
              vigorously  against  such  claims.  Because  the  lawsuit  was  so
              recently  filed, it is premature to further comment on the lawsuit
              at this time.

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

                      2.1      Agreement  and Plan of Merger by and  between the
                               Registrant and CNL American Properties Fund, Inc.
                               ("APF") dated March 11, 1999 (filed as Appendix B
                               to the Prospectus  Supplement for the Registrant,
                               constituting a part of the Registration Statement
                               of APF on Form S-4, File No. 74329.)

                      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.)



<PAGE>


                      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.)

                      27       Financial Data Schedule (Filed herewith.)

               (b)  Reports on Form 8-K

                      Current  Report on Form 8-K dated March 11, 1999 and filed
                      March 12,  1999,  describing  the  proposed  merger of the
                      Partnership  with and into a  subsidiary  of CNL  American
                      Properties Fund, Inc.





<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 14th day of May, 1999.


                     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)