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 September 30, 2000
   --------------------------------------------------------------------------

                                       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                                             32801-3336
------------------------------------------             ----------------------
(Address of principal executive offices)                     (Zip Code)


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


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




<PAGE>


                                    CONTENTS




                                                                         Page
Part I.

     Item 1.    Financial Statements:

                    Condensed Balance Sheets                              1

                    Condensed Statements of Income                        2

                    Condensed Statements of Partners' Capital             3

                    Condensed Statements of Cash Flows                    4

                    Notes to Condensed Financial Statements               5-7

     Item 2.    Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                   8-11

     Item 3.    Quantitative and Qualitative Disclosures About
                    Market Risk                                           11


Part II.

     Other Information                                                    12-13





<PAGE>


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

<TABLE>
<CAPTION>
                                                                             September 30,           December 31,
                                                                                  2000                   1999
                                                                           -------------------    -------------------
<S> <C>
                               ASSETS


   Land and buildings on operating leases, less accumulated
       depreciation of $2,839,492 and $2,771,519, respectively                   $ 11,100,002           $ 11,772,766
   Net investment in direct financing leases                                        1,106,665              1,120,608
   Investment in joint ventures                                                     2,395,848              2,418,036
   Cash and cash equivalents                                                        1,195,502              1,011,733
   Receivables, less allowance for doubtful accounts
       of $8,406 and $8,797, respectively                                               7,955                    658
   Due from related parties                                                             1,153                  2,300
   Prepaid expenses                                                                     5,099                  5,896
   Accrued rental income                                                              139,345                111,167
   Other assets                                                                        29,354                 29,354
                                                                           -------------------    -------------------

                                                                                 $ 15,980,923           $ 16,472,518
                                                                           ===================    ===================

                  LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                              $     22,399           $     76,247
   Escrowed real estate taxes payable                                                   7,475                 12,872
   Distributions payable                                                            1,037,500                500,000
   Due to related parties                                                             123,232                121,781
   Rents paid in advance                                                                   --                 27,765
                                                                           -------------------    -------------------
       Total liabilities                                                            1,190,606                738,665

   Minority interest                                                                  130,696                132,910

   Partners' capital                                                               14,659,621             15,600,943
                                                                           -------------------    -------------------

                                                                                 $ 15,980,923           $ 16,472,518
                                                                           ===================    ===================




           See accompanying notes to condensed financial statements.
<PAGE>


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


                                                               Quarter Ended                      Nine Months Ended
                                                               September 30,                        September 30,
                                                           2000             1999               2000               1999
                                                        ------------     ------------      --------------     --------------
Revenues:
    Rental income from operating leases                   $ 383,424        $ 346,531         $ 1,153,743        $ 1,026,880
    Earned income from direct financing leases               31,429           31,957              94,696            186,352
    Contingent rental income                                 20,045           13,867              56,345             43,285
    Interest and other income                                 8,711           28,324              34,562             82,656
                                                        ------------     ------------      --------------     --------------
                                                            443,609          420,679           1,339,346          1,339,173
                                                        ------------     ------------      --------------     --------------

Expenses:
    General operating and administrative                     37,640           26,970             112,616             91,002
    Professional services                                     5,219            3,865              17,301             18,027
    State and other taxes                                        --               --              12,084             13,541
    Depreciation and amortization                            72,004           63,701             217,080            198,541
    Transaction costs                                            --           37,879              45,062            119,992
                                                        ------------     ------------      --------------     --------------

                                                            114,863          132,415             404,143            441,103
                                                        ------------     ------------      --------------     --------------

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                      328,746          288,264             935,203            898,070

Minority Interest in Income of Consolidated
    Joint Venture                                            (4,352 )         (4,357 )           (12,926 )          (12,934 )

Equity in Earnings  of Unconsolidated
    Joint Ventures                                           47,411           41,415             141,750            124,872

Gain on Sale of Land and Buildings                           32,151               --              32,151            293,512
                                                        ------------     ------------      --------------     --------------

Net Income                                                $ 403,956        $ 325,322         $ 1,096,178        $ 1,303,520
                                                        ============     ============      ==============     ==============

Allocation of Net Income:
    General partners                                       $  4,040         $  3,253           $  10,962          $  12,462
    Limited partners                                        399,916          322,069           1,085,216          1,291,058
                                                        ------------     ------------      --------------     --------------

                                                          $ 403,956        $ 325,322         $ 1,096,178        $ 1,303,520
                                                        ============     ============      ==============     ==============

Net Income Per Limited Partner Unit                        $   8.00         $   6.44           $   21.70          $   25.82
                                                        ============     ============      ==============     ==============

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

           See accompanying notes to condensed financial statements.
<PAGE>


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


                                                           Nine Months Ended               Year Ended
                                                             September 30,                December 31,
                                                                 2000                         1999
                                                       --------------------------     ----------------------

General partners:
    Beginning balance                                               $    371,371                $   354,638
    Net income                                                            10,962                     16,733
                                                       --------------------------     ----------------------
                                                                         382,333                    371,371
                                                       --------------------------     ----------------------

Limited partners:
    Beginning balance                                                 15,229,572                 15,515,634
    Net income                                                         1,085,216                  1,713,938
    Distributions ($40.75 and $40.00 per
       limited partner unit, respectively)                            (2,037,500 )               (2,000,000 )
                                                       --------------------------     ----------------------
                                                                      14,277,288                 15,229,572
                                                       --------------------------     ----------------------

Total partners' capital                                           $   14,659,621               $ 15,600,943
                                                       ==========================     ======================


           See accompanying notes to condensed financial statements.

<PAGE>


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


                                                                           Nine Months Ended
                                                                             September 30,
                                                                        2000               1999
                                                                   ---------------     --------------

Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                         $ 1,191,544        $ 1,263,641
                                                                   ---------------     --------------

    Cash Flows from Investing Activities:
       Proceeds from sale of land and buildings                           507,365          1,792,169
       Addition to land and buildings on
          operating leases                                                     --           (326,996 )
       Investment in direct financing lease                                    --           (612,920 )
       Increase in restricted cash                                             --         (1,091,192 )
                                                                   ---------------     --------------
              Net cash provided by (used in) investing
                  activities                                              507,365           (238,939 )
                                                                   ---------------     --------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                               (1,500,000 )       (1,500,000 )
       Distributions to holders of minority interest                      (15,140 )          (15,032 )
                                                                   ---------------     --------------
              Net cash used in financing activities                    (1,515,140 )       (1,515,032 )
                                                                   ---------------     --------------

Net Increase (Decrease) in Cash and Cash
    Equivalents                                                           183,769           (490,330 )

Cash and Cash Equivalents at Beginning of Period                        1,011,733          2,047,140
                                                                   ---------------     --------------

Cash and Cash Equivalents at End of Period                            $ 1,195,502        $ 1,556,810
                                                                   ===============     ==============

Supplemental Schedule of Non-Cash Financing Activities:

       Distributions declared and unpaid at end of
          period                                                      $ 1,037,500         $  500,000
                                                                   ===============     ==============


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


<PAGE>

                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2000 and 1999


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  and  nine  months  ended  September  30,  2000 may not be
         indicative  of the  results  that may be  expected  for the year ending
         December  31, 2000.  Amounts as of December  31, 1999,  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, 1999.

         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.

         Certain  items in the  prior  years'  financial  statements  have  been
         reclassified to confirm to 2000 presentation.  These  reclassifications
         had no effect on partners' capital or net income.

2.       Land and Building on Operating Leases:

         In September  2000,  the  Partnership  sold its property in Plant City,
         Florida to a third party for $509,865,  and received net sales proceeds
         of  $507,365,  resulting in a gain of $32,151 for  financial  reporting
         purposes.


<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2000 and 1999


3.       Allocations and Distributions:

         Generally, all net income and net losses of the Partnership,  excluding
         gains and losses from the sale of properties,  are allocated 99 percent
         to the  limited  partners  and one  percent  to the  general  partners.
         Distributions  of net  cash  flow are made 99  percent  to the  limited
         partners and one percent to the general  partners;  provided,  however,
         that the one percent of net cash flow to be  distributed to the general
         partners  is  subordinated  to receipt by the  limited  partners  of an
         aggregate, ten percent,  noncumulative,  noncompounded annual return on
         their adjusted capital contributions (the "10% Preferred Return").

         Generally,  net  sales  proceeds  from  the sale of  properties  not in
         liquidation  of the  Partnership,  to the extent  distributed,  will be
         distributed  first to the limited  partners in an amount  sufficient to
         provide  them with their  cumulative  10%  Preferred  Return,  plus the
         return of their adjusted  capital  contributions.  The general partners
         will then receive, to the extent previously  subordinated and unpaid, a
         one percent interest in all prior  distributions of net cash flow and a
         return of their capital  contributions.  Any remaining  sales  proceeds
         will be distributed 95 percent to the limited partners and five percent
         to the general  partners.  Any gain from the sale of a property  not in
         liquidation of the  Partnership  is, in general,  allocated in the same
         manner as net sales proceeds are distributable.  Any loss from the sale
         of a property is, in general,  allocated first, on a pro rata basis, to
         partners  with  positive  balances  in  their  capital  accounts;   and
         thereafter,  95 percent to the limited partners and five percent to the
         general partners.

         Generally,  net sales  proceeds from a liquidating  sale of properties,
         will be used in the following order: (i) first to pay and discharge all
         of  the  Partnership's   liabilities  to  creditors,  (ii)  second,  to
         establish  reserves that may be deemed necessary for any anticipated or
         unforeseen liabilities or obligations of the Partnership,  (iii) third,
         to pay all of the Partnership's liabilities, if any, to the general and
         limited partners,  (iv) fourth,  after allocations of net income, gains
         and/or  losses,  to distribute  to the partners  with positive  capital
         accounts  balances,  in  proportion  to such  balances,  up to  amounts
         sufficient  to  reduce  such  positive   balances  to  zero,   and  (v)
         thereafter, any funds remaining shall then be distributed 95 percent to
         the limited partners and five percent to the general partners.

         During  the  nine  months  ended  September  30,  2000  and  1999,  the
         Partnership   declared   distributions   to  the  limited  partners  of
         $2,037,500 and  $1,500,000,  respectively  ($1,037,500 and $500,000 for
         the quarters  ended  September 30, 2000 and 1999,  respectively).  This
         represents  distributions  of $40.75  and  $30.00 per unit for the nine
         months  ended  September  30, 2000 and 1999,  respectively  ($20.75 and
         $10.00 per unit for the  quarters  ended  September  30, 2000 and 1999,
         respectively).  Distributions  for the nine months ended  September 30,
         2000, included $600,000 in a special distribution, as a

<PAGE>



                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2000 and 1999


3.       Allocations and Distributions - Continued:

         result of the  distribution of net sales proceeds from the 1999 sale of
         the property in Flagstaff,  Arizona,  and the 2000 sale of the property
         is Plant City,  Florida.  This  amount was  applied  toward the limited
         partners'  cumulative 10% Preferred Return. No distributions  have been
         made to the general partners to date.

4.       Concentration of Credit Risk:

         The  following  schedule  presents  total rental and earned income from
         individual  restaurant chains,  each representing more than ten percent
         of the  Partnership's  total rental and earned  income  (including  the
         Partnership's  share of total  rental  and  earned  income  from  joint
         ventures and the property held as  tenant-in-common  with affiliates of
         the general  partners) for at least one of the nine month periods ended
         September 30:
<TABLE>
<CAPTION>
                                                                          2000                   1999
                                                                    ------------------     ------------------
<S> <C>
             Golden Corral Family Steakhouse Restaurants
                                                                           $  315,606             $  323,980
             IHOP                                                             210,476                    N/A
             KFC                                                              200,343                196,899
             Pizza Hut                                                        167,073                163,329
</TABLE>

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

         Although  the  Partnership's   properties  are  geographically  diverse
         throughout the United States and the  Partnership's  lessees  operate a
         variety of  restaurant  concepts,  default by any lessee or  restaurant
         chain contributing more than ten percent of the Partnership's  revenues
         could significantly impact the results of operations of the Partnership
         if the  Partnership  is not able to re-lease the properties in a timely
         manner.

5.      Termination of Merger:

        On March 1, 2000, the general partners and CNL American Properties Fund,
        Inc.  ("APF")  mutually  agreed to terminate  the  Agreement and Plan of
        Merger entered into in March 1999.  The general  partners are continuing
        to  evaluate  strategic  alternatives  for  the  Partnership,  including
        alternatives to provide liquidity to the limited partners.


<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 September 30, 2000, the Partnership owned
27  Properties,  which  included  interests in three  Properties  owned by joint
ventures in which the  Partnership is a co-venturer  and four  Properties  owned
with affiliates as tenants-in-common.

Capital Resources

         The  Partnership's  primary source of capital for the nine months ended
September 30, 2000 and 1999 was 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  $1,191,544  and
$1,263,641,  respectively.  The  decrease in cash from  operations  for the nine
months  ended  September  30,  2000 was  primarily  a result of  changes  in the
Partnership's working capital.

         Currently,  rental income from the Partnership's Properties and any net
sales proceeds from the sale of Properties,  pending the distribution to limited
partners,  are invested in money  market  accounts or other  short-term,  highly
liquid  investments,  such as demand  deposit  accounts at commercial  banks and
certificates  of deposit  with less than a 30-day  maturity  date,  pending  the
Partnership's  use  of  such  funds  to  pay  Partnership  expenses  or to  make
distributions  to the  partners.  At September  30, 2000,  the  Partnership  had
$1,195,502 invested in such short-term investments, as compared to $1,011,733 at
December 31, 1999. The funds  remaining at September 30, 2000,  after payment of
distributions  and  other  liabilities  will be used to meet  the  Partnership's
working capital and other needs.

         In September  2000,  the  Partnership  sold its Property in Plant City,
Florida  to a third  party for  $509,865  and  received  net sales  proceeds  of
$507,365,  resulting in a gain of $32,151 for financial reporting purposes.  Net
proceeds from the sale of the property were distributed to the limited partners.

Short Term Liquidity

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

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

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

         Total liabilities of the Partnership,  including distributions payable,
increased to $1,190,606 at September 30, 2000 from $738,665 at December 31, 1999
primarily as a result of the Partnership  accruing a special distribution of net
sales proceeds of $600,000 from the sale of the Properties in Flagstaff, Arizona
and Plant City,  Florida as described below,  payable to the limited partners at
September 30, 2000. The increase was partially  offset by a decrease in accounts
payable at  September  30, 2000,  as compared to December 31, 1999.  The general
partners  believe that the  Partnership  has sufficient cash on hand to meet its
current working capital needs.

         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 nine
months ended  September  30, 2000, a portion of the proceeds  received  from the
1999  sale of the  Property  in  Flagstaff,  Arizona,  and the 2000  sale of the
Property in Plant City,  Florida,  the  Partnership  declared  distributions  to
limited  partners  of  $2,037,500  and  $1,500,000,  for the nine  months  ended
September  30, 2000 and 1999,  respectively  ($1,037,500  and  $500,000  for the
quarters  ended  September  30, 2000 and 1999,  respectively.)  This  represents
distributions  of $40.75 and $30.00 per unit for the nine months ended September
30,  2000 and 1999  respectively  ($20.75  and  $10.00  for the  quarters  ended
September 30, 2000 and 1999,  respectively.)  The  distribution  for the quarter
ended September 30, 2000,  included $600,000 of net sales proceeds from the sale
of the Properties in Flagstaff,  Arizona and Plant City,  Florida . This special
distribution  was  effectively  a return of a portion of the  limited  partners'
investment,  although,  in accordance  with the  Partnership  agreement,  it was
applied to the limited  partner's unpaid  cumulative 10% Preferred  Return. As a
result  of the sale of 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. Therefore, distributions of net cash flow were adjusted commencing
during the quarter ended September 30, 2000. No  distributions  were made to the
general  partners for the quarters and nine months ended  September 30, 2000 and
1999. No amounts  distributed to the limited  partners for the nine months ended
September  30, 2000 and 1999,  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.

Long-Term Liquidity

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

Results of Operations

         During the nine months ended  September 30, 1999, the  Partnership  and
its consolidated  joint venture,  Tuscawilla Joint Venture,  owned and leased 23
wholly owned Properties  (which included two Properties which were sold in 1999)
and during the nine months ended  September 30, 2000,  the  Partnership  and its
consolidated   joint  venture  owned  and  leased  22  wholly  owned  Properties
(including  one Property  which was sold in 2000) to operators of fast-food  and
family-style restaurant chains. In connection therewith,  during the nine months
ended  September  30,  2000 and 1999,  the  Partnership  earned  $1,248,439  and
$1,213,232,  respectively,  in rental  income from  operating  leases and earned
income from direct financing leases from these Properties, $414,853 and $378,488
of which was earned  during the  quarters  ended  September  30,  2000 and 1999,
respectively.  Even though rental and earned income  decreased by  approximately
$1,700 and $86,200 during the quarter and nine months ended  September 30, 2000,
respectively, as a result of the sale of two Properties in 1999 and one Property
in 2000,  the decrease was offset by an increase in rental and earned  income of
approximately  $38,400 and  $122,300  during the  quarter and nine months  ended
September 30, 2000,  respectively,  due to the  Partnership  reinvesting the net
sales  proceeds from the 1999  Property  sales in two  additional  Properties in
January and October 1999.

         In addition,  during the nine months ended September 30, 2000 and 1999,
the Partnership earned $56,345 and $43,285,  respectively,  in contingent rental
income,  $20,045  and  $13,867 of which were earned  during the  quarters  ended
September 30, 2000 and 1999,  respectively.  Contingent  rental income was lower
during  the  quarter  and  nine  months  ended  September  30,  1999  due to the
Partnership  adjusting estimated  contingent rent accruals at December 31, 1998,
to actual amounts earned during the quarter and nine months ended  September 30,
1999.

         In addition,  during the nine months ended September 30, 2000 and 1999,
the Partnership earned $34,562 and $82,656,  respectively, in interest and other
income,  $8,711  and  $28,324  of which was earned  during  the  quarters  ended
September 30, 2000 and 1999, respectively. Interest and other income were higher
during the nine months ended  September 30, 1999, as compared to the nine months
ended September 30, 2000,  partially due to the fact that during the nine months
ended  September  30,  1999,  the  Partnership  recorded  approximately  $14,400
relating  to a  partial  condemnation  of one of its  Properties.  In  addition,
interest and other  income were higher  during the quarter and nine months ended
September 30, 1999 due to the fact that during the quarter and nine months ended
September 30, 1999, the Partnership recorded  approximately $18,600 and $27,400,
respectively in interest  income earned on the net sales proceeds  received from
the sale of Properties in 1999,  which were held in an  interest-bearing  escrow
account  pending  the  release  of  funds by the  escrow  agent  to  acquire  an
additional Property on behalf of the Partnership.

         During  the  nine  months  ended  September  30,  2000  and  1999,  the
Partnership  owned and leased two  Properties  indirectly  through joint venture
arrangements  and three Properties as  tenants-in-common  with affiliates of the
general partners. In addition,  during the nine months ended September 30, 2000,
the Partnership  owned and leased one additional  Property as  tenants-in-common
with an affiliate of the general partners. In connection  therewith,  during the
nine months ended September 30, 2000 and 1999, the Partnership  earned income of
$141,750  and  $124,872,  respectively,  $47,411 and $41,415 of which was earned
during  the  quarters  ended  September  30,  2000 and 1999,  respectively.  The
increase  in net income  earned by joint  ventures  during the  quarter and nine
months ended  September 30, 2000 was primarily  attributable to the fact that in
October 1999,  the  Partnership  reinvested a portion of the net sales  proceeds
from a 1999  sale of a  Property,  in a  Property  in  Baytown,  Texas,  with an
affiliate of the general partners as tenants-in common.

         During the nine  months  ended  September  30,  2000,  four  restaurant
chains,  Golden Corral Family Steakhouse  Restaurants,  IHOP, Pizza Hut and KFC,
each  accounted  for more than ten  percent of the  Partnership's  total  rental
income (including the Partnership's share of rental income from Properties owned
by joint ventures and Properties  owned with affiliates of the general  partners
as tenants-in-common).  It is anticipated that these four restaurant chains each
will  continue to account for more than ten percent of the total  rental  income
under the terms of its leases during the remainder of 2000. Any failure of these
lessees or restaurant chains could materially affect the Partnership's income if
the Partnership is not able to re-lease the Properties in a timely manner.

         Operating expenses,  including  depreciation and amortization  expense,
were $404,143 and $441,103  during the nine months ended  September 30, 2000 and
1999,  respectively,  of which  $114,863 and $132,415 were  incurred  during the
quarters  ended  September  30,  2000 and 1999,  respectively.  The  decrease in
operating  expenses during the quarter and nine months ended September 30, 2000,
as  compared  to the  quarter and nine months  ended  September  30,  1999,  was
primarily   attributable  to  the  fact  that  the  Partnership   incurred  less
transaction  costs during the quarter and nine months ended  September 30, 2000,
related to the general partners retaining financial and legal advisors to assist
them in  evaluating  and  negotiating  the  proposed  merger  with CNL  American
Properties Fund, Inc. ("APF") due to the termination of the proposed merger,  as
described below in  "Termination of Merger." The decrease in operating  expenses
during the quarter and nine months  ended  September  30,  2000,  was  partially
offset by (i) an increase in  depreciation  expense as a result of the fact that
the Partnership acquired a Property in Auburn,  Alabama in October 1999 and (ii)
an increase in  administrative  expenses for servicing the  Partnership  and its
Properties.

         For  the  quarter  and  nine  months  ended  September  30,  2000,  the
Partnership  sold one  Property  resulting  in a gain of $32,151  for  financial
reporting  purposes,  as described above in "Capital  Resources." As a result of
the sales of two Properties during the nine months ended September 30, 1999, the
Partnership recognized total gains of $293,512 for financial reporting purposes.

Termination of Merger

         On March 1, 2000,  the  general  partners  and APF  mutually  agreed to
terminate  the  Agreement  and Plan of Merger  entered  into in March 1999.  The
general  partners are  continuing  to evaluate  strategic  alternatives  for the
Partnership, including alternatives to provide liquidity to the limited partners


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.


<PAGE>


                           PART II. OTHER INFORMATION


Item 1.   Legal Proceedings.  Inapplicable.

Item 2.   Changes in Securities.  Inapplicable.

Item 3.   Defaults upon Senior Securities.  Inapplicable.

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

Item 5.   Other Information.  Inapplicable.

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

          (a)  Exhibits

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

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

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

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

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

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

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

               27       Financial Data Schedule (Filed herewith.)

          (b)  Reports on Form 8-K

               No  reports  on Form 8-K were  filed  during  the  quarter  ended
               September 30, 2000.





<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 10th day of November, 2000.


                                           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)