FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                  For the quarterly period ended June 30, 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>


                                                                             June 30,              December 31,
                                                                               1999                    1998
                                                                         ------------------     -------------------
<S> <C>
                         ASSETS

   Land and buildings on operating leases, less
       accumulated depreciation of $2,637,561 and
       $2,738,895, respectively                                               $ 10,472,484            $ 11,418,836
   Net investment in direct financing leases, less allowance
       for impairment in carrying value of $25,821 in 1998                       1,129,246                 887,071
   Investment in joint ventures                                                  2,150,281               2,157,147
   Cash and cash equivalents                                                     1,757,137               2,047,140
   Restricted cash                                                               1,097,485                      --
   Receivables, less allowance for doubtful accounts
       of $6,158 and $153,598, respectively                                         18,690                  89,519
   Prepaid expenses                                                                  9,830                   6,751
   Accrued rental income, less allowance for doubtful
       accounts of $41,380 in 1998                                                  86,038                  65,914
   Other assets                                                                     29,354                  29,354
                                                                         ------------------     -------------------

                                                                              $ 16,750,545            $ 16,701,732
                                                                         ==================     ===================

                  LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                             $   71,146              $    2,072
   Escrowed real estate taxes payable                                               12,538                  15,217
   Distributions payable                                                           500,000                 500,000
   Due to related party                                                            163,474                 152,887
   Rents paid in advance                                                            20,614                  25,579
                                                                         ------------------     -------------------
       Total liabilities                                                           767,772                 695,755

   Commitments and Contingencies (Note 5)

   Minority interests                                                              134,303                 135,705

   Partners' capital                                                            15,848,470              15,870,272
                                                                         ------------------     -------------------

                                                                              $ 16,750,545            $ 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                     Six Months Ended
                                                                  June 30,                           June 30,
                                                           1999             1998              1999              1998
                                                        ------------     ------------      ------------      ------------
<S> <C>
Revenues:
    Rental income from operating leases                   $ 297,471        $ 318,276         $ 680,349         $ 739,401
    Earned income from direct financing leases              110,427           33,743           154,395            67,609
    Contingent rental income                                 26,437           21,053            29,418            33,886
    Interest and other income                                37,862           39,489            54,332            80,671
                                                        ------------     ------------      ------------      ------------
                                                            472,197          412,561           918,494           921,567
                                                        ------------     ------------      ------------      ------------

Expenses:
    General operating and administrative                     29,310           38,942            64,032            70,722
    Professional services                                    10,874           20,446            14,162            25,056
    Real estate taxes                                            --            3,306                --             7,535
    State and other taxes                                       924              204            13,541            11,720
    Depreciation and amortization                            65,560           83,902           134,840           164,319
    Transaction costs                                        51,231               --            82,113                --
                                                        ------------     ------------      ------------      ------------
                                                            157,899          146,800           308,688           279,352
                                                        ------------     ------------      ------------      ------------

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                  314,298          265,761           609,806           642,215

Minority Interest in Income of Consolidated
    Joint Venture                                            (4,232 )         (4,236 )          (8,577 )          (8,581 )

Equity in Earnings of Unconsolidated
    Joint Ventures                                           41,998           18,523            83,457            41,274

Gain on Sale of Land and Buildings                          293,512           13,213           293,512           596,586
                                                        ------------     ------------      ------------      ------------

Net Income                                                $ 645,576        $ 293,261         $ 978,198        $1,271,494
                                                        ============     ============      ============      ============

Allocation of Net Income:
    General partners                                       $  5,883         $  2,932          $  9,209          $ 11,490
    Limited partners                                        639,693          290,329           968,989         1,260,004
                                                        ------------     ------------      ------------      ------------

                                                          $ 645,576        $ 293,261         $ 978,198        $1,271,494
                                                        ============     ============      ============      ============

Net Income Per Limited Partner Unit                        $  12.79         $   5.81          $  19.38          $  25.20
                                                        ============     ============      ============      ============

Weighted Average Number of Limited Partner
    Units Outstanding                                        50,000           50,000            50,000            50,000
                                                        ============     ============      ============      ============
</TABLE>

           See accompanying notes to condensed financial statements.


<PAGE>


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


                                                                           Six Months Ended            Year Ended
                                                                               June 30,               December 31,
                                                                                 1999                     1998
                                                                        -----------------------     -----------------
<S> <C>
General partners:
    Beginning balance                                                            $   354,638              $  339,611
    Net income                                                                         9,209                  15,027
                                                                          -------------------       -----------------
                                                                                     363,847                 354,638
                                                                          -------------------       -----------------

Limited partners:
    Beginning balance                                                             15,515,634              17,271,525
    Net income                                                                       968,989               1,721,856
    Distributions ($20.00 and $69.55 per
       limited partner unit, respectively)                                        (1,000,000 )            (3,477,747 )
                                                                          -------------------       -----------------
                                                                                  15,484,623              15,515,634
                                                                          -------------------       -----------------

Total partners' capital                                                         $ 15,848,470            $ 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>

                                                                                   Six Months Ended
                                                                                       June 30,
                                                                                1999               1998
                                                                           ---------------     --------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                                   $ 958,915          $ 936,758
                                                                           ---------------     --------------

    Cash Flows from Investing Activities:
       Proceeds from sale of land and buildings                                 1,792,169          3,214,616
       Addition to land and buildings on
          operating leases                                                       (326,996 )               --
       Investment in direct financing lease                                      (612,920 )               --
       Investment in joint ventures                                                    --           (801,682 )
       Collections on note receivable                                                  --              6,557
       Decrease (increase) in restricted cash                                  (1,091,192 )          245,377
                                                                           ---------------     --------------
              Net cash provided by (used in) investing
                  activities                                                     (238,939 )        2,664,868
                                                                           ---------------     --------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                                       (1,000,000 )       (2,571,747 )
       Distributions to holders of minority interest                               (9,979 )          (10,099 )
                                                                           ---------------     --------------
              Net cash used in financing activities                            (1,009,979 )       (2,581,846 )
                                                                           ---------------     --------------

Net Increase (Decrease) in Cash and Cash
    Equivalents                                                                  (290,003 )        1,019,780

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

Cash and Cash Equivalents at End of Period                                     $1,757,137         $1,512,898
                                                                           ===============     ==============

Supplemental Schedule of Non-Cash Investing
    and Financing Activities:

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

       Distributions declared and unpaid at end of
          period                                                                 $500,000          $ 500,000
                                                                           ===============     ==============
</TABLE>

           See accompanying notes to condensed financial statements.


<PAGE>



                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 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 and six months ended June 30, 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 a Po Folks property in Hagerstown,
         Maryland,  along with amounts collected in 1998 under a promissory note
         accepted  in  connection  with the 1997 sale of a Property  in Roswell,
         Georgia, in a Burger King property in Montgomery, Alabama. The Property
         had 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 direct financing lease.

         In April 1999, the Partnership sold its property in Flagstaff, Arizona,
         to the  tenant,  for  $1,103,127  and  received  net sales  proceeds of
         $1,091,192,  resulting  in a gain of $285,350 for  financial  reporting
         purposes.  This property was originally  acquired by the Partnership in
         October  1998  and  had a cost  of  approximately  $993,500,  excluding
         acquisition fees and miscellaneous acquisition expenses; therefore, the
         Partnership  sold the property for  approximately  $97,700 in excess of
         its original purchase price (see Note 4).



<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 1999 and 1998


2.       Land and Buildings on Operating Leases - Continued:

         In June 1999, the Partnership  sold its Denny's property in Hagerstown,
         Maryland to the tenant, for $710,000 and received net sales proceeds of
         $700,977,  resulting  in a  gain  of  $8,162  for  financial  reporting
         purposes (see Note 3).


3.       Net Investment in Direct Financing Leases:

         In June 1999, the Partnership  sold its Denny's property in Hagerstown,
         Maryland,  for which the  building  portion  had been  classified  as a
         direct financing lease. In connection  therewith,  the gross investment
         (minimum lease payments  receivable and estimated  residual  value) and
         unearned  income  relating  to this  property  were  removed  from  the
         accounts  and the gain  from the sale  relating  to this  property  was
         reflected in income (see Note 2).

4.       Restricted Cash:

         As of June 30, 1999, net sales proceeds of $1,091,192  from the sale of
         the property in Flagstaff,  Arizona,  plus accrued  interest of $6,293,
         were being held in interest-bearing  escrow account pending the release
         of funds by the  escrow  agent to  acquire an  additional  property  on
         behalf of the Partnership.

5.       Commitments and Contingencies:

         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 1,041,451  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 $20.00 per APF  Share,  the
         price  paid by APF  investors  (after an  adjustment  for a one for two
         reverse stock split which  occurred on June 3, 1999) 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  the
         Partnership continues


<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 1999 and 1998


5.       Commitments and Contingencies - Continued:

         unchanged) at  $20,535,734  as of December 31, 1998. 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
         fourth 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 11,  1999,  four  limited  partners in several of the CNL Income
         Funds  served  a  lawsuit  against  the  general  partners  and  APF in
         connection  with the proposed  Merger.  On July 8, 1999, the plaintiffs
         amended  the  complaint  to add three  additional  limited  partners as
         plaintiffs.  Additionally,  on June 22,  1999,  a  limited  partner  in
         certain of the CNL Income  Funds  served a lawsuit  against the general
         partners,  APF  and  CNL  Fund  Advisors,   Inc.  and  certain  of  its
         affiliates,  in  connection  with  the  proposed  Merger.  The  general
         partners and APF believe that the lawsuits are without merit and intend
         to defend  vigorously  against the claims.  See Part II - Item 1. Legal
         Proceedings.



<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 June 30, 1999, the Partnership  owned 26
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 of the general partners as tenants-in-common.

Capital Resources

         During the six months  ended June 30,  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 $958,915 and $936,758,  respectively. The increase in
cash from  operations  for the six months  ended June 30,  1999 is  primarily  a
result of changes in the Partnership's working capital and changes in income and
expenses as described in "Results of Operations" below.

         Other sources and uses of capital included the following during the six
months ended June 30, 1999.

         In January 1999,  the  Partnership  reinvested  the majority of the net
sales  proceeds  from  the  1998  sale of a Po  Folks  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  $1,091,192,
resulting in a gain of $285,350 for financial reporting purposes.  This Property
was  originally  acquired by the  Partnership  in October 1988 and had a cost of
approximately $993,500, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately $97,700
in excess of its original  purchase  price.  As of June 30, 1999,  the net sales
proceeds  were being held in an  interest  bearing  escrow  account  pending the
release of funds by the escrow  agent to acquire  an  additional  Property.  The
Partnership  anticipates  this  transaction,  or  a  portion  thereof,  will  be
structured to qualify as a like-kind exchange transaction for federal income tax
purposes.

         In June 1999, the Partnership  sold its Denny's Property in Hagerstown,
Maryland,  to the  tenant  for  $710,000  and  received  net sales  proceeds  of
$700,977,  resulting in a gain of $8,162 for financial reporting  purposes.  The
Partnership  intends  to  reinvest  the  remaining  net  sales  proceeds  in  an
additional Property. The Partnership anticipates that it will distribute amounts
sufficient to enable the limited partners to pay federal and state income taxes,
if any (at a level reasonably assumed by the general  partners),  resulting from
the sale.

         Currently,  rental  income from the  Partnership's  Properties  and net
sales  proceeds  from  the  sale  of a  Property,  pending  reinvestment  in  an
additional Property,  are invested in money market accounts or other short-term,
highly liquid  investments such as demand deposit accounts at commercial  banks,
certificates  of  deposits,  and money market  accounts  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 June  30,  1999,  the
Partnership had $1,757,137 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 six months ended June 30,  1999,  is  primarily  attributable  to the
reinvestment  of net sales  proceeds in a Property in  Montgomery,  Alabama,  in
January  1999,  as described  above.  The  Partnership  expects to use the funds
remaining at June 30, 1999 to pay  distributions  and other  liabilities  and to
invest in an additional Property.

Short-Term Liquidity

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

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

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

         The Partnership  generally  distributes cash from operations  remaining
after the payment of operating  expenses of the Partnership,  to the extent that
the general partners  determine that such funds are available for  distribution.
Based on current and anticipated  future cash from  operations,  and for the six
months ended June 30, 1998,  proceeds received from the sales of two Properties,
the Partnership  declared  distributions  to limited  partners of $1,000,000 and
$2,477,747  for the six  months  ended  June  30,  1999 and  1998,  respectively
($500,000  for  each of the  quarters  ended  June  30,  1999  and  1998).  This
represents  distributions of $20.00 and $49.55 per unit for the six months ended
June 30, 1999 and 1998,  respectively  ($10.00 per unit for each of the quarters
ended June 30, 1999 and 1998).  Distributions  for the six months ended June 30,
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.
No  distributions  were made to the general  partners  for the  quarters and six
months  ended June 30,  1999 and 1998.  No amounts  distributed  to the  limited
partners  for the six months  ended June 30, 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.

         Total liabilities of the Partnership,  including distributions payable,
increased  to  $767,772 at June 30,  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  general  partners  believe  that  the  Partnership  has
sufficient cash on hand to meet its current working capital needs.

Long-Term Liquidity

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

Results of Operations

         During the six months  ended June 30,  1998,  the  Partnership  and its
consolidated joint venture, Tuscawilla Joint Venture, owned and leased 26 wholly
owned  Properties  (which included four Properties  which were sold in 1998) and
during the six months ended June 30, 1999, the Partnership and its  consolidated
joint venture owned and leased 23 wholly owned  Properties  (which  included two
Properties  which were sold in 1999), to operators of fast-food and family-style
restaurant chains. In connection therewith, during the six months ended June 30,
1999 and 1998, the Partnership  earned $834,744 and $807,010,  respectively,  in
rental  income from  operating  leases and earned  income from direct  financing
leases from these  Properties,  $407,898 and $352,019 of which was earned during
the quarters ended June 30, 1999 and 1998, respectively.  The increase in rental
and earned  income  during the  quarter  and six months  ended June 30,  1999 as
compared to the quarter and six months ended June 30,  1998,  is due to the fact
that,  during the quarter and six months  ended June 30, 1998,  the  Partnership
terminated  its lease  with the  tenant  of the  Property  in  Canton  Township,
Michigan.  Therefore, during the quarter and six months ended June 30, 1998, the
Partnership wrote-off approximately $59,000 in accrued rental income relating to
this Property,  representing non-cash accounting  adjustments since inception of
the lease relating to the straight lining of future  scheduled rent increases in
accordance with generally accepted accounting  principles.  No such amounts were
written off during the quarter and six months ended June 30, 1999.

         The  increase  in rental and earned  income  during the quarter and six
months ended June 30, 1999, was partially  offset by a decrease of approximately
$26,100 and $69,700, respectively, as a result of the sale of several Properties
during  1998 and 1999.  This  decrease  was  partially  offset by an increase in
rental and earned  income of  approximately  $24,300 and  $41,600,  respectively
during the  quarter  and six months  ended June 30,  1999,  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 "Capital Resources." However,
rental and earned  income are expected to remain at reduced  amounts as a result
of  distributing a portion of the net sales proceeds to limited  partners during
1998 from two of the Properties sold during 1998.

         For the six months ended June 30, 1999 and 1998, the Partnership  owned
and leased three Properties  indirectly  through joint venture  arrangements and
three Properties as  tenants-in-common  with affiliates of the general partners.
In connection therewith, during the six months ended June 30, 1999 and 1998, the
Partnership  earned  income of $83,457 and  $41,274,  respectively,  $41,998 and
$18,523 of which was earned  during the  quarters  ended June 30, 1999 and 1998,
respectively.  The increase in net income  earned by joint  ventures  during the
quarter and six months ended June 30, 1999, is due 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 general partners.

         In addition,  during the six months  ended June 30, 1999 and 1998,  the
Partnership  earned  $54,332 and  $80,671,  respectively,  in interest and other
income,  $37,862 and $39,489 of which was earned during the quarters  ended June
30, 1999 and 1998,  respectively.  The  decrease in  interest  and other  income
during the six months ended June 30,  1999,  as compared to the six months ended
June 30, 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 related to the Property in Roswell,  Georgia, that
the  Partnership  had accepted in  conjunction  with the sale of a Property in a
prior year.

         Operating expenses,  including  depreciation and amortization  expense,
were  $308,688  and  $279,352  for the six months  ended June 30, 1999 and 1998,
respectively,  of which  $157,899  and $146,800  were  incurred for the quarters
ended June 30, 1999 and 1998,  respectively.  The increase in operating expenses
during the  quarter  and six months  ended June 30,  1999,  as  compared  to the
quarter and six months ended June 30, 1998,  was  primarily due to the fact that
the Partnership incurred  approximately $51,200 and $82,100 in transaction costs
during the quarter and six months ended June 30, 1999, respectively, relating to
the general  partners  retaining  financial and legal advisors to assist them in
evaluating and negotiating the proposed Merger with APF, as described  below. 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 for the quarter and six months ended
June 30, 1999, was partially  offset by a decrease in operating  expenses due to
the fact that,  during 1998, the Partnership  recognized real estate tax expense
relating to the Po Folks  Property in  Hagerstown,  Maryland,  based on the fact
that  payment  by the former  tenant was  doubtful.  The  Partnership  sold this
Property in June 1998.  The increase in operating  expenses also was offset by a
decrease in operating  expenses during the quarter and six months ended June 30,
1999,  as a result of a  decrease  in  depreciation  expense  due to the sale of
several Properties during the six months ended June 30, 1999 and 1998.

         As a result of the sales of two  Properties  during the quarter and six
months  ended June 30,  1999,  as described  above in "Capital  Resources,"  the
Partnership recognized total gains of $293,512 for financial reporting purposes.
In  addition,  as a result of the sales of one and four  Properties  during  the
quarter and six months ended June 30, 1998,  the  Partnership  recognized  total
gains of $13,213 and $596,586, respectively.

Proposed Merger

         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").  As consideration  for the Merger,  APF
has agreed to issue  1,041,451  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 $20.00 per APF Share,  the price paid
by APF  investors  (after an  adjustment  for a one for two reverse  stock split
which occurred on June 3, 1999) 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 the  Partnership  continues
unchanged) at  $20,535,734  as of December 31, 1998. 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 fourth 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 11,  1999,  four  limited  partners in several of the CNL Income
Funds served a lawsuit  against the general  partners and APF in connection with
the proposed  Merger.  On July 8, 1999, the plaintiffs  amended the complaint to
add three additional limited partners as plaintiffs.  Additionally,  on June 22,
1999,  a limited  partner in certain  of the CNL Income  Funds  served a lawsuit
against the general partners, APF and CNL Fund Advisors, Inc. and certain of its
affiliates, in connection with the proposed Merger. The general partners and APF
believe  that the  lawsuits  are without  merit and intend to defend  vigorously
against the claims. See Part II - Item 1. Legal Proceedings.

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.  As  of  June  30,  1999  the
Partnership did not have any information or non-information  technology systems.
The general  partners  and  certain of the  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
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  certain of 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.

         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  that 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 their  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  will 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 their 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,  we  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 11, 1999, four limited partners in several CNL Income Funds
              served a derivative and purported class action lawsuit filed April
              22, 1999 against the general partners and APF in the Circuit Court
              of the Ninth Judicial Circuit of Orange County, Florida,  alleging
              that the general  partners  breached  their  fiduciary  duties and
              violated  provisions of certain of the CNL Income Fund partnership
              agreements in connection with the proposed Merger.  The plaintiffs
              are seeking  unspecified  damages and equitable relief. On July 8,
              1999, the plaintiffs filed an amended complaint which, in addition
              to naming three  additional  plaintiffs,  includes  allegations of
              aiding and abetting and  conspiring  to breach  fiduciary  duties,
              negligence and breach of duty of good faith against certain of the
              defendants and seeks additional  equitable relief. As amended, the
              caption  of the  case is Jon  Hale,  Mary J.  Hewitt,  Charles  A.
              Hewitt,  Gretchen  M.  Hewitt  Bernard J.  Schulte,  Edward M. and
              Margaret  Berol Trust,  and Vicky Berol v. James M.  Seneff,  Jr.,
              Robert  A.  Bourne,  CNL  Realty  Corporation,  and  CNL  American
              Properties Fund, Inc., Case No. CIO-99-0003561.

              On June 22,  1999,  a limited  partner of several CNL Income Funds
              served a  purported  class  action  lawsuit  filed  April 29, 1999
              against the general partners and APF, Ira Gaines, individually and
              on  behalf  of a class  of  persons  similarly  situated,  v.  CNL
              American  Properties Fund,  Inc., James M. Seneff,  Jr., Robert A.
              Bourne,  CNL Realty  Corporation,  CNL Fund  Advisors,  Inc.,  CNL
              Financial  Corporation  a/k/a CNL Financial  Corp.,  CNL Financial
              Services,  Inc. and CNL Group, Inc., Case NO. CIO-99-3796,  in the
              Circuit  Court of the Ninth  Judicial  Circuit  of Orange  County,
              Florida,   alleging  that  the  general  partners  breached  their
              fiduciary  duties and that APF aided and abetted  their  breach of
              fiduciary  duties in  connection  with the  proposed  Merger.  The
              plaintiff is seeking unspecified damages and equitable relief.

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.



<PAGE>


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 and as amended on
                               June  4,  1999   (Filed  as  Appendix  B  to  the
                               Prospectus   Supplement   for   the   Registrant,
                               constituting  a part of  Amendment  No.  1 to 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  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  3.1  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
                      June 30, 1999.



<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 August, 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)