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, 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 _____


<TABLE>
<CAPTION>

                                    CONTENTS
<S><C>



                                                                                                  Page
Part I.

     Item 1.      Financial Statements:

                      Condensed Balance Sheets                                                     1

                      Condensed Statements of Income                                               2

                      Condensed Statements of Partners' Capital                                    3

                      Condensed Statements of Cash Flows                                           4

                      Notes to Condensed Financial Statements                                      5-6

     Item 2.      Management's Discussion and Analysis of Financial                                7-10
                      Condition and Results of Operations

     Item 3.      Quantitative and Qualitative Disclosures About                                   10
                      Market Risk


Part II.

     Other Information                                                                             11-13

</TABLE>






                                                                   4

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

                                                                                June 30,             December 31,
                                                                                  2000                   1999
                                                                           -------------------    -------------------
<S><C>
                               ASSETS

   Land and buildings on operating leases, less accumulated
       depreciation of $2,916,595 and $2,771,519, respectively
                                                                                 $ 11,627,690           $ 11,772,766
   Net investment in direct financing leases                                        1,111,449              1,120,608
   Investment in joint ventures                                                     2,400,535              2,418,036
   Cash and cash equivalents                                                          787,947              1,011,733
   Receivables, less allowance for doubtful accounts
       of $8,797 in 1999                                                               20,115                    658
   Due from related parties                                                             1,283                  2,300
   Prepaid expenses                                                                     7,681                  5,896
   Accrued rental income                                                              142,986                111,167
   Other assets                                                                        29,354                 29,354
                                                                           -------------------    -------------------

                                                                                 $ 16,129,040           $ 16,472,518
                                                                           ===================    ===================

                  LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                                   $20,663             $   76,247
   Escrowed real estate taxes payable                                                  14,735                 12,872
   Distributions payable                                                              500,000                500,000
   Due to related parties                                                             144,460                121,781
   Rents paid in advance                                                               24,624                 27,765
                                                                           -------------------    -------------------
       Total liabilities                                                              704,482                738,665

   Minority interest                                                                  131,393                132,910

   Partners' capital                                                               15,293,165             15,600,943
                                                                           -------------------    -------------------

                                                                                 $ 16,129,040           $ 16,472,518
                                                                           ===================    ===================

See accompanying notes to condensed financial statements
</TABLE>




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

                                                               Quarter Ended                     Six Months Ended
                                                                  June 30,                           June 30,
                                                           2000             1999              2000              1999
                                                        ------------     ------------      ------------      ------------
<S><C>
Revenues:
    Rental income from operating leases                   $ 385,160        $ 297,471         $ 770,319         $ 680,349
    Earned income from direct financing leases               31,566          110,427            63,267           154,395
    Contingent rental income                                 14,572           26,437            36,300            29,418
    Interest and other income                                 7,160           37,862            25,851            54,332
                                                        ------------     ------------      ------------      ------------
                                                            438,458          472,197           895,737           918,494
                                                        ------------     ------------      ------------      ------------

Expenses:
    General operating and administrative                     40,773           29,310            74,976            64,032
    Professional services                                     2,774           10,874            12,082            14,162
    State and other taxes                                        --              924            12,084            13,541
    Depreciation                                             72,538           65,560           145,076           134,840
    Transaction costs                                        18,403           51,231            45,062            82,113
                                                        ------------     ------------      ------------      ------------
                                                            134,488          157,899           289,280           308,688
                                                        ------------     ------------      ------------      ------------

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                  303,970          314,298           606,457           609,806

Minority Interest in Income of Consolidated
    Joint Venture                                            (4,229 )         (4,232 )          (8,574 )          (8,577 )

Equity in Earnings of Unconsolidated
    Joint Ventures                                           46,043           41,998            94,339            83,457

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

Net Income                                                $ 345,784        $ 645,576         $ 692,222         $ 978,198
                                                        ============     ============      ============      ============

Allocation of Net Income:
    General partners                                       $  3,458         $  5,883          $  6,922          $  9,209
    Limited partners                                        342,326          639,693           685,300           968,989
                                                        ------------     ------------      ------------      ------------

                                                          $ 345,784        $ 645,576         $ 692,222         $ 978,198
                                                        ============     ============      ============      ============

Net Income Per Limited Partner Unit                        $   6.85         $  12.79          $  13.71          $  19.38
                                                        ============     ============      ============      ============

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

See accompanying notes to condensed financial statements
</TABLE>




                            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,
                                                                              2000                      1999
                                                                     -----------------------    ---------------------

<S><C>
General partners:
    Beginning balance                                                          $    371,371               $  354,638
    Net income                                                                        6,922                   16,733
                                                                     -----------------------    ---------------------
                                                                                    378,293                  371,371
                                                                     -----------------------    ---------------------

Limited partners:
    Beginning balance                                                            15,229,572               15,515,634
    Net income                                                                      685,300                1,713,938
    Distributions ($20.00 and $40.00 per
       limited partner unit, respectively)                                       (1,000,000 )             (2,000,000 )
                                                                     -----------------------    ---------------------
                                                                                 14,914,872               15,229,572
                                                                     -----------------------    ---------------------

Total partners' capital                                                      $   15,293,165             $ 15,600,943
                                                                     =======================    =====================

See accompanying notes to condensed financial statements
</TABLE>



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

                                                                                   Six Months Ended
                                                                                       June 30,
                                                                                2000               1999
                                                                           ---------------     --------------
<S><C>
Increase (Decrease) in Cash and Cash Equivalents

    Net Cash Provided by Operating Activities                                   $ 786,305          $ 958,915
                                                                           ---------------     --------------

    Cash Flows from Investing Activities:
       Proceeds from sale of land and buildings                                         --          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 used in investing activities                                    --           (238,939 )
                                                                           ---------------     --------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                                       (1,000,000 )       (1,000,000 )
       Distributions to holders of minority interest                              (10,091 )           (9,979 )
                                                                           ---------------     --------------
              Net cash used in financing activities                            (1,010,091 )       (1,009,979 )
                                                                           ---------------     --------------

Net Decrease in Cash and Cash Equivalents                                        (223,786 )         (290,003 )

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

Cash and Cash Equivalents at End of Period                                      $ 787,947         $1,757,137
                                                                           ===============     ==============


Supplemental Schedule of Non-Cash Financing Activities:

       Distributions declared and unpaid at end of
          period                                                                $ 500,000          $ 500,000
                                                                           ===============     ==============
See accompanying notes to condensed financial statements
</TABLE>



                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 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 six months ended June 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 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.   Concentration of Credit Risk:

       The  following  schedule  presents  total  rental and earned  income from
       individual  lessees,  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
       properties  held as  tenants-in-common  with  affiliates  of the  general
       partners) for at least one of the six month periods ended June 30:
<TABLE>
<CAPTION>

                                                                      2000                       1999
                                                              ----------------------    -----------------------
<S><C>
      Golden Corral Corporation                                        $    161,019               $    161,019
      IHOP Properties, Inc.                                                 140,348                        N/A


</TABLE>


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


2.     Concentration of Credit Risk-Continued:

       In addition,  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 properties held as  tenant-in-common  with affiliates of
       the general  partners)  for at least one of the six month  periods  ended
       June 30:
<TABLE>
<CAPTION>

                                                                    2000                         1999
                                                          -------------------------     -----------------------
<S><C>
      Golden Corral Family Steakhouse Restaurants
                                                                         $ 216,008                   $ 215,976
      IHOP                                                                 140,348                         N/A
      KFC                                                                  135,542                     131,940
      Pizza Hut                                                            117,104                     113,359
</TABLE>

       The information  denoted by N/A indicates that for each period presented,
       the tenant or 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.

3.      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.

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, 2000, the Partnership  owned 28
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 six months ended
June 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  $786,305  and  $958,915,
respectively. The decrease in cash from operations for the six months ended June
30, 2000 was primarily a result of changes in the Partnership's working capital.

         Currently,  rental income from the Partnership's Properties is 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 June 30,
2000, the Partnership had $787,947 invested in such short-term  investments,  as
compared to  $1,011,733  at December 31, 1999.  The funds  remaining at June 30,
2000, after payment of distributions  and other liabilities will be used to meet
the Partnership's working capital and other needs.

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,
decreased  to  $704,482 at June 30,  2000 from  $738,665  at  December  31, 1999
primarily  as a result of a decrease in accounts  payable at June 30,  2000,  as
compared to December 31, 1999. The decrease was partially  offset by an increase
in amounts due to related  parties at June 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 the  Partnership
declared  distributions  to limited  partners of $1,000,000  for each of the six
months ended June 30, 2000 and 1999  ($500,000  for each of the  quarters  ended
June 30, 2000 and 1999).  This represents  distributions  of $20.00 per unit for
each of the six months  ended June 30,  2000 and 1999  ($10.00 per unit for each
applicable quarter).  No distributions were made to the general partners for the
quarters and six months ended June 30, 2000 and 1999. No amounts  distributed to
the limited  partners for the quarters ended June 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 six months  ended June 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 six months ended June 30, 2000, the Partnership and its  consolidated
joint  venture  owned and leased 22 wholly  owned  Properties  to  operators  of
fast-food and family-style  restaurant chains. In connection  therewith,  during
the six months ended June 30, 2000 and 1999, the Partnership earned $833,586 and
$834,744, respectively, in rental income from operating leases and earned income
from direct  financing  leases from these  Properties,  $416,726 and $407,898 of
which was earned during the quarters ended June 30, 2000 and 1999, respectively.

         In addition,  during the six months  ended June 30, 2000 and 1999,  the
Partnership  earned  $25,851 and  $54,332,  respectively,  in interest and other
income,  $7,160 and $37,862 of which was earned  during the quarters  ended June
30, 2000 and 1999,  respectively.  Interest and other income were higher  during
the quarter and six months ended June 30,  1999,  as compared to the quarter and
six  months  ended  June 30,  2000,  partially  due to the fact that  during the
quarter  and  six  months  ended  June  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 six months ended June 30, 1999 due to the fact that the  Partnership
recorded  approximately  $7,500  in  interest  income  earned  on the net  sales
proceeds  received from the sale of a Property in April 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 six months  ended June 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  six  months  ended  June  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 six
months ended June 30, 2000 and 1999,  the  Partnership  earned income of $94,339
and $83,457,  respectively,  $46,043 and $41,998 of which was earned  during the
quarters ended June 30, 2000 and 1999, respectively.  The increase in net income
earned by joint  ventures  during the quarter and six months ended June 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 six months  ended June 30,  2000,  two of the  Partnership's
lessees, Golden Corral Corporation and IHOP Properties, Inc., each accounted for
more than ten  percent of the  Partnership's  total  rental  and  earned  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
tenant-in-common).  It is anticipated that during the remainder of 2000, each of
these  lessees  will  continue  to  account  for more  than ten  percent  of the
Partnership's  total  rental  and  earned  income  to which the  Partnership  is
entitled under the terms of the leases. In addition, during the six months ended
June  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  $289,280 and $308,688  during the six months ended June 30, 2000 and 1999,
respectively,  of which $134,488 and $157,899 were incurred  during the quarters
ended June 30, 2000 and 1999,  respectively.  The decrease in operating expenses
during the  quarter  and six months  ended June 30,  2000,  as  compared  to the
quarter and six months ended June 30, 1999,  was primarily  attributable  to the
fact that the Partnership incurred less transaction costs during the quarter and
six  months  ended June 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 six months
ended June 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.

         As a result of the sales of two  Properties  during the quarter and six
months ended June 30, 1999, the Partnership  recognized  total gains of $293,512
for financial reporting purposes. No Properties were sold during the quarter and
six months ended June 30, 2000.

Termination of Merger

         On March 1, 2000,  the  general  partners  and APF  mutually  agreed to
terminate the Agreement and Plan of Merger (the "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

Dismissal of Legal Action

         As described in greater detail in Part II, Item 1. "Legal Proceedings,"
in 1999,  two  groups of limited  partners  in several  CNL Income  Funds  filed
purported  class action  suits  against the general  partners and APF  alleging,
among other  things,  that the general  partners  had breached  their  fiduciary
duties  in  connection  with the  proposed  merger.  These  actions  were  later
consolidated  into one action.  On April 25, 2000, the judge in the consolidated
action issued an order dismissing the action without prejudice,  with each party
to bear its own costs and attorneys' fees.

Item 3.           Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.



                           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
              sought unspecified  damages and equitable relief. On July 8, 1999,
              the plaintiffs  filed an amended  complaint  which, in addition to
              naming three additional plaintiffs, included 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 sought additional equitable relief. As amended, the caption of
              the case was 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 sought unspecified damages and equitable relief.

              On September 23, 1999,  Judge Lawrence  Kirkwood  entered an order
              consolidating  the two cases  under the  caption In re: CNL Income
              Funds  Litigation,  Case No. 99-3561.  Pursuant to this order, the
              plaintiffs  in  these  cases  filed  a  consolidated  and  amended
              complaint on November 8, 1999.  On December 22, 1999,  the general
              partners and CNL Group,  Inc. filed motions to dismiss and motions
              to strike.  On December 28, 1999, APF and CNL Fund Advisors,  Inc.
              filed motions to dismiss.  On March 6, 2000, all of the defendants
              filed a Joint Notice of Filing Form 8-K Reports and  Suggestion of
              Mootness.

              On April 25, 2000,  Judge Kirkwood issued a Stipulated Final Order
              of Dismissal of Consolidated Action, dismissing the action without
              prejudice,  with each  party to bear its own costs and  attorneys'
              fees.

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 June 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 9th day of August, 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)