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, 2002
   --------------------------------------------------------------------------

                                       OR

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

For the transition period from ___________________ to _______________________

                             Commission file number
                                     0-16850
                     ---------------------------------------


                            CNL Income Fund III, Ltd.
-----------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


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


   450 South Orange Avenue
      Orlando, Florida                                     32801
------------------------------------           ------------------------------
(Address of principal executive offices)                 (Zip Code)


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


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



<PAGE>


                                    CONTENTS




                                                                          Page
Part I.

     Item 1.  Financial Statements:

                  Condensed Balance Sheets                                 1

                  Condensed Statements of Income                           2

                  Condensed Statements of Partners' Capital                3

                  Condensed Statements of Cash Flows                       4

                  Notes to Condensed Financial Statements                  5-7

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

     Item 3.  Quantitative and Qualitative Disclosures About
                  Market Risk                                              11


Part II.

     Other Information                                                     12-13





<PAGE>


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

                                                                               June 30,             December 31,
                                                                                 2002                   2001
                                                                          -------------------    -------------------

 <c>
                              ASSETS

  Land and buildings on operating leases, net                                  $   9,458,207          $   9,324,746
  Net investment in direct financing leases                                               --                772,309
  Investment in joint ventures                                                     2,084,258              2,196,170
  Mortgage note receivable                                                           324,356                     --
  Cash and cash equivalents                                                          607,122              1,242,931
  Receivables, less allowance for doubtful accounts
      of $40,595 and $28,216, respectively                                             4,487                 27,528
  Due from related parties                                                               334                  9,754
  Accrued rental income                                                               85,073                 74,755
  Other assets                                                                        34,304                 31,923
                                                                          -------------------    -------------------

                                                                               $  12,598,141          $  13,680,116
                                                                          ===================    ===================

                 LIABILITIES AND PARTNERS' CAPITAL

  Accounts payable                                                               $     4,208           $     12,786
  Real estate taxes payable                                                            2,746                 12,050
  Distributions payable                                                              375,000                437,500
  Due to related parties                                                             148,343                128,985
  Rents paid in advance                                                               13,108                  3,943
                                                                          -------------------    -------------------
      Total liabilities                                                              543,405                595,264

  Minority interest                                                                  126,035                127,430

  Partners' capital                                                               11,928,701             12,957,422
                                                                          -------------------    -------------------

                                                                               $  12,598,141          $  13,680,116
                                                                          ===================    ===================
</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,
                                                               2002            2001             2002             2001
                                                           -------------   -------------   ----------------  --------------

 <c>
Revenues:
    Rental income from operating leases                       $ 287,837       $ 377,551        $   588,368      $  751,943
    Earned income from direct financing leases                    5,063          30,988             24,830          62,128
    Contingent rental income                                      5,486          77,516             32,506          87,897
    Interest and other income                                     7,346           5,914             13,237          16,119
                                                           -------------   -------------   ----------------  --------------
                                                                305,732         491,969            658,941         918,087
                                                           -------------   -------------   ----------------  --------------

Expenses:
    General operating and administrative                         51,927          58,708            111,808         139,359
    Property expenses                                            17,808           2,220             34,023           3,554
    State and other taxes                                         2,050           1,911             23,080          12,538
    Depreciation                                                 66,621          69,535            126,769         139,070
    Provision for write-down of assets                           79,649              --            126,005              --
                                                           -------------   -------------   ----------------  --------------
                                                                218,055         132,374            421,685         294,521
                                                           -------------   -------------   ----------------  --------------
Income Before Loss on Sale of Assets, Minority
    Interest in Income of Consolidated Joint Venture
    and Equity in Earnings of Unconsolidated Joint
    Ventures                                                     87,677         359,595            237,256         623,566

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

Minority Interest in Income of Consolidated
    Joint Venture                                                (4,388 )        (4,370 )           (8,591 )        (8,649 )

Equity in Earnings of Unconsolidated Joint Ventures              51,929          20,012            102,559          69,233
                                                           -------------   -------------   ----------------  --------------

Net Income                                                    $ 125,273       $ 375,237        $   321,279      $  684,150
                                                           =============   =============   ================  ==============

Net Income per Limited Partner Unit                            $   2.51        $   7.50         $     6.43       $   13.68
                                                           =============   =============   ================  ==============

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,
                                                                                 2002                    2001
                                                                         ---------------------    -------------------

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

Limited partners:
    Beginning balance                                                              12,586,051             14,068,004
    Net income                                                                        321,279                918,047
    Distributions ($27.00 and $48.00 per
       limited partner unit, respectively)                                         (1,350,000 )           (2,400,000 )
                                                                         ---------------------    -------------------
                                                                                   11,557,330             12,586,051
                                                                         ---------------------    -------------------

Total partners' capital                                                       $    11,928,701         $   12,957,422
                                                                         =====================    ===================

</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,
                                                                               2002                2001
                                                                         -----------------    ---------------

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

    Net Cash Provided by Operating Activities                                 $   618,661         $  845,168
                                                                         -----------------    ---------------

    Cash Flows from Investing Activities:
       Proceeds from sale of assets                                                78,295                 --
       Liquidating distribution from joint venture                                106,521                 --
       Other                                                                      (16,800 )               --
                                                                         -----------------    ---------------
              Net cash provided by investing activities                           168,016                 --
                                                                         -----------------    ---------------

    Cash Flows from Financing Activities:
       Distributions to limited partners                                       (1,412,500 )         (875,000 )
       Distributions to holders of minority interests                              (9,986 )          (10,003 )
                                                                         -----------------    ---------------
              Net cash used in financing activities                            (1,422,486 )         (885,003 )
                                                                         -----------------    ---------------

Net Decrease in Cash and Cash Equivalents                                        (635,809 )          (39,835 )

Cash and Cash Equivalents at Beginning of Period                                1,242,931            578,746
                                                                         -----------------    ---------------

Cash and Cash Equivalents at End of Period                                    $   607,122         $  538,911
                                                                         =================    ===============

Supplemental Schedule of Non-Cash Investing and Financing
    Activities:

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

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

       Distributions declared and unpaid at end of
          period                                                              $   375,000         $  437,500
                                                                         =================    ===============
</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, 2002 and 2001


   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, 2002 may not be indicative of
         the results that may be expected for the year ending December 31, 2002.
         Amounts as of December 31, 2001,  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, 2001.

         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.

         Effective  January  1,  2002,  the  Partnership  adopted  Statement  of
         Financial  Accounting  Standards No. 144 "Accounting for the Impairment
         or Disposal of  Long-Lived  Assets."  This  statement  requires  that a
         long-lived  asset be  tested  for  recoverability  whenever  events  or
         changes in  circumstances  indicate that its carrying amount may not be
         recoverable.   The  carrying  amount  of  a  long-lived  asset  is  not
         recoverable  if it  exceeds  the  sum of the  undiscounted  cash  flows
         expected to result from the use and eventual  disposition of the asset.
         The assessment is based on the carrying amount of the asset at the date
         it is tested for recoverability.  An impairment loss is recognized when
         the carrying amount of a long-lived asset exceeds its fair value. If an
         impairment is recognized,  the adjusted carrying amount of a long-lived
         asset is its new cost  basis.  The  statement  also  requires  that the
         results of  operations of a component of an entity that either has been
         disposed  of or is  classified  as  held  for  sale  be  reported  as a
         discontinued   operation  if  the  disposal   activity  was   initiated
         subsequent to the adoption of the Standard.

2.       Reclassification:
         ----------------

         Certain  items in the  prior  year's  financial  statements  have  been
         reclassified to conform to 2002 presentation.  These  reclassifications
         had no effect on total partners' capital or net income.

3.       Land and Buildings on Operating Leases:
         --------------------------------------

         During the six months ended June 30, 2002, the Partnership  established
         a  provision  for  write-down  of assets  of  $46,356  relating  to its
         property in  Fayetteville,  North Carolina.  In January,  the tenant of
         this property,  Houlihan's, Inc., filed for bankruptcy and rejected the
         one lease it had with the  Partnership.  The provision  represented the
         difference  between the  carrying  value of the  property  and its fair
         value.


<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 2002 and 2001


3.       Land and Buildings on Operating Leases - Continued:
         --------------------------------------------------

         In May 2002, the Partnership sold the property in Montgomery,  Alabama,
         the building portion of which is classified as a direct financing lease
         (see Note 4), to an unrelated third party for $400,000. The Partnership
         received net sales proceeds of  approximately  $398,300  (consisting of
         approximately  $78,300 in cash and $320,000 in the form of a promissory
         note,  see Note 5) resulting in a loss of $9,945 during the quarter and
         six months  ended  June 30,  2002.  In  connection  with the sale,  the
         Partnership incurred a deferred,  subordinated, real estate disposition
         fee of $12,000 (see Note 7). This property was  identified  for sale as
         of December 31, 2001.

         In June 2002, the Partnership established a provision for write-down of
         assets of $76,649  relating  to its  property in Altus,  Oklahoma,  the
         lease for which is scheduled to expire in October  2002.  The provision
         represented  the difference  between the carrying value of the property
         and its fair value.

4.       Net Investment in Direct Financing Leases:
         -----------------------------------------

         In January 2002, the tenant of the property in Canton  Township,  Ohio,
         filed for bankruptcy,  and in February 2002,  rejected the one lease it
         had with the Partnership. As a result, the Partnership reclassified the
         asset to land and  buildings  on  operating  leases  and  recorded  the
         reclassified  asset at the lower of original cost,  present fair value,
         or present carrying amount.  No loss on termination of direct financing
         lease was recorded.

         In May 2002, the Partnership  sold the property in Montgomery,  Alabama
         to an unrelated  third party (see Note 3). In connection with the sale,
         the  gross  investment  (minimum  lease  payments  receivable  and  the
         estimated  residual value) and unearned income relating to the building
         were  removed  from  the  accounts  and the  loss  from the sale of the
         property was reflected in income.

5.       Mortgage  Note  Receivable:
         --------------------------

         In connection with the sale of its property in Montgomery, Alabama, the
         Partnership  accepted  a  promissory  note  in  the  principal  sum  of
         $320,000,  collateralized  by a mortgage on the property  (see Note 3).
         The  promissory  note bears interest at a rate of ten percent per annum
         for the first  year,  twelve  percent per annum for the second year and
         fourteen  percent per annum for the third year.  The payments are being
         collected in monthly  installments of $1,333 plus any accrued interest,
         with a balloon payment of $273,333,  due in June 2005. In addition,  if
         the borrower  does not pay off the  promissory  note, a loan fee of one
         percent,  two percent and three  percent of the  outstanding  principal
         balance as of May 31, 2003, 2004, and 2005, respectively will be due.

6.       Investment in Joint Ventures:
         ----------------------------

         In January 2002,  Titusville  Joint Venture,  in which the  Partnership
         owned a 73.4% interest, sold its property,  which had been vacant since
         1997,  to an unrelated  third party for $180,000 and received net sales
         proceeds   of   approximately   $165,600,   resulting   in  a  gain  of
         approximately  $4,900 to the joint  venture.  The  Partnership  and the
         joint venture  partner  dissolved the joint venture and the Partnership
         received  approximately $106,500 representing its pro rata share of the
         joint venture's liquidating distribution.  No gain or loss was recorded
         relating to the dissolution of the joint venture.


<PAGE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
              Quarters and Six Months Ended June 30, 2002 and 2001


7.       Related Party Transaction:
         --------------------------

         An  affiliate  of the  Partnership  is  entitled to receive a deferred,
         subordinated real estate  disposition fee, payable upon the sale of one
         or more  properties,  based on the lesser of one-half of a  competitive
         real  estate  commission  or three  percent  of the sales  price if the
         Advisor  provides a substantial  amount of services in connection  with
         the sales.  However,  if the net sales  proceeds  are  reinvested  in a
         replacement  property,  no such real  estate  disposition  fees will be
         incurred  until  such  replacement  property  is sold and the net sales
         proceeds are  distributed.  The payment of the real estate  disposition
         fee is  subordinated  to the receipt by the  limited  partners of their
         aggregate, cumulative 10% Preferred Return, plus their adjusted capital
         contributions.   During  the  six  months  ended  June  30,  2002,  the
         Partnership  incurred a deferred,  subordinated real estate disposition
         fee of $12,000 as a result of the Partnership's sale of the property in
         Montgomery, Alabama.

8.       Concentration of Credit Risk:
         ----------------------------

         The following  schedule  presents total rental revenues from individual
         lessees,  each representing  more than 10% of the  Partnership's  total
         rental revenues  (including the Partnership's  share of rental revenues
         from joint ventures and the properties held as  tenants-in-common  with
         affiliates of the general  partners) for each of the periods ended June
         30:

                                                2002                2001
                                           ---------------     ---------------

            IHOP Properties, Inc.              $  139,814          $  140,095
            Golden Corral Corp.                    84,866             161,019

         In addition, the following schedule presents total rental revenues from
         individual  restaurant  chains,  each representing more than 10% of the
         Partnership's  total rental revenues (including the Partnership's share
         of rental  revenues  from joint  ventures  and the  properties  held as
         tenants-in-common  with affiliates of the general partners) for each of
         the periods ended June 30:

                                                 2002               2001
                                             --------------     -------------

             Golden Corral Family
                 Steakhouse Restaurants          $ 139,855         $ 284,604
             IHOP                                  139,814           140,095
             KFC                                   135,318           125,137
             Taco Bell                              86,334               N/A
             Pizza Hut                              82,256               N/A

         The  information   denoted  by  N/A  indicates  that  for  each  period
         presented,   the  chains  did  not  represent  more  than  10%  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 one of these lessees or
         restaurant chains will  significantly  impact the results of operations
         of the  Partnership  if the  Partnership  is not able to  re-lease  the
         properties in a timely manner.




<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         CNL Income Fund III,  Ltd.  (the  "Partnership")  is a Florida  limited
partnership  that was  organized  on June 1, 1987 to  acquire  for cash,  either
directly or through  joint  venture  arrangements,  both newly  constructed  and
existing restaurant  properties,  as well as land upon which restaurants were to
be constructed  (the  "Properties"),  which are leased primarily to operators of
selected national and regional fast-food restaurant chains. The leases generally
are  triple-net  leases,  with  the  lessees  responsible  for all  repairs  and
maintenance,  property taxes, insurance and utilities.  As of June 30, 2001, the
Partnership owned 20 Properties directly and seven Properties indirectly through
joint  venture or  tenancy  in common  arrangements.  As of June 30,  2002,  the
Partnership owned 17 Properties  directly and six Properties  indirectly through
joint venture or tenancy in common arrangements.

Capital Resources

         The  Partnership's  primary  source of capital for the six months ended
June 30, 2002 and 2001, was cash from operating  activities (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received,  less cash paid for expenses).  Cash from operating  activities
was  $618,661  and  $845,168  for the six months  ended June 30,  2002 and 2001,
respectively.  The decrease in cash from operating activities for the six months
ended June 30,  2002,  as compared  to the same  period of 2001 was  primarily a
result of changes in the Partnership's income and expenses, as described below.

         Other sources and uses of capital included the following during the six
months ended June 30, 2002.

         In January 2002,  Titusville  Joint Venture,  in which the  Partnership
owned a 73.40% interest, sold its Property, which had been vacant since 1997, to
an  unrelated  third  party for  $180,000  and  received  net sales  proceeds of
approximately  $165,600 resulting in a gain of approximately $4,900 to the joint
venture.  The  Partnership  and the joint  venture  partner  dissolved the joint
venture in  accordance  with the joint  venture  agreement  and the  Partnership
received  approximately  $106,500  representing  its pro rata share of the joint
venture's liquidating distribution. No gain or loss was recorded relating to the
dissolution of the joint venture.  The  Partnership  distributed the liquidation
proceeds as a special distribution to the limited partners, as described below.

         In May 2002, the Partnership  sold its Property in Montgomery,  Alabama
to an unrelated  third party for  $400,000  and  received net sales  proceeds of
approximately $398,300 (consisting of approximately $78,300 in cash and $320,000
in the form of a  promissory  note)  resulting  in a loss of $9,945  during  the
quarter and six months ended June 30, 2002. The  promissory  note bears interest
at a rate of ten percent per annum for the first year,  twelve percent per annum
for the second  year,  and  fourteen  percent per annum for the third year.  The
payments are being collected in monthly  installments of $1,333 plus any accrued
interest,  with a balloon payment of $273,333,  due in June 2005. In addition, a
loan fee of one  percent,  two  percent  and three  percent  of the  outstanding
principal balance as of May 31, 2003, 2004, and 2005,  respectively is due. This
Property was identified for sale as of December 31, 2001. In connection with the
sale, the Partnership incurred a deferred,  subordinated real estate disposition
fee of $12,000.  Payment of the real estate  disposition  fee is subordinated to
the receipt by the limited partners of their aggregate, cumulative 10% Preferred
Return,  plus their adjusted capital  contributions.  The Partnership used these
sales  proceeds  to  pay  liabilities  of  the   Partnership.   The  Partnership
distributed 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 any net
sales  proceeds  from the  sales of  Properties  are  invested  in money  market
accounts or other short-term,  highly liquid  investments such as demand deposit
accounts at commercial banks,  money market accounts and certificates of deposit
with less than a 90-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,  2002,  the  Partnership  had  $607,122  invested  in such  short-term
investments,  as compared to  $1,242,931  at December 31, 2001.  The decrease in
cash and cash  equivalents  at June 30, 2002 was  primarily due to the fact that
during the six months ended June 30, 2002,  the  Partnership  used the net sales
proceeds  that were held at December 31, 2001 to pay a special  distribution  to
the limited  partners.  The funds  remaining  at June 30,  2002,  after  payment
distributions  and  other  liabilities,  will be used to meet the  Partnership's
working capital 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.

         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,  2002,  the net sales  proceeds  from the 2001 sale of the
Property in Washington,  Illinois and the liquidating distribution received from
Titusville  Joint Venture,  the Partnership  declared  distributions  to limited
partners of  $1,350,000  and $875,000 for the six months ended June 30, 2002 and
2001, respectively,  ($375,000 and $437,500 for the quarters ended June 30, 2002
and 2001, respectively).  This represents distributions of $27.00 and $17.50 per
unit for the six months ended June 30, 2002 and 2001,  respectively,  ($7.50 and
$8.75 per unit for each applicable  quarter).  Distributions  for the six months
ended June 30, 2002 included a special  distribution  of $600,000 as a result of
the distribution of the net sales proceeds from the 2001 sale of the Property in
Washington,  Illinois and the liquidating  distribution received from Titusville
Joint Venture.  This special  distribution was effectively a return of a portion
of  the  limited  partners'   investment,   although,  in  accordance  with  the
Partnership agreement, it was applied to the limited partner's unpaid cumulative
10% Preferred Return. As a result of the sale of several  Properties in 2002 and
2001,  the  Partnership's  total  revenue  was reduced and is expected to remain
reduced in subsequent periods, while the majority of the Partnership's operating
expenses remained and are expected to remain fixed. Therefore,  distributions of
net cash flow were adjusted  commencing during the quarter ended March 31, 2002.
No  distributions  were made to the general  partners  for the  quarters and six
months  ended June 30,  2002 and 2001.  No amounts  distributed  to the  limited
partners  for the six months  ended June 30, 2002 and 2001 are required to be or
have been  treated by the  Partnership  as a return of capital  for  purposes of
calculating   the   limited   partners'   return  on  their   adjusted   capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the limited partners on a quarterly basis.

         Total liabilities of the Partnership,  including distributions payable,
were  $543,405 at June 30,  2002,  as compared to $595,264 at December 31, 2001.
The decrease in  liabilities at June 30, 2002 was primarily due to a decrease in
distributions  payable to the limited  partners at June 30,  2002,  as described
above.  The general partners believe that the Partnership has sufficient cash on
hand to meet its current working capital needs.

Long-Term Liquidity

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

Results of Operations

         Total rental  revenues  were $613,198 for the six months ended June 30,
2002,  as compared to $814,071 for the six months ended June 30, 2001,  of which
$292,900 and $408,539  were earned  during the second  quarter of 2002 and 2001,
respectively.  Rental revenues decreased during the quarter and six months ended
June 30, 2002, as compared to the same periods of 2001, partially as a result of
the sales of  several  Properties  during  2001 and 2002.  Rental  revenues  are
expected to remain at reduced amounts due to the fact that the Partnership  used
the majority of these net sales proceeds to pay  liabilities of the  Partnership
and to make distributions to the limited partners.

         The decrease in rental revenues during the quarter and six months ended
June 30, 2002, as compared to the same periods of 2001,  was also  partially due
to the fact that in 2002, two of the Partnership's tenants, Paragon of Michigan,
Inc. and  Houlihan's,  Inc.  filed for  bankruptcy,  ceased rental  payments and
rejected  the one  lease  each  had  with the  Partnership.  As a result  of the
rejected leases,  the Partnership  stopped  recording rental revenue relating to
these  Properties.  The Partnership  will not recognize any rental revenues from
these vacant  Properties  until the  Properties  are re-leased or sold,  and the
proceeds are reinvested in additional  Properties.  The lost revenues  resulting
from  the  rejected  leases  will  have an  adverse  effect  on the  results  of
operations  of the  Partnership  if the  Partnership  is unable to re-lease  the
Properties in a timely  manner.  The general  partners are  currently  seeking a
replacement tenant for the vacant Properties.

         During the six months  ended June 30,  2002 and 2001,  the  Partnership
also earned $32,506 and $87,897,  respectively,  in contingent rental income, of
which $5,486 and $77,516 was earned  during the quarters  ended June 30 2002 and
2001,  respectively.  The decrease in  contingent  rental income was primarily a
result of a decrease in gross sales of certain restaurant Properties with leases
requiring the payment of contingent rental income.

         During  the  six  months  ended  June  30,  2002,  two  lessees  of the
Partnership,   Golden  Corral  Corporation,  and  IHOP  Properties,  Inc.,  each
contributed more than 10% of the Partnership's  total rental revenues (including
rental  revenues  from the  Partnership's  consolidated  joint  venture  and the
Partnership's  share of rental revenues from Properties owned by  unconsolidated
joint ventures and Properties  owned with affiliates of the general  partners as
tenants-in-common). It is anticipated that, based on the minimum rental payments
required by the leases,  IHOP Properties,  Inc. will continue to contribute more
than  10%  of  the  Partnership's  total  rental  revenues.  In  addition,  five
restaurant  chains,   Golden  Corral  Family  Steakhouse   Restaurants  ("Golden
Corral"),  IHOP, KFC, Taco Bell, and Pizza Hut, each accounted for more than 10%
of the Partnership's total rental revenues,  (including rental revenues from the
Partnership's  consolidated  joint  venture and the  Partnership's  share of the
rental  revenues from  Properties  owned by  unconsolidated  joint  ventures and
Properties owned with affiliates of the general partners as  tenants-in-common).
It is  anticipated  that these five  restaurant  chains,  each will  continue to
account for more than 10% of total rental  revenues to which the  Partnership is
entitled  under the terms of the leases.  Any failure of these lessees or any of
these restaurant chains could materially affect the Partnership's income, if the
Partnership is not able to re-lease these Properties in a timely manner.

         During the six months  ended June 30,  2002 and 2001,  the  Partnership
earned $102,559 and $69,233, respectively,  attributable to net income earned by
unconsolidated  joint  ventures,  $51,929 and $20,012 of which was earned during
the quarters ended June 30, 2002 and 2001.  Net income earned by  unconsolidated
joint  ventures was lower during the quarter and six months ended June 30, 2001,
as compared to the same  periods of 2002  primarily  due to the fact that during
the quarter and six months ended June 30,  2001,  Titusville  Joint  Venture (in
which the Partnership owns a 73.4% interest) recorded a provision for write-down
of assets of  approximately  $38,300.  The Property  owned by the joint  venture
became vacant during 1997.  Titusville  Joint Venture had previously  recorded a
provision for write-down of assets  relating to this  Property.  The increase in
the provision  during 2001  represented  the  difference  between the Property's
carrying  value and its fair value.  In January 2002,  Titusville  Joint Venture
sold its  property,  to an  unrelated  third party for $180,000 and received net
sales proceeds of  approximately  $165,600  resulting in a gain of approximately
$4,900 to the joint  venture.  The  Partnership  and the joint  venture  partner
dissolved the joint venture in accordance  with the joint venture  agreement and
the Partnership received  approximately $106,500 representing its pro rata share
of the joint venture's  liquidating  distribution.  No gain or loss was recorded
relating to the  dissolution of the joint venture.  The  Partnership  used these
proceeds  to pay  liabilities  of the  Partnership  and make  distributions,  as
described above in "Capital Resources."

         Operating expenses,  including  depreciation  expense and provision for
write-down  of assets,  were $421,685 and $294,521 for the six months ended June
30, 2002 and 2001,  respectively,  of which  $218,055  and $132,374 was incurred
during the  quarters  ended June 30, 2002 and 2001.  The  increase in  operating
expenses  during the quarter and six months ended June 30, 2002,  as compared to
the same  periods of 2001,  was  partially  due to the fact that  during the six
months ended 2002, the Partnership recorded a provision for write-down of assets
of $46,356  relating  to the  Property  in  Fayetteville,  North  Carolina.  The
provision  represented the difference between the carrying value of the Property
and its fair value. In January, the tenant of this property,  Houlihan's,  Inc.,
filed for bankruptcy and rejected the one lease it had with the Partnership,  as
described  above.  In  addition,  during the quarter  ended June 30,  2002,  the
Partnership recorded a provision for write-down of assets of $79,649 relating to
the Property in Altus,  Oklahoma,  the lease for which is scheduled to expire in
October 2002.  The provision  represented  the  difference  between the carrying
value of the  Property and its fair value.  The  increase in operating  expenses
during the six months  ended June 30,  2002,  as  compared to the same period of
2001,   was  partially   offset  by  a  decrease  in  the  costs   incurred  for
administrative  expenses for servicing the  Partnership and its Properties and a
decrease  in  depreciation  expense  as a result of the sales of two  Properties
during 2001.  The increase in operating  expenses was also  partially due to the
fact that the Partnership  incurred Property expenses,  such as legal fees, real
estate taxes, insurance,  and maintenance relating to the two vacant Properties,
the leases for which were rejected,  as described  above.  The general  partners
anticipate that the Partnership will continue to incur these expenses related to
the vacant  Properties  until such time as the Partnership  executes a new lease
for the Properties or until the  Partnership  sells the Properties and the sales
proceeds are  reinvested  in  additional  Properties.  The general  partners are
currently  seeking new  tenants  for the vacant  Properties.  In  addition,  the
increase in operating  expenses  during the six months ended June 30, 2002,  was
partially  due to an  increase  in the amount of state tax  expense  relating to
certain states in which the Partnership conducts business.

         Effective  January  1,  2002,  the  Partnership  adopted  Statement  of
Financial  Accounting  Standards  No.  144  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets." This statement requires that a long-lived asset
be tested  for  recoverability  whenever  events  or  changes  in  circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived  asset is not recoverable if it exceeds the sum of the undiscounted
cash flows  expected  to result  from the use and  eventual  disposition  of the
asset.  The assessment is based on the carrying  amount of the asset at the date
it is tested for  recoverability.  An  impairment  loss is  recognized  when the
carrying  amount of a long-lived  asset exceeds its fair value. If an impairment
is recognized,  the adjusted  carrying  amount of a long-lived  asset is its new
cost basis.  The  statement  also  requires  that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a  discontinued  operation if the disposal  activity was
initiated subsequent to the adoption of the Standard.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         During the six months ended June 30, 2002, the  Partnership  accepted a
promissory  note in  connection  with the sale of its  Property  in  Montgomery,
Alabama.  The general  partners  believe  that the  estimated  fair value of the
mortgage note at June 30, 2002 approximated the outstanding  principal  amounts.
The  Partnership  is exposed to equity  loss in the event of changes in interest
rates.  The following  table  presents the expected cash flows of principal that
are sensitive to these changes.

                                                 Mortgage Note
                                                   Fixed Rate
                                               -------------------

                2002                                  $     8,000
                2003                                       16,000
                2004                                       16,000
                2005                                      280,000
                2006                                           --
                Thereafter                                     --
                                               -------------------

                                                      $   320,000
                                               ===================




<PAGE>


                           PART II. OTHER INFORMATION


Item 1.       Legal Proceedings.   Inapplicable.
              -----------------

Item 2.       Changes in Securities.  Inapplicable.
              ---------------------

Item 3.       Defaults upon Senior Securities.  Inapplicable.
              -------------------------------

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

Item 5.       Other Information.  Inapplicable.
              -----------------

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

              (a)  Exhibits

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

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

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

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

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

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

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

                      10.4     Assignment of Management  Agreement from CNL Fund
                               Advisors, Inc. to CNL APF Partners, LP. (Included
                               as  Exhibit  10.4 to Form  10-Q  filed  with  the
                               Securities and Exchange  Commission on August 10,
                               2001, and incorporated herein by reference.)

                      10.5     Assignment of Management  Agreement  from CNL APF
                               Partners,  LP  to  CNL  Restaurants  XVIII,  Inc.
                               (Filed herewith.)


<PAGE>



                       (b)     Reports on Form 8-K

                               No  reports  of Form 8-K were  filed  during  the
                               quarter ended June 30, 2002.




<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 6th day of August, 2002.


                                          CNL INCOME FUND III, LTD.

                                          By: CNL REALTY CORPORATION
                                              General Partner


                                              By:/s/ James M. Seneff, Jr.
                                                 -----------------------------
                                                 JAMES M. SENEFF, JR.
                                                 Chief Executive Officer
                                                 (Principal Executive Officer)


                                              By:/s/ Robert A. Bourne
                                                 -----------------------------
                                                 ROBERT A. BOURNE
                                                 President and Treasurer
                                                 (Principal Financial and
                                                 Accounting Officer)




<PAGE>




                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                          OF CORPORATE GENERAL PARTNER

            PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation,  the  corporate  general  partner of CNL Income Fund III, Ltd. (the
"Partnership"),  has executed this  certification  in connection with the filing
with the  Securities  and Exchange  Commission  of the  Partnership's  Quarterly
Report on Form 10-Q for the period  ending  June 30,  2002 (the  "Report").  The
undersigned hereby certifies that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) the  information  contained in the Report fairly  presents,  in all material
respects, the financial condition and results of operations of the Partnership.



Date: August 6, 2002                        /s/ James M. Seneff, Jr.
     ---------------                        ----------------------------------
                                            Name:  James M. Seneff, Jr.
                                            Title:   Chief Executive Officer





<PAGE>


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                          OF CORPORATE GENERAL PARTNER

            PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The  undersigned,  Robert A. Bourne,  the  President and Treasurer of CNL Realty
Corporation,  the  corporate  general  partner of CNL Income Fund III, Ltd. (the
"Partnership"),  has executed this  certification  in connection with the filing
with the  Securities  and Exchange  Commission  of the  Partnership's  Quarterly
Report on Form 10-Q for the period  ending  June 30,  2002 (the  "Report").  The
undersigned hereby certifies that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) the  information  contained in the Report fairly  presents,  in all material
respects, the financial condition and results of operations of the Partnership.



Date:  August 6, 2002                         /s/ Robert A. Bourne
      ------------------------------          ----------------------------
                                              Name:  Robert A. Bourne
                                              Title: President and Treasurer


<PAGE>


                                  EXHIBIT INDEX


     Exhibit Number


     (c)  Exhibits

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

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

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

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

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

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

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

            10.4     Assignment of Management  Agreement from CNL Fund Advisors,
                     Inc. to CNL APF Partners,  LP. (Included as Exhibit 10.4 to
                     Form 10-Q filed with the Securities and Exchange Commission
                     on August 10, 2001, and incorporated herein by reference.)

            10.5     Assignment of Management  Agreement  from CNL APF Partners,
                     LP to CNL Restaurants XVIII, Inc. (Filed herewith.)