FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C.  20549


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

For the quarterly period ended          September 30, 1995        
                               -----------------------------------

                                       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              (I.R.S. Employer
       of incorporation or organiza-             Identification No.)
       tion)


       400 E. South Street, #500
       Orlando, Florida                                32801              
       ----------------------------        -----------------------------
       (Address of principal                       (Zip Code)
       executive offices)


       Registrant's telephone number
       (including area code)                      (407) 422-1574         
                                           -----------------------------


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         
                                         ---------      ---------



                                    CONTENTS
                                    --------

Part I                                                            Page
                                                                  ----
  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 Condition and
             Results of Operations                                7-11


Part II

  Other Information                                               12


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

<CAPTION>
                                               September 30,     December 31,
            ASSETS                                 1995              1994    
                                               -------------     ------------
<S>                                            <C>               <C>
Land and buildings on operating
  leases, less accumulated
  depreciation of $3,226,204 and
  $2,900,784                                    $17,625,849      $17,951,269
Investment in direct financing
  lease                                             546,421          550,372
Investment in joint venture                         676,122          689,326
Cash and cash equivalents                           396,678          505,374
Receivables, less allowance for
  doubtful accounts of $247,697
  and $310,507                                      109,157          115,977
Prepaid expenses                                      6,864            3,823
Lease costs, less accumulated
  amortization of $1,412 and $962                    10,588           11,038
Accrued rental income, less
  allowance for doubtful accounts
  of $32,165 in 1995                                 77,819           89,232
Other assets                                         29,354           29,354
                                                -----------      -----------

                                                $19,478,852      $19,945,765
                                                ===========      ===========

  LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                                $     8,406      $    19,293
Accrued and escrowed real estate
  taxes payable                                      41,146           94,138
Distributions payable                               594,000          594,000
Due to related parties                               38,756            2,337
Rents paid in advance                                36,952           38,864
                                                -----------      -----------
    Total liabilities                               719,260          748,632

Commitment (Note 2)

Minority interest                                   144,857          147,004

Partners' capital                                18,614,735       19,050,129
                                                -----------      -----------

                                                $19,478,852      $19,945,765
                                                ===========      ===========
<FN>
            See accompanying notes to condensed financial statements.
</FN>
</TABLE>


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

<CAPTION>
                                    Quarter Ended        Nine Months Ended  
                                    September 30,          September 30,    
                                   1995       1994        1995        1994   
                                 --------   --------   ----------  ----------
<S>                              <C>        <C>        <C>         <C>
Revenues:
  Rental income from
    operating leases             $537,074   $566,515   $1,653,760  $1,658,285
  Earned income from
    direct financing
    lease                          18,029     18,199       54,219      54,710
  Contingent rental income         15,567     40,064       73,459      88,825
  Interest and other income        13,242      6,102       19,755      30,106
                                 --------   --------   ----------  ----------
                                  583,912    630,880    1,801,193   1,831,926
                                 --------   --------   ----------  ----------

Expenses:
  General operating and
    administrative                 34,359     16,602       88,322      76,039
  Professional services             6,663      4,103       19,107      19,258
  Bad debt expense                     -         338          737       4,002
  Real estate taxes                 5,833     34,438       16,321      72,642
  State taxes                          -          -        11,322      12,100
  Depreciation and amorti-
    zation                        108,622    108,618      325,870     325,855
                                 --------   --------   ----------  ----------
                                  155,477    164,099      461,679     509,896
                                 --------   --------   ----------  ----------

Income Before Minority
  Interest in Income of
  Consolidated Joint Venture
  and Equity in Earnings of
  Unconsolidated Joint
  Venture                         428,435    466,781    1,339,514   1,322,030

Minority Interest in Income
  of Consolidated Joint
  Venture                          (4,325)    (4,352)     (12,876)    (12,935)

Equity in Earnings of Uncon-
  solidated Joint Venture          13,100      3,460       19,968      10,757
                                 --------   --------   ----------  ----------

Net Income                       $437,210   $465,889   $1,346,606  $1,319,852
                                 ========   ========   ==========  ==========

Allocation of Net Income:
  General partners               $  4,372   $  4,659   $   13,466  $   13,199
  Limited partners                432,838    461,230    1,333,140   1,306,653
                                 --------   --------   ----------  ----------

                                 $437,210   $465,889   $1,346,606  $1,319,852
                                 ========   ========   ==========  ==========

Net Income Per Limited
  Partner Unit                   $   8.66   $   9.22   $    26.66  $    26.13
                                 ========   ========   ==========  ==========

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


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

<CAPTION>
                                           Nine Months Ended      Year Ended 
                                             September 30,       December 31,
                                                 1995                1994    
                                           -----------------     ------------
<S>                                        <C>                   <C>
General partners:
  Beginning balance                          $   289,252         $   270,666
  Net income                                      13,466              18,586
                                             -----------         -----------
                                                 302,718             289,252
                                             -----------         -----------

Limited partners:
  Beginning balance                           18,760,877          19,296,858
  Net income                                   1,333,140           1,840,019
  Distributions                               (1,782,000 )        (2,376,000)
                                             -----------         -----------
                                              18,312,017          18,760,877
                                             -----------         -----------

Total partners' capital                      $18,614,735         $19,050,129
                                             ===========         ===========
<FN>
            See accompanying notes to condensed financial statements.
</FN>
</TABLE>


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

<CAPTION>
                                                       Nine Months Ended   
                                                          September 30,     
                                                       1995          1994    
                                                   -----------    -----------
<S>                                                <C>            <C>
Increase (Decrease) in Cash and Cash
  Equivalents:

    Net Cash Provided by Operating
      Activities                                   $ 1,688,327    $ 1,772,951
                                                   -----------    -----------

    Cash Flows from Investing
      Activities:
        Collections on loans                                -          21,235
        Payment of lease costs                              -          (4,000)
                                                   -----------    -----------
            Net cash provided by
              investing activities                          -          17,235
                                                   -----------    -----------

    Cash Flows from Financing
      Activities:
        Distributions to limited
          partners                                  (1,782,000)    (1,782,000)
        Distributions to holders of
          minority interest                            (15,023)       (14,984)
                                                   -----------    -----------
            Net cash used in financing
              activities                            (1,797,023)    (1,796,984)
                                                   -----------    -----------

Net Decrease in Cash and Cash
  Equivalents                                         (108,696)        (6,798)

Cash and Cash Equivalents at Beginning
  of Period                                            505,374        515,863
                                                   -----------    -----------

Cash and Cash Equivalents at End of
  Period                                           $   396,678    $   509,065
                                                   ===========    ===========

Supplemental Schedule of Non-Cash
  Financing Activities:

    Distributions declared and unpaid
      at end of period                             $   594,000    $   594,000
                                                   ===========    ===========
<FN>
            See accompanying notes to condensed financial statements.
</FN>
</TABLE>


                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 1995 and 1994


1.    Basis of Presentation:
      ---------------------

      The accompanying unaudited condensed financial statements have been
      prepared in accordance with the instructions to Form 10-Q and do not
      include all of the information and note disclosures required by generally
      accepted accounting principles.  The financial statements reflect all
      adjustments, consisting of normal recurring adjustments, which are, in the
      opinion of management, necessary to a fair statement of the results for
      the interim periods presented.  Operating results for the quarter and nine
      months ended September 30, 1995, may not be indicative of the results that
      may be expected for the year ending December 31, 1995.  Amounts as of
      December 31, 1994, 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,
      1994.

      The Partnership accounts for its 69.07% interest in the accounts of
      Tuscawilla Joint Venture under the full consolidation method.  All
      significant intercompany accounts and transactions have been eliminated.

      Certain items in the prior year's financial statements have been
      reclassified to conform to 1995 presentation.  These reclassifications had
      no effect on partner's capital or net income.

      In March 1995, the Financial Accounting Standards Board issued Statement
      of Financial Accounting Standards No. 121, Accounting for the Impairment
      of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.  The
      Statement, which is effective for fiscal years beginning after December
      15, 1995, requires that an entity review long-lived assets and certain
      identifiable intangibles to be held and used for impairment whenever
      events or changes in circumstances indicate that the carrying amount of
      the asset may not be recoverable.  The Partnership plans to adopt this
      standard in 1996 and does not expect compliance with such standard to have
      a material effect, if any, on the Partnership's financial position or
      results of operations.

2.    Commitment:
      ----------

      In May 1995, the Partnership received notice from the tenant of its
      property in Bradenton, Florida, that it intends to exercise its option to
      purchase the property in accordance with the terms of its lease agreement.
      As of October 31, 1995, the Partnership and the tenant had not yet entered
      into a purchase and sale agreement relating to this property.

3.    Subsequent Event:
      ----------------

      Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
      rights in the management agreement with the Partnership to an affiliate of
      the general partners, CNL Fund Advisors, Inc.  All of the terms and
      conditions of the management agreement remain unchanged.




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 restaurants, 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 (collectively, the "Properties").  The
leases generally are triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities.  As of
September 30, 1995, the Partnership owned 32 Properties, including interests in
two Properties owned by joint ventures in which the Partnership is a co-
venturer.

Liquidity and Capital Resources
-------------------------------

      The Partnership's primary source of capital for the nine months ended
September 30, 1995 and 1994, was cash from operations (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses).  Cash from operations was
$1,688,327 and $1,772,951 for the nine months ended September 30, 1995 and 1994,
respectively.  The decrease in cash from operations for the nine months ended
September 30, 1995, is primarily a result of changes in income and expenses as
discussed in "Results of Operations" below and changes in the Partnership's
working capital.

      In August 1994, the Partnership entered into an agreement with the tenant
of the Po Folks Property in Hagerstown, Maryland, providing for the payment to
the Partnership of $250,525 of past due rental amounts on a weekly basis over a
period of approximately 60 months.  As of September 30, 1995, the Partnership
had not received any payments relating to the $250,525 of past due rental
amounts.  In addition, during the nine months ended September 30, 1995, the
tenant discontinued payment of the base rental income as provided in its lease
agreement.  The amount of arrearages included in receivables at September 30,
1995 and December 31, 1994, is $25,924 and $0, respectively, which is net of an
allowance for doubtful accounts of $233,320 and $234,443, respectively.  The
Partnership is continuing to pursue collection of all past due amounts from the
tenant and will recognize any amounts in excess of net receivables that are
collected as income.

      During 1994, the Partnership received a judgment in bankruptcy relating to
the former tenant of the Property in Canton Township, Michigan, for an amount
equal to $3,324 as payment in full of all past due amounts owed to the
Partnership.  Payment was due in 60 monthly installments of $66, including
interest at a rate of seven percent per annum, commencing on November 1, 1994. 
The Partnership received no payments relating to this judgment and negotiated
with the former tenant a reduced lump sum settlement of $2,587, which was
received during the nine months ended September 30, 1995.

      Currently, rental income from the Partnership's Properties is invested in
money market accounts and other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners.  At September 30, 1995, the Partnership had
$396,678 invested in such short-term investments as compared to $505,374 at
December 31, 1994.  The funds remaining at September 30, 1995, will be used
towards the payment of distributions and other liabilities.

      Total liabilities of the Partnership, including distributions payable,
decreased to $719,260 at September 30, 1995, from $748,632 at December 31, 1994,
primarily as a result of the Partnership's payment of real estate taxes accrued
at December 31, 1994, relating to the Property in Chicago, Illinois, which the
Partnership paid due to the tenant's default under the terms of its lease, as
discussed in "Results of Operations" below.  Liabilities also decreased as a
result of the Partnership's payment of real estate taxes that had been escrowed
at December 31, 1994.  Liabilities at September 30, 1995, to the extent they
exceed cash and cash equivalents at September 30, 1995, will be paid from future
cash from operations and, in the event the general partners elect to make
additional capital contributions, from future general partner capital
contributions.

      In May 1995, the Partnership received notice from the tenant of its
Property in Bradenton, Florida, that it intends to exercise its option to
purchase the Property in accordance with the terms of its lease agreement.  As
of October 31, 1995, the Partnership and the tenant had not yet entered into a
purchase and sale agreement relating to this Property.  This transaction, if it
occurs, is not expected to adversely affect the Partnership's operations in 1995
and future years.  Any proceeds received from the sale of this Property will be
reinvested in additional Properties, distributed to the limited partners or used
for other Partnership purposes.

      Based on current and anticipated future cash from operations, the
Partnership declared distributions to limited partners of $1,782,000 for each of
the nine months ended September 30, 1995 and 1994 ($594,000 for each of the
quarters ended September 30, 1995 and 1994).  This represents distributions for
each applicable nine months of $35.64 per unit ($11.88 per unit for each
applicable quarter).  No distributions were made to the general partners for the
quarters and nine months ended September 30, 1995 and 1994.  No amounts
distributed or to be distributed to the limited partners for the nine months
ended September 30, 1995 and 1994, 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'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.

Results of Operations
---------------------

      During the nine months ended September 30, 1995 and 1994, the Partnership
and its consolidated joint venture, Tuscawilla Joint Venture, owned and leased
31 wholly owned Properties to operators of fast-food and family-style restaurant
chains.  In connection therewith, during the nine months ended September 30,
1995 and 1994, the Partnership and Tuscawilla Joint Venture earned $1,707,979
and $1,712,995, respectively, in rental income from operating leases and earned
income from the direct financing lease for these Properties, $555,103 and
$584,714 of which was earned during the quarters ended September 30, 1995 and
1994, respectively.

      During the nine months ended September 30, 1995, the Partnership
terminated its lease with the tenant of the Property in Page, Arizona. In
connection therewith, the Partnership received and recorded as rental income
approximately $40,000 during the nine months ended September 30, 1995, of which
a portion related to amounts that had been reserved as uncollectible in the
previous periods.  Due to the fact that the Partnership does not expect to
receive any additional amounts from the former tenant of this Property, the
Partnership reversed the balance of rent and other receivables relating to this
Property, and the related allowance for doubtful accounts, of approximately
$51,300 during the nine months ended September 30, 1995.  In June 1995, a new
operator began operating this Property on a month-to-month basis.  The
Partnership earned approximately $14,400 in rental income under this arrangement
during the period June 1, 1995 through September 30, 1995.  The Partnership is
currently negotiating a new lease for this Property with the new operator and
anticipates executing such lease in 1995.

      In February 1995, the tenant of the Po Folks Property in Hagerstown,
Maryland, ceased operations of the restaurant business located on such Property
and the Partnership ceased recording rental revenue relating to such Property. 
As a result of the tenant default, rental and earned income during the quarter
and nine months ended September 30, 1995, as compared to the quarter and nine
months ended September 30, 1994, decreased approximately $37,100 and $88,900,
respectively.  The decrease was partially offset by the fact that during the
quarter and nine months ended September 30, 1994, the Partnership increased its
allowance for doubtful accounts for rental amounts of approximately $8,700 and
$70,100, respectively, relating to this Property.  Currently, the Partnership
is pursuing collection of the past due amounts and will recognize any such
amounts as income if collected.  In addition, the Partnership is seeking a
replacement tenant for this Property. 

      During the nine months ended September 30, 1995, rental and earned income
also decreased by approximately $32,200 as the result of the fact that the
Partnership established an allowance for doubtful accounts for accrued rental
income amounts relating to future scheduled rent increases  recorded as of 
September 30,  1995, for the Property in Chicago, Illinois.  The tenant of this
Property remains responsible for compliance with the terms of the lease
(including the payment of scheduled rent increases as they become due); however,
the general partners believe that collection of future scheduled rent increases
is doubtful due to financial difficulties the tenant is experiencing.  The
Partnership intends to pursue collection of amounts due in accordance with the
lease and will recognize scheduled rent increases as rental income as amounts
are collected for this Property.

      For the nine months ended September 30, 1995 and 1994, the Partnership
also earned $73,459 and $88,825, respectively, in contingent rental income,
$15,567 and $40,064 of which was earned during the quarters ended September 30,
1995 and 1994, respectively.  The decrease in contingent rental income during
the quarter and nine months ended September 30, 1995, as compared to the quarter
and nine months ended September 30, 1994, is primarily attributable to the
collection, during the nine months ended September 1994, of contingent rental
amounts previously reserved relating to the Denny's Property in Hagerstown,
Maryland.

      For the nine months ended September 30, 1995 and 1994, the Partnership
also owned and leased one Property indirectly through another joint venture
arrangement.  In connection therewith, during the nine months ended September
30, 1995 and 1994, the Partnership earned $19,968 and $10,757, respectively,
attributable to net income earned by this joint venture, $13,100 and $3,460 of
which was earned during the quarters ended September 30, 1995 and 1994,
respectively.  The increase in net income attributable to this joint venture is
primarily a result of the receipt by the joint venture of bankruptcy proceeds
relating to the former tenant.  These amounts had previously been written off;
therefore, they were recognized as income by the joint venture during the
quarter and nine months ended September 30, 1995.

      During the nine months ended September 30, 1995, one of the Partnership's
lessees, Golden Corral Corporation, contributed more than ten percent of the
Partnership's total rental income (including the Partnership's share of the
rental income from two Properties owned by joint ventures in which the
Partnership is a co-venturer).  Golden Corral Corporation is the lessee under
leases relating to six restaurants.  It is anticipated that, based on the
minimum rental payments required by the leases, Golden Corral Corporation will
continue to contribute more than ten percent of the Partnership's total rental
income during the remainder of 1995 and subsequent years.  Any failure of Golden
Corral Corporation could materially affect the Partnership's income.

      Interest and other income during the nine months ended September 30, 1995,
decreased to $19,755, as compared to $30,106 for the nine months ended September
30, 1994, primarily as the result of proceeds received by the Partnership during
the nine months ended September 30, 1994, for the taking of an easement relating
to one of its Properties.  No such transaction occurred during the nine months
ended September 30, 1995.

      Operating expenses, including depreciation and amortization expense, were
$461,679 and $509,896 for the nine months ended September 30, 1995 and 1994,
respectively, of which $155,477 and $164,099 were incurred for the quarters
ended September 30, 1995 and 1994, respectively.  Operating expenses decreased
during the quarter and nine months ended September 30, 1995, primarily as a
result of the fact that the Partnership accrued real estate taxes and related
interest relating to the Property in Chicago, Illinois, of approximately $5,800
and $16,300 during the quarter and nine months ended September 30, 1995,
respectively, as compared to approximately $37,700 and $83,100 during the
quarter and nine months ended September 30, 1994, respectively.  The amounts
recorded during the quarter and nine months ended September 30, 1994, included
past due amounts relating to prior years' real estate taxes for this Property. 
Payment of these taxes remains the responsibility of the tenant of this
Property; however, because of the current financial difficulties of the tenant,
the general partners believe the tenant's ability to pay these expenses is
doubtful.  The Partnership intends to pursue collection from the tenant of any
such amounts paid by the Partnership and will recognize such amounts as income
if collected.

      The decrease in operating expenses was partially offset by an increase in
(i) accounting and administrative expenses and (ii) insurance expense as a
result of the general partners' obtaining contingent liability and property
coverage for the Partnership.  This insurance policy is intended to reduce the
Partnership's exposure in the unlikely event a tenant's insurance policy lapses
or is insufficient to cover a claim relating to the Property.



                           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 - None.

            (b)   No reports on Form 8-K were filed during the quarter ended
                  September 30, 1995.



                                   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 13th day of November, 1995.

                              CNL INCOME FUND III, LTD.

                              By:   CNL REALTY CORPORATION
                                    General Partner

                                    By:   /s/ James M. Seneff, Jr. 
                                          -------------------------
                                          JAMES M. SENEFF, JR.
                                          President and Principal
                                          Executive Officer

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