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, 2004
   --------------------------------------------------------------------------

                                       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 _____

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act): Yes ____ No X



<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

     Item 2.      Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                   6-8

     Item 3.      Quantitative and Qualitative Disclosures About
                      Market Risk                                           8

     Item 4.      Controls and Procedures                                   8


Part II.

     Other Information                                                      9-10




<PAGE>



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

                                                                            September 30,           December 31,
                                                                                 2004                   2003
                                                                          -------------------    -------------------
                              ASSETS

  Real estate properties with operating leases, net                       $        6,997,229     $        7,153,757
  Investment in joint ventures                                                     2,060,299              2,073,601
  Cash and cash equivalents                                                          524,154                771,278
  Receivables                                                                         63,083                 11,793
  Accrued rental income                                                              135,258                118,373
  Other assets                                                                        29,634                 33,865
                                                                          -------------------    -------------------

                                                                          $        9,809,657     $       10,162,667
                                                                          ===================    ===================

                 LIABILITIES AND PARTNERS' CAPITAL

  Accounts payable and accrued expenses                                   $           50,676     $            4,758
  Real estate taxes payable                                                            8,168                 10,070
  Distributions payable                                                              351,563                351,563
  Due to related parties                                                             195,262                190,544
  Rents paid in advance and deposits                                                  57,022                 67,831
                                                                          -------------------    -------------------
      Total liabilities                                                              662,691                624,766

  Minority interest                                                                  119,810                121,860

  Partners' capital                                                                9,027,156              9,416,041
                                                                          -------------------    -------------------

                                                                          $        9,809,657     $       10,162,667
                                                                          ===================    ===================
</TABLE>


           See accompanying notes to condensed financial statements.

                                        1


<PAGE>


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

                                                                   Quarter Ended                Nine Months Ended
                                                                   September 30,                  September 30,
                                                                2004            2003           2004             2003
                                                            -------------    -----------  ---------------  --------------
Revenues:
    Rental income from operating leases                     $    257,657     $  257,657   $      772,959   $     772,959
    Contingent rental income                                       4,833          5,109          107,024          50,826
    Interest and other income                                        618          1,610            1,859           3,484
                                                            -------------    -----------  ---------------  --------------
                                                                 263,108        264,376          881,842         827,269
                                                            -------------    -----------  ---------------  --------------

Expenses:
    General operating and administrative                          70,960         37,460          184,424         131,820
    Property related                                               1,768          2,522            4,214           5,203
    State and other taxes                                             --          1,899            9,678           4,232
    Depreciation and amortization                                 54,011         52,176          162,032         156,528
                                                            -------------    -----------  ---------------  --------------
                                                                 126,739         94,057          360,348         297,783
                                                            -------------    -----------  ---------------  --------------

Income before minority interest and equity in earnings
    of unconsolidated joint ventures                             136,369        170,319          521,494         529,486

Minority interest                                                 (4,334)        (4,325)         (12,860)        (12,880)

Equity in earnings of unconsolidated joint ventures               52,314         52,645          157,170         158,861
                                                            -------------    -----------  ---------------  --------------

Income from continuing operations                                184,349        218,639          665,804         675,467
                                                            -------------    -----------  ---------------  --------------

Discontinued operations:
    Loss from discontinued operations                                 --             --               --          (4,123)
    Gain on disposal of discontinued operations                       --             --               --           2,225
                                                            -------------    -----------  ---------------  --------------
                                                                      --             --               --          (1,898)
                                                            -------------    -----------  ---------------  --------------

Net income                                                  $    184,349     $  218,639   $      665,804   $     673,569
                                                            =============    ===========  ===============  ==============

Income (loss) per limited partner unit:
    Continuing operations                                   $       3.69     $     4.37   $        13.32   $       13.51
    Discontinued operations                                           --             --               --           (0.04)
                                                            -------------    -----------  ---------------  --------------
                                                            $       3.69     $     4.37   $        13.32   $       13.47
                                                            =============    ===========  ===============  ==============

Weighted average number of limited partner
    units outstanding                                             50,000         50,000           50,000          50,000
                                                            =============    ===========  ===============  ==============
</TABLE>
           See accompanying notes to condensed financial statements.

                                        2

<PAGE>


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

                                                                          Nine Months Ended          Year Ended
                                                                            September 30,           December 31,
                                                                                 2004                   2003
                                                                         ---------------------    ------------------

General partners:
    Beginning balance                                                    $            371,371     $         371,371
    Net income                                                                             --                    --
                                                                         ---------------------    ------------------
                                                                         $            371,371     $         371,371
                                                                         ---------------------    ------------------

Limited partners:
    Beginning balance                                                               9,044,670             9,783,350
    Net income                                                                        665,804             1,017,572
    Distributions ($21.09 and $35.13 per
       limited partner unit, respectively)                                         (1,054,689)           (1,756,252)
                                                                         ---------------------    ------------------
                                                                                    8,655,785             9,044,670
                                                                         ---------------------    ------------------

Total partners' capital                                                  $          9,027,156     $       9,416,041
                                                                         =====================    ==================

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

                                        3


<PAGE>


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

                                                                                    Nine Months Ended
                                                                                      September 30,
                                                                                 2004                 2003
                                                                            ----------------     --------------


   Net cash provided by operating activities                                $       822,475      $     778,540
                                                                            ----------------     --------------

   Cash flows from investing activities:
       Proceeds from sale of assets                                                      --            383,336
                                                                            ----------------     --------------
          Net cash provided by investing activities                                      --            383,336
                                                                            ----------------     --------------

   Cash flows from financing activities:
       Distributions to limited partners                                         (1,054,689)        (2,410,626)
       Distributions to holders of minority interest                                (14,910)           (14,978)
                                                                            ----------------     --------------
          Net cash used in financing activities                                  (1,069,599)        (2,425,604)
                                                                            ----------------     --------------

   Net decrease in cash and cash equivalents                                       (247,124)        (1,263,728)

   Cash and cash equivalents at beginning of period                                 771,278          1,994,246
                                                                            ----------------     --------------

   Cash and cash equivalents at end of period                               $       524,154      $     730,518
                                                                            ================     ==============

   Supplemental schedule of non-cash investing and financing activities:

       Deferred real estate disposition fee incurred and unpaid at
          end of period                                                     $            --      $      12,375
                                                                            ================     ==============

       Distributions declared and unpaid at end of period                   $       351,563      $     351,563
                                                                            ================     ==============
</TABLE>
           See accompanying notes to condensed financial statements.

                                        4

<PAGE>



                            CNL INCOME FUND III, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine Months Ended September 30, 2004 and 2003


   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 the general partners, necessary for a fair
         statement of the results for the interim periods  presented.  Operating
         results for the quarter and nine months  ended  September  30, 2004 may
         not be  indicative  of the results  that may be  expected  for the year
         ending December 31, 2004. Amounts as of December 31, 2003,  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, 2003.

         The Partnership  accounts for its 69.07%  interest in Tuscawilla  Joint
         Venture using the consolidation  method.  Minority interest  represents
         the minority joint venture partners'  proportionate share of the equity
         in  the  joint  venture.  All  significant  intercompany  accounts  and
         transactions have been eliminated.

         In December 2003,  the Financial  Accounting  Standards  Board issued a
         revision to FASB  Interpretation  No. 46 (originally  issued in January
         2003)  ("FIN  46R"),  "Consolidation  of  Variable  Interest  Entities"
         requiring  existing  unconsolidated  variable  interest  entities to be
         consolidated by their primary beneficiaries.  Application of FIN 46R is
         required in financial statements of public entities that have interests
         in variable  interest entities for periods ending after March 15, 2004.
         The  Partnership  adopted  FIN 46R during the  quarter  ended March 31,
         2004.  The  Partnership  was not the primary  beneficiary of a variable
         interest  entity  at the time of  adoption  of FIN 46R,  therefore  the
         adoption had no effect on the balance sheet, partners' capital or net
         income.

2.       Merger Transaction

         On August 9, 2004, the Partnership entered into a definitive  Agreement
         and Plan of Merger  pursuant  to which the  Partnership  will be merged
         with a subsidiary of U.S. Restaurant Properties,  Inc. (NYSE: USV). The
         merger is one of multiple concurrent  transactions pursuant to which 17
         other  affiliated  limited  partnerships  also  will be  merged  with a
         subsidiary  of  U.S.  Restaurant  Properties,  Inc.  and in  which  CNL
         Restaurant  Properties,  Inc., an  affiliate,  also will be merged with
         U.S.  Restaurant  Properties,  Inc.  CNL  Restaurant  Properties,  Inc.
         currently  provides  property  management  and  other  services  to the
         Partnership.  The merger of the  Partnership  (and each of the 17 other
         affiliated mergers) is subject to certain conditions including approval
         by a majority of the limited partners, consummation of a minimum number
         of limited partnership mergers representing at least 75.0% in value (as
         measured  by the  value of the  merger  consideration)  of all  limited
         partnerships,  consummation  of  the  merger  between  U.S.  Restaurant
         Properties,  Inc. and CNL Restaurant Properties,  Inc., approval of the
         shareholders of U.S. Restaurant  Properties,  Inc., and availability of
         financing.  The  transaction is expected to be consummated in the first
         quarter of 2005.

         Under  the  terms  of  the  merger  agreement,  if the  transaction  is
         approved,  the limited  partners  will receive total  consideration  of
         approximately  $12.96  million,   consisting  of  approximately  $10.84
         million in cash and  approximately  $2.12  million  in U.S.  Restaurant
         Properties, Inc. Series A Convertible Preferred Stock that is listed on
         the New York Stock  Exchange.  The general  partners will receive total
         consideration  of  approximately  $289,000  consisting of approximately
         $242,000 in cash and approximately $47,000 in preferred stock.

                                       5


<PAGE>


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

         CNL Income Fund III, Ltd. (the "Partnership,"  which may be referred to
as "we," "us," or "our") 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 September 30, 2004 and 2003,  we owned 14 Properties  directly
and six  Properties  indirectly  through  joint  venture  or  tenancy  in common
arrangements.

Merger Transaction

         The general  partners  believe their  primary  objective is to maintain
current operations with restaurant operators as successfully as possible,  while
evaluating  strategic  alternatives,  including  alternatives  that may  provide
liquidity to the limited  partners.  Real estate  markets are strong  throughout
much of the nation,  and the performance of restaurants  has generally  improved
after several  challenging years. As a result, the general partners believe that
this is an attractive  period for a strategic event to monetize the interests of
the limited partners.

         In furtherance of this, on August 9, 2004, we entered into a definitive
Agreement  and  Plan of  Merger  pursuant  to  which  we will be  merged  with a
subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The merger is one of
multiple concurrent  transactions  pursuant to which 17 other affiliated limited
partnerships  also  will  be  merged  with  a  subsidiary  of  U.S.   Restaurant
Properties,  Inc. and in which CNL  Restaurant  Properties,  Inc., an affiliate,
also will be merged with U.S. Restaurant  Properties,  Inc. Our merger (and each
of the 17 other affiliated  mergers) is subject to certain conditions  including
approval by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as measured
by  the  value  of  the  merger  consideration)  of  all  limited  partnerships,
consummation  of the merger  between U.S.  Restaurant  Properties,  Inc. and CNL
Restaurant  Properties,  Inc.,  approval of the shareholders of U.S.  Restaurant
Properties,  Inc., and availability of financing.  U.S.  Restaurant  Properties,
Inc.  is a real  estate  investment  trust  (REIT)  that  focuses  primarily  on
acquiring, owning and leasing restaurant properties. The transaction is expected
to be consummated in the first quarter of 2005.

         Under  the  terms  of  the  merger  agreement,  if the  transaction  is
approved, our limited partners will receive total consideration of approximately
$12.96  million,   consisting  of  approximately  $10.84  million  in  cash  and
approximately  $2.12  million  in U.S.  Restaurant  Properties,  Inc.  Series  A
Convertible  Preferred Stock that is listed on the New York Stock Exchange.  The
general  partners will receive total  consideration  of  approximately  $289,000
consisting  of  approximately  $242,000  in cash and  approximately  $47,000  in
preferred stock.

         We received an opinion from Wachovia  Capital  Markets,  LLC that as of
August 9, 2004 the merger  consideration  to be  received  by the holders of our
general and limited  partnership  interests is fair,  from a financial  point of
view, to such holders.

         As reflected  above, the  contemplated  transactions  are complex,  and
contingent upon certain conditions. The restaurant marketplace,  the real estate
industry,  and the equities markets, all individually or taken as a whole, could
impact the  economics of this  transaction.  As a result,  there is no assurance
that we will be successful in completing the contemplated transaction.



Capital Resources

         Net cash provided by operating activities was $822,475 and $778,540 for
the nine months ended  September 30, 2004 and 2003,  respectively.  At September
30, 2004, we had $524,154 in cash and cash equivalents,  as compared to $771,278
at December 31, 2003.  At  September  30, 2004,  these funds were held in demand
deposit  accounts at a commercial  bank.  The funds  remaining at September  30,
2004, will be used toward the payment of distributions and other liabilities.

                                       6
<PAGE>

Short-Term Liquidity

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

         Our  short-term   liquidity   requirements  consist  primarily  of  our
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
our operations.


         We  generally  distribute  cash  from  operations  remaining  after the
payment of operating expenses, 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 sales  proceeds from prior years,  we declared
distributions  to limited  partners of $1,054,689  and  $1,404,689  for the nine
months ended September 30, 2004 and 2003, respectively ($351,563 for each of the
quarters ended September 30, 2004 and 2003).  This represents  distributions  of
$21.09 and $28.09 per unit for the nine  months  ended  September  30,  2004 and
2003,  respectively ($7.03 for each of the quarters ended September 30, 2004 and
2003).  Distributions  for the nine months ended  September  30, 2003 included a
special  distribution  of  $350,000 as a result of the  distribution  of the net
sales  proceeds  from the  2003  sale of the  Property  in  Fayetteville,  North
Carolina. 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  partners'  unpaid  cumulative  10%
Preferred  Return. As a result of the sales of Properties during previous years,
our total  revenue was reduced and is expected to remain  reduced in  subsequent
periods,  while the majority of our operating expenses remained and are expected
to remain  fixed.  Due to the sales of  Properties  and current and  anticipated
future  cash from  operations,  distributions  of net cash  flow  were  adjusted
commencing  during the quarter ended March 31, 2003. No distributions  were made
to the general  partners for the quarters  and nine months ended  September  30,
2004 and 2003.  No amounts  distributed  to the  limited  partners  for the nine
months ended September 30, 2004 and 2003 are required to be or have been treated
as a return of capital for purposes of calculating the limited  partners' return
on  their  adjusted  capital  contributions.  We  intend  to  continue  to  make
distributions of cash to the limited partners on a quarterly basis.

         Total liabilities,  including  distributions  payable, were $662,691 at
September 30, 2004,  as compared to $624,766 at December 31, 2003.  The increase
in  liabilities at September 30, 2004, as compared to December 31, 2003, was due
to an  increase  in  accounts  payable  and  accrued  expenses.  Liabilities  at
September  30,  2004,  to the extent they exceed  cash and cash  equivalents  at
September 30, 2004, will be paid from anticipated future cash from operations or
from future general partner contributions.

Long-Term Liquidity

         We have no long-term debt or other long-term liquidity requirements.

Results of Operations

         Rental  revenues  from  continuing   operations  remained  constant  at
$772,959  during  each of the nine  months  ended  September  30, 2004 and 2003,
$257,657 of which was earned during each of the third quarters of 2004 and 2003.
The only change in the leased Property portfolio related to a Property accounted
for as discontinued operations.

         In September 2004,  Sydran Services,  LLC, the parent company of Sydran
Food  Services II, LLC,  the tenant of the  Property in Kansas  City,  Missouri,
filed for Chapter 11  bankruptcy  protection.  As of  November 5, 2004,  we have
received all of the rental payments relating to this lease. While the tenant has
neither  rejected  nor  affirmed  the one lease it has with us,  there can be no
assurance  that the lease will not be rejected in the future.  The lost revenues
that would  result if the tenant  were to reject this lease will have an adverse
effect on our results of  operations if we are not able to re-lease the Property
in a timely manner.

                                       7
<PAGE>


         We earned  $107,024 in contingent  rental income during the nine months
ended September 30, 2004, as compared to $50,826 during the same period of 2003,
$4,833 and $5,109 of which were  earned  during the third  quarters  of 2004 and
2003,  respectively.  The increase in  contingent  rental income during the nine
months ended  September  30, 2004 was  primarily  due to an increase in reported
gross sales of a restaurant in  Stockbridge,  Georgia,  whose lease requires the
payment of contingent rental income.

         We earned $157,170  attributable to net income earned by unconsolidated
joint ventures  during the nine months ended  September 30, 2004, as compared to
$158,861  during  the same  period of 2003,  $52,314  and  $52,645 of which were
earned during the third quarters of 2004 and 2003,  respectively.  These amounts
remained relatively constant, because the leased Property portfolio owned by the
joint ventures and the tenancies in common did not change.

         Operating expenses,  including  depreciation and amortization  expense,
were  $360,348  during the nine months ended  September 30, 2004, as compared to
$297,783  during the same  period of 2003,  $126,739  and  $94,057 of which were
incurred  during the third  quarters of 2004 and 2003,  respectively.  Operating
expenses  were higher  during the quarter and nine months  ended  September  30,
2004,  as compared to the same periods of 2003,  because we incurred  additional
general operating and administrative expenses, including, primarily, legal fees,
incurred in connection with the merger transaction described above. In addition,
we incurred  higher state taxes during the nine months ended September 30, 2004,
relating to states in which we conduct business.

         We recognized a loss from  discontinued  operations  (property  related
expenses  in excess of rental  revenue) of $4,123  during the nine months  ended
September 30, 2003, relating to the Property in Fayetteville, North Carolina. We
sold  this  Property  in  February  2003  and  recorded  a gain on  disposal  of
discontinued  operations of approximately $2,200. We had recorded provisions for
write-down of assets in previous years relating to this Property.

         In December 2003,  the Financial  Accounting  Standards  Board issued a
revision to FASB Interpretation No. 46 (originally issued in January 2003) ("FIN
46R"),   "Consolidation  of  Variable  Interest  Entities"   requiring  existing
unconsolidated  variable  interest  entities to be consolidated by their primary
beneficiaries.  Application  of FIN 46R is required in financial  statements  of
public  entities that have interests in variable  interest  entities for periods
ending after March 15, 2004.  We adopted FIN 46R during the quarter  ended March
31, 2004. We were not the primary  beneficiary of a variable  interest entity at
the time of adoption of FIN 46R,  therefore  the  adoption  had no effect on the
balance sheet, partners' capital or net income.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.


ITEM 4.  CONTROLS AND PROCEDURES

         The  general  partners  maintain  a  set  of  disclosure  controls  and
procedures  designed to ensure that information  required to be disclosed in our
filings  under  the  Securities  Exchange  Act of 1934 is  recorded,  processed,
summarized and reported within the time periods  specified in the Securities and
Exchange  Commission's  rules and forms.  The principal  executive and financial
officers of the corporate general partner have evaluated our disclosure controls
and procedures as of the end of the period  covered by this Quarterly  Report on
Form 10-Q and have determined  that such disclosure  controls and procedures are
effective.

         There was no change in internal  control over financial  reporting that
occurred during the most recent fiscal quarter that has materially affected,  or
is  reasonably  likely to materially  affect,  internal  control over  financial
reporting.

                                       8


<PAGE>


                           PART II. OTHER INFORMATION


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

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.
          ------------------------------------------------------------
          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

                2.1     Agreement  and  Plan of  Merger  among  U.S.  Restaurant
                        Properties,  Inc., Ivanhoe Acquisition III, LLC, and CNL
                        Income  Fund III,  Ltd.,  dated as of  August  9,  2004.
                        (Included  as  Exhibit  99.2 to Form 8-K filed  with the
                        Securities  and Exchange  Commission  on August 9, 2004,
                        and incorporated herein by reference.)

                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  between CNL Income Fund
                        III,  Ltd.  and CNL  Investment  Company.  (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.)

                                       9
<PAGE>

                10.5    Assignment   of  Management   Agreement   from  CNL  APF
                        Partners, LP to CNL Restaurants XVIII, Inc. (Included as
                        Exhibit 10.5 to Form 10-Q filed with the  Securities and
                        Exchange Commission on August 14, 2002, and incorporated
                        herein by reference.)

                31.1    Certification  of Chief  Executive  Officer of Corporate
                        General  Partner  Pursuant  to Rule  13a-14  as  Adopted
                        Pursuant  to Section  302 of the  Sarbanes-Oxley  Act of
                        2002. (Filed herewith.)

                31.2    Certification  of Chief  Financial  Officer of Corporate
                        General  Partner  Pursuant  to Rule  13a-14  as  Adopted
                        Pursuant  to Section  302 of the  Sarbanes-Oxley  Act of
                        2002. (Filed herewith.)

                32.1    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. (Filed herewith.)

                32.2    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. (Filed herewith.)


                                       10
<PAGE>




                                   SIGNATURES



         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

         DATED this 10th day of November 2004.


                            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>




                                  EXHIBIT INDEX


Exhibit Number


        Exhibits

        2.1    Agreement  and Plan of Merger among U.S.  Restaurant  Properties,
               Inc.,  Ivanhoe  Acquisition  III,  LLC,  and CNL Income Fund III,
               Ltd.,  dated as of August 9, 2004.  (Included  as Exhibit 99.2 to
               Form 8-K filed with the  Securities  and Exchange  Commission  on
               August 9, 2004, and incorporated herein by reference.)

        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 between CNL Income Fund III, Ltd.
               and CNL  Investment  Company.  (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.  (Included as Exhibit 10.5 to Form
               10-Q filed with the Securities and Exchange  Commission on August
               14, 2002, and incorporated herein by reference.)

        31.1   Certification  of Chief  Executive  Officer of Corporate  General
               Partner  Pursuant to Rule  13a-14 as Adopted  Pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

        31.2   Certification  of Chief  Financial  Officer of Corporate  General
               Partner  Pursuant to Rule  13a-14 as Adopted  Pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

        32.1   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. (Filed herewith.)

        32.2   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. (Filed herewith.)


<PAGE>




                                  EXHIBIT 31.1




<PAGE>




                                  EXHIBIT 31.2




<PAGE>




                                  EXHIBIT 32.1



<PAGE>



                                  EXHIBIT 32.2